<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1999.
REGISTRATION NO. 333-69171
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
WEBTRENDS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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OREGON 7372 93-1123283
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
851 SW SIXTH AVE., SUITE 1200
PORTLAND, OREGON 97204
(503) 294-7025
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SUSAN E. KIPPER
LAWCO OF OREGON, INC.
1211 SW FIFTH AVENUE, SUITE 1500
PORTLAND, OREGON 97204
(503) 727-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
ROY W. TUCKER ROBERT P. LATTA
NEIL NATHANSON ALISANDE M. ROZYNKO
J.T. YOUNG CHRISTIAN E. MONTEGUT
PERKINS COIE LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
1211 SW FIFTH AVENUE, 15TH FLOOR 650 PAGE MILL ROAD
PORTLAND, OREGON 97204 PALO ALTO, CA 94304
(503) 727-2000 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2)
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Common Stock, no par value per share... 4,025,000 shares $11.00 $44,275,000
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<CAPTION>
<S> <C>
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TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTRATION FEE
- ---------------------------------------------------------------------------------------
Common Stock, no par value per share... $3,969(3)
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</TABLE>
(1) Includes 525,000 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(a) under the Securities Act.
(3) Represents an incremental registration fee. The Company previously paid a
registration of $8,340 based on an estimated maximum aggregate offering
price of $30,000,000 pursuant to Rule 457(o) under the Securities Act.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 29, 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
3,500,000 SHARES OF COMMON STOCK
$9.00 TO $11.00 PER SHARE
LOGO
WebTrend Corporation is selling 3,000,000 shares and its founders, Elijahu
Shapira and W. Glen Boyd, are selling 500,000 shares of WebTrends' common stock
in this offering. In addition, Messrs. Shapira and Boyd may sell an aggregate of
up to 525,000 additional shares depending on whether the underwriters exercise
their over-allotment option. WebTrends will not receive any of the proceeds from
the sale of shares by the shareholders.
Proposed Trading Symbol:
Nasdaq National Market "WEBT"
INVESTING IN THIS STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
-------------------------
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Price to Public.......................
Underwriting Discounts &
Commissions.........................
WebTrends' Proceeds...................
Selling Shareholders' Proceeds........
</TABLE>
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
DAIN RAUSCHER WESSELS SOUNDVIEW TECHNOLOGY GROUP
a division of Dain Rauscher Incorporated
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary........... 1
Risk Factors................. 5
Use of Proceeds.............. 15
Dividend Policy.............. 15
Capitalization............... 16
Dilution..................... 17
Selected Financial Data...... 18
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. 19
Business..................... 30
</TABLE>
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PAGE
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Management................... 49
Insider Transactions......... 57
Principal and Selling
Shareholders............... 58
Description of Capital
Stock...................... 59
Shares Eligible for Future
Sale....................... 61
Underwriting................. 63
Legal Matters................ 65
Experts...................... 65
Additional Information....... 65
Index to Financial
Statements................. F-1
</TABLE>
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<PAGE> 4
"AuditTrack," "AlertTrack," "ClusterTrends," "CommerceTrends," "DBTrends,"
"FastTrends," "FireTrends," "Manage Your WWWorld," "SmartPass," "WebTrends," and
WebTrends' logo are all WebTrends' trademarks. All other trade names,
trademarks, and service marks appearing in this prospectus are the property of
their respective holders.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights only selected information contained elsewhere in
this prospectus. Before making an investment in WebTrends' common stock, you
should read this entire prospectus and the Financial Statements and notes, all
of which should be consulted when reading this summary. Except where noted
otherwise, all information in this prospectus, including share and per share
information, assumes:
(1) the automatic conversion of all outstanding shares of Class B common
stock into shares of common stock upon completion of this offering;
(2) no exercise of the underwriters' over-allotment option; and
(3) WebTrends' 1 for 2 reverse split of its capital stock on January 19,
1999.
See "Description of Capital Stock" and "Underwriting."
WEBTRENDS CORPORATION
WebTrends Corporation is a leading provider of enterprise management and
reporting solutions for Internet-based systems. Internet-based systems include
Web servers, intranets, and extranets. Web servers are the computer servers that
connect to the Internet's Worldwide Web. Intranets are networks that use
Internet technology for communications within an organization. Extranets are
networks that use Internet technology for communications between related
organizations.
We offer organizations a comprehensive set of solutions that are
integrated, modular, easy-to-use, and scale to high-volume environments. Our
enterprise management products facilitate analysis and reporting of:
- Web site traffic, quality, content, and usage,
- Internet advertising campaigns,
- e-commerce activities, and
- return on investment from Internet-based systems.
Our solutions also help organizations manage their Internet infrastructure
by providing valuable information about systems designed to implement secure
communications, such as firewalls and virtual private networks, as well as
capacity and bandwidth requirements. Our products have been specifically
designed to enable organizations to centrally manage and administer multiple
Internet-based systems across the enterprise regardless of the quantity or
geographic locations of servers supporting those systems.
Our business has grown rapidly, with revenue increasing from $1.9 million
in 1996 to $8.0 million for the year ended December 31, 1998. We have been
profitable throughout this period. Since the introduction of our original Web
site traffic analysis product in 1996, we have introduced six new products:
- WebTrends Enterprise Suite,
- WebTrends Professional Suite,
- WebTrends Suite for Lotus Domino,
- WebTrends for Firewalls and VPNs,
- Server Cluster Add-on, and
- WebTrends Security Analyzer.
We plan to introduce two additional products, WebTrends Enterprise
Reporting Server for UNIX and CommerceTrends Add-on, by June 1999. The acronymn
"VPNs" in
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<PAGE> 6
the name of the product Webtrends for Firewalls and VPNs stands for virtual
private networks which are networks that use security features to provide the
attributes of a private communications network while transporting information
over the public Internet.
We market and deliver our award-winning products to both IT professionals
and other business managers. Over 20,000 customers have purchased our products,
including sophisticated Internet service providers and over one-third of the
Fortune 500 companies.
WebTrends was incorporated in Delaware in 1993 and reorganized in Oregon in
1997. Our executive offices are located at 851 SW Sixth Avenue, Suite 1200,
Portland, Oregon 97204, our telephone number is 1-888-WEBTRENDS
(1-888-932-8736), and our Web site is located at http://www.webtrends.com.
2
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by WebTrends........... 3,000,000 shares
Common Stock Offered by Selling
Shareholders.............................. 500,000 shares
Common Stock to be Outstanding After the
Offering Based on Shares Outstanding on
December 31, 1998......................... 11,218,964 shares
Additional Shares Reserved Under Stock
Option and Stock Purchase Plans at
December 31, 1998......................... 3,341,562 shares of which 1,471,149
shares were subject to outstanding
stock options at a weighted average
exercise price of $2.46
Nasdaq National Market Symbol............... WEBT
Use of Proceeds............................. Working capital and general corporate
purposes. See "Use of Proceeds."
</TABLE>
3
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................................... $1,865 $ 4,055 $ 8,008
Gross margin...................................... 1,660 3,763 7,375
Income from operations............................ 398 427 222
Net income........................................ 405 287 219
Basic net income per share........................ .04 .03
Diluted net income per share...................... .04 .02
Shares used in basic net income per share
calculation..................................... 8,126 8,211
Shares used in diluted net income per share
calculation..................................... 8,126 9,003
Pro forma net income.............................. 265
Pro forma net income per share -- basic and
diluted......................................... .03
Shares used in pro forma net income per share
calculation -- basic and diluted................ 7,800
</TABLE>
Net income is not comparable for all periods shown, since, prior to 1997,
WebTrends was not taxable as an entity because the shareholders had elected to
be taxed individually based on their percentage ownership of the outstanding
common stock. Pro forma net income and pro forma net income per share data have
been presented for comparison purposes only as if WebTrends had been organized
as a taxable entity in 1996.
The following table presents balance sheet data, both historically and on a
pro forma basis, giving effect to WebTrends' sale in this offering of 3,000,000
shares of common stock at the assumed initial public offering price of $10.00
per share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA
------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,099 $27,999
Working capital......................................... 221 27,121
Total assets............................................ 3,362 30,262
Total shareholders' equity.............................. 842 27,742
</TABLE>
4
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this prospectus, you
should carefully read and consider the following risk factors before purchasing
our common stock. Investment in our common stock involves a high degree of risk.
WEBTRENDS HAS A LIMITED OPERATING HISTORY AND MAY NOT REMAIN PROFITABLE
WebTrends was formed in August 1993, and we introduced our first Internet
product in February 1996. Due to our limited operating history, any evaluation
of our business and our prospects must be in light of the risks and
uncertainties often encountered by companies in their early stages of
development. These risks and uncertainties are particularly significant for
companies in rapidly evolving markets, such as the market for Internet products
and services. Many of these risks are discussed under the sub-headings below.
We may not be able to successfully address any or all of these risks.
Failure to adequately do so could have a material adverse effect on our
business, results of operations, and financial condition. In addition, although
our revenue has increased in recent periods while we maintained profitability,
our revenue may not grow in future periods, may not grow at past rates, and we
may not maintain profitability on a quarterly or annual basis, or at all.
SEASONAL AND OTHER FLUCTUATIONS IN OUR OPERATING RESULTS MAY MAKE IT DIFFICULT
TO PREDICT OUR FUTURE PERFORMANCE AND MAY RESULT IN VOLATILITY IN THE MARKET
PRICE OF OUR OWN COMMON STOCK
During our short operating history, we have experienced seasonality in our
operating results. While revenue from sales has continued to grow, the second
and third quarters of the year have been typically characterized by lower levels
of revenue growth. In addition to seasonal fluctuations, we may experience
significant fluctuations in our operating results from other causes. In
particular, as we increasingly focus on sales of our product suites rather than
stand-alone products and on larger purchases by larger customers, we expect the
sales cycle associated with the purchase of our products to lengthen.
Furthermore, the amount of revenue associated with particular licenses can vary
significantly based upon the number of products that are licensed and the number
of devices involved in the installation. These factors all tend to make the
timing of revenue unpredictable and may lead to greater period-to-period
fluctuations in revenue than WebTrends has historically experienced. In
connection with our expansion, we plan to increase our operating expenses to
expand our sales and marketing operations, develop new distribution channels,
fund greater levels of research and development, broaden professional services
and support, and improve operational and financial systems. Failure of our
revenue to increase along with these expenses during any fiscal period could
have a materially adverse impact on our financial results for that period.
As a result of the factors described above, we believe that our quarterly
revenue and results from operations are likely to vary significantly in the
future and that quarter to quarter comparisons of our operating results may not
be meaningful. You should therefore not rely on the results of one quarter as an
indication of future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Selected Quarterly Financial
Results."
5
<PAGE> 10
WE MAY NOT BE ABLE TO DEVELOP ACCEPTABLE NEW PRODUCTS OR ENHANCEMENTS TO OUR
EXISTING PRODUCTS AT THE RATE REQUIRED BY OUR RAPIDLY CHANGING MARKET
Our future success depends upon our ability to address the rapidly changing
needs of our customers by developing and introducing high quality products,
product enhancements, and services on a timely basis and by keeping pace with
technological developments and emerging industry standards. The market for our
products is in the early stages of development and is rapidly evolving. Failure
to develop and release enhanced or new products, or delays or quality problems
in doing so, could have a material adverse effect on our business, results of
operations, and financial condition. As is common in such new and rapidly
evolving industries, demand and market acceptance for recently introduced
products are subject to high levels of uncertainty and risk. Furthermore, new
products can quickly render obsolete products that were only recently in high
demand. The market for our existing products may not be sustainable at its
current level. We launched several new products in calendar 1998 and January
1999. We have additional new product launches, as well as upgrades to our
existing products, planned for 1999. The market for the recently introduced and
planned products may not expand or develop.
THE INTENSE COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED SALES OF OUR PRODUCTS
AND REDUCED PROFITS
The markets for our products are intensely competitive, and are likely to
become even more competitive. Increased competition could result in pricing
pressures, reduced sales, reduced margins, or the failure of our products to
achieve or maintain market acceptance, any of which could have a material
adverse effect on our business, results of operations, and financial condition.
Each of WebTrends' products face intense competition from multiple competing
vendors. WebTrends also faces current and potential competition from vendors of
Internet servers, operating systems, and networking hardware, many of which now,
or may in the future, bundle Internet management solutions with their Internet
products. WebTrends also competes against and expects increased competition from
traditional system and network management software developers and Web management
service providers. Current and potential competitors such as ISS Group, Inc.
Axent Technologies, Inc., Network Associates, Inc., Microsoft Corporation,
Netscape Communications Corp., Sun Microsystems, Inc., Oracle Corp., and
Computer Associates International, Inc. have longer operating histories, greater
name recognition, access to larger customer bases, or substantially greater
financial, technical, marketing, distribution, service, support, and other
resources than we have. As a result, they may be able to respond more quickly
than we can to new or changing opportunities, technologies, standards, or
customer requirements. For all of the foregoing reasons, we may not be able to
compete successfully against our current and future competitors. See
"Business -- Competition."
OUR SUCCESS DEPENDS ON INCREASING MARKET AWARENESS OF OUR BRAND
If we fail to successfully promote our brand name or if we incur
significant expenses promoting and maintaining our brand name, it could have a
material adverse effect on our business, results of operations, and financial
condition. Due in part to the emerging nature of the market for Internet
management solutions and the substantial resources available to many of our
competitors, there may be a time-limited opportunity to achieve and maintain a
significant market share. Developing and maintaining awareness of the
"WebTrends" brand name is critical to achieving widespread acceptance of our
enterprise management and reporting solutions. Furthermore, the importance of
brand recognition will increase as competition in the market for our products
increases. Successfully promoting and
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<PAGE> 11
positioning the WebTrends brand will depend largely on the effectiveness of our
marketing efforts and our ability to develop reliable and useful products at
competitive prices. Therefore, we may need to increase our financial commitment
to creating and maintaining brand awareness among potential customers.
FAILURE TO EXPAND OUR SALES OPERATIONS AND CHANNELS OF DISTRIBUTION WOULD LIMIT
OUR GROWTH
In order to maintain and increase our current and future market share and
revenue, we will need to expand our direct and indirect sales operations and
channels of distribution. Failure to do so could have a material adverse effect
on our business, results of operations, and financial condition. We need to
expand our relationships with domestic and international channel partners,
distributors, value-added resellers, systems integrators, on-line and other
resellers, Internet service providers, original equipment manufacturers, and
other partners to build our indirect sales channel. We must also continue to
expand and maintain strategic relationships with key hardware and software
vendors, distribution partners, and customers. In addition, to maintain and
increase our results from operations, we must increase the number of products
that each of our customers licenses. This may require an increasingly
sophisticated sales effort targeted at Webmasters, other management personnel
associated with a prospective customer's Internet capabilities, and other
functional managers throughout the organization. In order to achieve increased
sales, we plan to hire additional telemarketing and direct field sales
personnel. Any new hires will require training and take time to achieve full
productivity. We may not be able to hire enough qualified individuals when
needed, or at all, and we may not be able to increase distribution through any
other methods.
OUR RELIANCE ON INDIRECT DISTRIBUTION CHANNELS COULD RESULT IN REDUCTION IN OUR
REVENUE, BECAUSE WE HAVE LESS CONTROL OVER SALES BY OUR CHANNEL PARTNERS THAN
OUR OWN DIRECT SALES
We are making an effort to increase distribution of our products through
various indirect channels of distribution, including channel partners, value
added resellers, distributors, resellers, original equipment manufacturers,
Internet service providers, and others. The loss of one or more of these channel
partners, because of either their preference for competing products or products
they may develop internally, could have a material adverse effect on our
business, results of operations, and financial condition. In addition, we cannot
predict the extent to which any of these channel partners will be successful in
marketing or distributing our Internet management solutions. Many of these
channel partners also market and sell competitive products. We may not be able
to effectively manage potential conflicts among the various channel partners or
prevent them from devoting greater resources to supporting the products of other
companies. In addition, Network Trade Corporation, a third-party export
management company, has the primary responsibility for identifying international
distributors, resellers, and value added resellers for our products.
Accordingly, any disruption in our relationship with Network Trade, which may be
terminated by either party with 30 days' notice, could materially slow our
international sales growth, which could have a material adverse effect on our
business, results of operations, and financial condition.
Reliance on indirect channels of distribution may subject us to greater
credit risk as the revenue from sales of our products to distributors and other
channel partners flows first through the distributors, and then to us. In
particular, Network Trade, while not technically a distributor, collects
payments from our international resellers and then
7
<PAGE> 12
forwards those payments to us, presenting a similarly increased credit risk.
Revenues received from Network Trade accounted for 16.7% of our total revenue
for the year ended December 31, 1998. Failure of our channel providers to timely
pay for our products, or any failure to accurately forecast the demand for our
products, could have a material adverse effect on our business, results of
operations, and financial condition.
THE LOSS OF OUR CO-FOUNDERS OR OTHER KEY PERSONNEL OR OUR FAILURE TO ATTRACT
ADDITIONAL PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS AND DECREASE THE VALUE
OF YOUR INVESTMENT
Our success depends largely upon the continued services of our executive
officers and other key management and development personnel. The loss of the
services of one or more of our executive officers, engineering personnel, or
other key employees could have a material adverse effect on our business,
results of operations, and financial condition. In particular, we rely on our
co-founders, Elijahu Shapira, Chief Executive Officer and Chairman of the Board,
and W. Glen Boyd, President, Chief Technical Officer, and director. Messrs.
Shapira and Boyd do not have employment agreements and, therefore, could
terminate their employment with us at any time without penalty. We do not
maintain key person life insurance policies on any of our employees. In
addition, because of the complexity of our products and technologies, we are
substantially dependent upon the continued service of our existing engineering
personnel.
Our future success also depends on our ability to attract and retain highly
qualified personnel. We may not be successful in attracting or retaining
qualified personnel, which could have a material adverse effect on our business,
results of operations, and financial condition. We intend to hire a number of
additional sales, support, marketing, and research and development personnel.
The competition for qualified personnel in the computer software and Internet
markets is intense, and we may be unable to attract, assimilate, or retain
additional highly qualified personnel in the future. Additionally, we attempt to
hire engineers with high levels of experience in designing and developing
software and Internet-related products in time-pressured environments. There is
a limited number of qualified engineers in our geographic location, resulting in
intense competition for the services of such engineers.
THE STRAIN THAT OUR GROWTH RATE PLACES UPON OUR SYSTEMS AND MANAGEMENT RESOURCES
MAY ADVERSELY AFFECT OUR BUSINESS AND DECREASE THE VALUE OF YOUR INVESTMENT
Any failure to properly manage our growth could have a material adverse
effect on our business, results of operations, and financial condition. The
rapid growth that we have experienced places significant challenges on our
management, administrative, and operational resources. To properly manage this
growth, we must, among other things, implement and improve additional and
existing administrative, financial, and operational systems, procedures, and
controls on a timely basis. We will also need to expand our finance,
administrative, and operations staff. We may not be able to complete the
necessary improvements to our systems, procedures, and controls necessary to
support our future operations in a timely manner. Management may not be able to
hire, train, retain, motivate, and manage required personnel and may not be able
to successfully identify, manage, and exploit existing and potential market
opportunities.
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WEBTRENDS' INTERNATIONAL SALES ARE SIGNIFICANT AND COULD DECREASE FOR REASONS
ADDITIONAL TO THOSE AFFECTING DOMESTIC SALES
Approximately 22.0% and 27.5% of our total revenue for the years ended
December 31, 1997 and December 31, 1998, respectively, were attributable to
sales made outside the United States. Any reduction in international sales, or
our failure to further develop our international distribution channels could
have a material adverse effect on our business, results of operations, and
financial condition.
Our international operations are subject to the risks inherent in
international business activities, including, in particular:
- Management of an organization spread over various countries;
- Longer accounts receivable payment cycles and other collection
difficulties, such as difficulties obtaining and enforcing judgments
against delinquent customers;
- Compliance with a variety of foreign laws and regulations;
- Overlap of different tax structures;
- Foreign currency exchange rate fluctuations;
- Import and export licensing requirements;
- Trade restrictions, changes in tariffs, and freight rates; and
- Regional economic conditions.
Such factors could have a material adverse effect on our future
international sales and, consequently, our business, results of operations, and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Sales, Marketing, and
Distribution."
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
We regard substantial elements of our Internet management solutions as
proprietary and attempt to protect them by relying on patent, trademark, service
mark, trade dress, copyright, and trade secret laws and restrictions, as well as
confidentiality procedures and contractual provisions. Any steps we take to
protect our intellectual property may be inadequate, time consuming, and
expensive. Furthermore, despite our efforts, we may be unable to prevent
third-parties from infringing upon or misappropriating our intellectual
property. Any such infringement or misappropriation could have a material
adverse effect on our business, results of operations, and financial condition.
We currently have no issued patents. We have two patent applications pending.
These or any new patent applications may not result in issued patents and may
not provide us with any competitive advantages, or may be challenged by third
parties. Legal standards relating to the validity, enforceability, and scope of
protection of intellectual property rights in Internet-related industries are
uncertain and still evolving, and the future viability or value of any of our
intellectual property rights is uncertain. Effective trademark, copyright, and
trade secret protection may not be available in every country in which our
products are distributed or made available through the Internet. Furthermore,
our competitors may independently develop similar technology that substantially
limits the value of our intellectual property. See "Business -- Proprietary
Rights."
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OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US
In addition to the technology we have developed internally, we also use
code libraries developed and maintained by third parties and have acquired or
licensed technologies from other companies. Our internally developed technology,
the code libraries, or the technology we acquired or licensed may infringe on a
third party's intellectual property rights and such third parties may bring
claims against us alleging infringement of their intellectual property rights.
Any such infringement or claim of infringement could have a material adverse
affect on our business, result of operations, and financial condition.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We are not currently
involved in any intellectual property litigation. We may, however, be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Such claims and any
resulting litigation could subject us to significant liability for damages and
invalidation of our proprietary rights. Such litigation, regardless of its
success, would likely be time-consuming and expensive to defend and would divert
management time and attention. Any potential intellectual property litigation
could also force us to do one or more of the following:
- Cease selling, incorporating, or using products or services that
incorporate the challenged intellectual property;
- Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; and
- Redesign those products or services that incorporate such technology.
Any of these results could have a material adverse effect on our business,
results of operations, and financial condition.
EVOLVING REGULATION OF THE INTERNET MAY AFFECT US ADVERSELY
As Internet commerce continues to evolve, increasing regulation by federal,
state, or foreign agencies becomes more likely. Such regulation is likely in the
areas of user privacy, pricing, content, and quality of products and services.
Taxation of Internet use, or other charges imposed by government agencies or by
private organizations for accessing the Internet, may also be imposed. Laws and
regulations applying to the solicitation, collection, or processing of personal
or consumer information could affect our activities. Furthermore, any regulation
imposing fees for Internet use could result in a decline in the use of the
Internet and the viability of Internet commerce, which could have a material
adverse effect on our business, results of operations, and financial condition.
PRODUCT DEFECTS COULD LEAD TO LOSS OF CUSTOMERS AND TO PRODUCT LIABILITY CLAIMS
THAT WOULD REQUIRE CONSIDERABLE EFFORT AND EXPENSE TO DEFEND
The occurrence of errors or failures in our products could result in
adverse publicity, loss of or delay in market acceptance, or claims by customers
against us, any of which could have a material adverse effect on our business,
results of operations, and financial condition. Our products are used to monitor
the activity levels of our customers' Internet sites, to provide real-time
monitoring of firewalls, and to provide real-time monitoring, alerting, and
recovery of Internet servers. These and other functions that our products
provide are often critical to our customers, especially in light of the
considerable resources many organizations spend on the development and
maintenance of their Web sites.
10
<PAGE> 15
Additionally, our security products often contribute to vital protection of a
company's internal systems and information. Our end-user licenses contain
provisions that limit our exposure to product liability claims, but these
provisions may not be enforceable in all jurisdictions. Additionally, we
maintain limited products liability insurance. To the extent our contractual
limitations are unenforceable or such claims are not covered by insurance, a
successful products liability claim could have a material adverse effect on our
business, results of operations, and financial condition.
Our products and product enhancements are very complex and may from time to
time contain errors or result in failures that we did not detect or anticipate
when introducing such products or enhancements to the market. The computer
hardware environment is characterized by a wide variety of non-standard
configurations that make pre-release testing for programming or compatibility
errors very difficult and time consuming. Despite our testing, errors may still
be discovered in some new products or enhancements after the products or
enhancements are delivered to customers. See "Business -- Products and
Services."
SOME OF OUR PRODUCTS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD RESULT IN
CUSTOMER DISSATISFACTION OR CLAIMS AGAINST US
Failure of our products to be year 2000 compliant could result in
significant decreases in market acceptance of our products and legal liability
for defective software, either of which would have a material adverse effect on
our business, results of operations, and financial condition. We have not tested
our products in every possible computer environment, and therefore such products
may not be fully year 2000 compliant. Older versions of our products may not be
year 2000 compliant; however, corrections for such non-compliance are available.
We have not tested for year 2000 compliance discontinued products that we no
longer market that run on Novell systems, some of which remain in use. These
discontinued products may not be year 2000 compliant.
If our suppliers, vendors, major distributors, and partners fail to correct
their year 2000 problems, such failure could result in an interruption in, or a
failure of, our normal business activities or operations. Such failures could
have a material adverse effect on our business, results of operations, and
financial condition. Due to the general uncertainty inherent in the year 2000
problem resulting from the uncertainty of the year 2000 readiness of third-party
suppliers and vendors, we are unable to determine at this time whether the
consequences of the year 2000 failures will have a material effect on our
business, results of operations, and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
OUR SUCCESS DEPENDS ON CONTINUED USE AND EXPANSION OF THE INTERNET
Continued expansion in the sales of our Internet management solutions will
depend upon the adoption of the Internet as a widely used medium for commerce
and communication. If the Internet does not continue to become a widespread
communications medium and commercial marketplace, the demand for our Internet
management solutions could be significantly reduced, which could have a material
adverse effect on our business, results of operations, and financial condition.
The Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development of complementary products, such as high
speed modems. The Internet infrastructure may not be able to support the demands
placed on it by continued growth. Additionally, the Internet could
11
<PAGE> 16
lose its viability due to delays in the development or adoption of new standards
and protocols to handle increased levels of Internet activity, security,
reliability, cost, ease of use, accessibility, and quality of service.
OUR SALES MAY DECLINE IF WE ARE UNABLE TO ADAPT OUR PRODUCTS TO CHANGES IN
INTERNET TECHNOLOGY
Even if the infrastructure, standards, or protocols of the Internet, or
complementary services, products, or facilities are developed, we may be
required to make significant expenditures to adapt our products to the changing
or emerging technologies. For example, if the format of Internet log files were
to change, our solutions for traffic analysis may not function as designed, and
we may incur significant expenses in developing new products that would be
compatible with the new format. We may not be successful in either developing
such software or timely introducing it to the market. Any such changes in
technology could have a material adverse effect on our business, results of
operations, and financial condition.
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
WEBTRENDS' PROFITS OR MARKET VALUE
The net proceeds from the sale of the common stock we are offering for sale
will be added to our general working capital upon completion of this offering.
We have not reserved or allocated the proceeds for any specific purpose, and we
cannot specify with certainty how we will use the net proceeds. Accordingly, our
management will have considerable discretion in the application of the net
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. The net
proceeds may be used for corporate purposes that do not increase WebTrends'
profitability or market value. Pending application of the proceeds, they may be
placed in investments that do not produce income or that lose value. See "Use of
Proceeds."
BECAUSE OWNERSHIP IS CONCENTRATED, YOU AND OTHER INVESTORS WILL HAVE MINIMAL
INFLUENCE ON SHAREHOLDER DECISIONS
Our officers and directors will beneficially own at least 64% and possibly
as much as 69% of the outstanding common stock after this offering, depending on
whether and to what extent the underwriters exercise their over-allotment
option. As a result, they will be able to exercise control over all matters
requiring shareholder approval, and you and other investors will have minimal
influence over the election of directors or other shareholder actions. As a
result, these shareholders could approve or cause WebTrends to take actions of
which you disapprove or that are contrary to the interests of you and other
investors. Our articles of incorporation and bylaws do not provide for
cumulative voting; therefore, our controlling shareholders will have the ability
to elect all of our directors. The controlling shareholders will also have the
ability to approve or disapprove significant corporate transactions without
further vote by the investors who purchase common stock pursuant to this
offering. This ability to exercise control over all matters requiring
shareholder approval could prevent or significantly delay another company or
person from acquiring or merging with us. See "Management" and "Principal and
Selling Shareholders."
12
<PAGE> 17
OUR ANTI-TAKEOVER PROVISIONS AND PREFERRED STOCK MAY REDUCE THE MARKET PRICE OF
OUR COMMON STOCK
Provisions of our articles of incorporation and bylaws may have the effect
of delaying or preventing a merger or sale of WebTrends, or making a merger or
acquisition less desirable to a potential acquirer, even where shareholders may
consider the acquisition or merger favorable. See "Description of Capital
Stock -- Anti-Takeover Measures -- Articles and Bylaws."
The issuance of preferred stock may have the effect of delaying, deferring,
or preventing a change in control without further action by the shareholders.
Any such issuance may materially adversely affect the market price of the common
stock and the voting rights of the holders of common stock. The issuance of
preferred stock may also result in the loss of the voting control of holders of
common stock to the holders of the preferred stock. See "Description of Capital
Stock -- Preferred Stock."
Provisions of the Oregon Business Corporation Act and the Control Share Act
also may delay, prevent, or discourage someone from acquiring or merging with
us. See "Description of Capital Stock -- Anti-Takeover Measures -- Oregon
Control Share and Business Combination Statutes."
TRADING IN OUR COMMON STOCK MAY BE LIMITED
A public market for trading our common stock has not existed prior to this
offering. We applied to list the common stock on the Nasdaq National Market for
purposes of establishing a public market for trading. We do not know the extent
to which investor interest will lead to the development of a trading market or
how liquid that market might be. The initial public offering price for the
common stock will be determined through negotiations among the selling
shareholders, the underwriters, and us. If you purchase shares of common stock,
you may not be able to resell those shares at or above the initial public
offering price. See "Underwriting."
THE MARKET PRICE FOR OUR COMMON STOCK, LIKE OTHER TECHNOLOGY STOCKS, MAY BE
VOLATILE
The value of your investment in WebTrends could decline due to the impact
of any of the following factors upon the market price of WebTrends common stock:
- Variations in our actual and anticipated operating results;
- Changes in our earnings estimates by analysts;
- Our failure to meet analysts' performance expectations; and
- Lack of liquidity.
The stock markets have, in general, and with respect to Internet companies
in particular, recently experienced stock price and volume volatility that has
affected companies' stock prices. The stock markets may continue to experience
volatility that may adversely affect the market price of our common stock.
Stock prices for many companies in the technology and emerging growth
sector have experienced wide fluctuations that have often been unrelated to the
operating performance of such companies. Fluctuations such as these may affect
the market price of our common stock. Additionally, securities class action
claims have been brought against issuing companies in the past where volatility
in the market price of a company's securities have taken place. Such litigation
could be very costly and divert our management's attention and resources, and
any adverse determination in such litigation could also subject us to
13
<PAGE> 18
significant liabilities, any or all of which could have a material adverse
effect on our business, results of operations, and financial condition.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the material set forth under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as within
this prospectus generally. In addition, when used in this prospectus, the words
"believes," "intends," "anticipates," "expects," and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
subject to a number of risks and uncertainties. Actual results could differ
materially from those described in the forward-looking statements as a result of
the risk factors set forth in this section and the information provided in this
prospectus generally. We do not intend to update any forward-looking statements.
14
<PAGE> 19
USE OF PROCEEDS
At an assumed initial public offering price of $10.00 per share, which is
the mid-point of the estimated initial public offering price range set forth on
the cover page of this prospectus, the net proceeds from the sale of shares of
common stock to be sold by WebTrends are expected to be approximately $26.9
million, after deduction of underwriting discounts and commissions and estimated
offering expenses payable by WebTrends. WebTrends will not receive any proceeds
from the sale of common stock by the selling shareholders.
Among the purposes of this offering are the following:
- To obtain additional equity capital;
- To create a public market for the common stock;
- To facilitate WebTrends' ability to access the public equity markets in
the future;
- To provide liquidity to the existing shareholders; and
- To provide increased visibility and credibility to WebTrends,
facilitating expansion in a marketplace in which many of its competitors
and customers are public companies.
The board of directors and management of WebTrends have significant
flexibility in applying the net proceeds of this offering. The amounts and
timing of WebTrends' actual expenditures will depend upon numerous factors,
including the status of WebTrends' product development efforts, competition, and
marketing and sales activities. WebTrends anticipates using the net proceeds of
this offering for working capital and general corporate purposes. Although
WebTrends currently has no agreements or commitments to do so, it may also use a
portion of the net proceeds to license or acquire new products or technologies
or to acquire or invest in businesses complementary to its own. WebTrends has no
current plans or proposals pending for any such acquisitions or investments.
Pending the use of the net proceeds, WebTrends intends to invest them in
government securities and short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
WebTrends did not declare any cash dividends on its capital stock in 1997
or 1998. WebTrends intends to retain its present and future earnings, if any, to
finance the growth and development of its business. It does not intend to pay
cash dividends in the foreseeable future, and the amounts and payment of future
dividends, if any, will be determined by its board of directors.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of WebTrends as of
December 31, 1998,
(a) on a historical basis and
(b) on an adjusted basis, giving effect to the sale of 3,000,000
shares of common stock being sold by WebTrends in this offering at an
assumed initial public offering price of $10.00 per share, and after
deducting estimated underwriters discounts and commissions and estimated
offering expenses payable by WebTrends.
The information shown below excludes 3,341,562 shares reserved for issuance
under WebTrends' stock option and stock purchase plans, of which 1,471,149 were
issuable upon exercise of stock options outstanding as of December 31, 1998,
with a weighted average exercise price of $2.46 per share. Upon the closing of
this offering:
- The Class A common stock will be redesignated common stock, no par
value per share, and will be the only authorized class of common
stock.
- Each share of Class B common stock will automatically be converted
into one share of such common stock, and the recorded value of the
Class B common stock will be transferred to common stock.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and WebTrends' Financial Statements and related notes thereto and
other financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value per share; 15 million
shares authorized, no shares issued and outstanding,
actual and adjusted.................................. $ -- $ --
Class A common stock, no par value per share; 30 million
shares authorized, 8,210,527 shares issued and
outstanding, actual; 60 million shares authorized,
11,218,964 shares issued and outstanding, as
adjusted............................................. 260 27,480
Class B common stock, no par value per share; 30 million
shares authorized, 8,437 shares issued and
outstanding, actual; no shares authorized, no shares
issued and outstanding, as adjusted.................. 320 --
Deferred compensation..................................... (282) (282)
Retained earnings......................................... 544 544
----- -------
Total shareholders' equity.............................. 842 27,742
----- -------
Total capitalization............................ $ 842 $27,742
===== =======
</TABLE>
16
<PAGE> 21
DILUTION
As of December 31, 1998, WebTrends' net tangible book value was
approximately $842,000 or $0.10 per share of common stock. Net tangible book
value per share represents the amount of WebTrends' tangible assets less the
amount of its liabilities, divided by the number of shares of common stock
outstanding.
Giving effect to the issuance of 3,000,000 shares of common stock offered
by WebTrends at an assumed initial public offering price of $10.00 per share,
after the deduction of estimated underwriting discounts and offering expenses
payable by WebTrends, adjusted net tangible book value as of December 31, 1998
would have been approximately $2.47 per share. This represents an immediate
increase in net tangible book value of $2.37 per share to existing shareholders
and an immediate dilution of $7.53 per share to purchasers of shares in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Net tangible book value per share before this offering.... $0.10
Increase per share attributable to new investors.......... 2.37
-----
Adjusted net tangible book value per share after this
offering.................................................. 2.47
------
Dilution per share to new investors in this offering........ $ 7.53
======
</TABLE>
The following table sets forth information as of December 31, 1998, after
giving effect to this offering at an assumed initial public offering price of
$10.00 per share, as to the number of shares of common stock purchased from
WebTrends, the total consideration paid to WebTrends, and the average price paid
per share by existing shareholders and by new investors purchasing common stock
from WebTrends in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing 8,218,964 73.3% $ 265,119 0.9% $0.03
shareholders.......
New investors........ 3,000,000 26.7 30,000,000 99.1 10.00
---------- ----- ----------- -----
Total...... 11,218,964 100.0% $35,264,798 100.0%
========== ===== =========== =====
</TABLE>
The information in the table above does not include the 1,471,149 shares
issuable upon exercise of stock options outstanding as of December 31, 1998,
with a weighted average exercise price of $2.46 per share. Sales by the selling
shareholders in this offering will reduce the number of shares held by existing
shareholders to 7,718,964 shares or 68.8%, and will increase the number of
shares held by new investors to 3,500,000 shares or 31.2%. Furthermore, if the
underwriters exercise their over-allotment option in full, sales by selling
shareholders in this offering will reduce the number of shares held by existing
shareholders to 7,193,964 shares, or 64.1% of the total number of shares
outstanding, and will increase the number of shares held by new investors to
4,025,000 shares, or 35.9% of the total number of shares outstanding after this
offering. See "Management -- Employee Benefit Plans," "Description of Capital
Stock -- Stock Options;" and "Principal and Selling Shareholders."
17
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Financial Statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information appearing elsewhere in this
prospectus. The statement of operations data set forth below for each of the
years in the three-year period ended December 31, 1998, and the balance sheet
data as of December 31, 1997 and 1998, are derived from, and qualified by
reference to, the audited financial statements appearing elsewhere in this
prospectus. The statement of operations data set forth below for the year ended
December 31, 1995, and the balance sheet data as of December 31, 1995 and 1996
are derived from, and qualified by reference to, audited financial statements.
The statement of operations data set forth below, for the year ended December
31, 1994, and the balance sheet data as of December 31, 1994, are derived from,
and qualified by reference to, unaudited financial statements. The unaudited
financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information set forth therein. Historical results are not
necessarily indicative of the results that may be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenue:
Software licenses......................................... $ 276 $ 617 $1,858 $3,837 $7,206
Support services.......................................... -- 20 7 218 802
------ ------ ------ ------ ------
Total revenue...................................... 276 637 1,865 4,055 8,008
Cost of revenue............................................. 7 39 205 292 633
------ ------ ------ ------ ------
Gross margin.............................................. 269 598 1,660 3,763 7,375
------ ------ ------ ------ ------
Operating expenses:
Research and development.................................. 34 91 403 1,059 2,211
Sales and marketing....................................... 12 152 552 1,528 3,642
General and administrative................................ 126 187 307 749 1,300
------ ------ ------ ------ ------
Total operating expenses........................... 172 430 1,262 3,336 7,153
------ ------ ------ ------ ------
Income from operations...................................... 97 168 398 427 222
Other income, net........................................... 1 1 7 10 29
------ ------ ------ ------ ------
Income before income taxes.................................. 98 169 405 437 251
Income taxes(1)............................................. -- -- -- 150 32
------ ------ ------ ------ ------
Net income(1)............................................... $ 98 $ 169 $ 405 $ 287 $ 219
====== ====== ====== ====== ======
Basic net income per share(2)............................... $ .04 $ .03
Diluted net income per share(2)............................. .04 .02
====== ======
Shares used in basic net income per share calculation(2).... 8,126 8,211
Shares used in diluted net income per share
calculation(2)............................................ 8,126 9,003
Pro forma net income(1)..................................... $ 64 $ 111 $ 265
====== ====== ======
Pro forma net income per share -- basic and diluted(1)...... $ .01 $ .01 $ .03
====== ====== ======
Shares used in pro forma net income per share
calculation -- basic and diluted(2)....................... 7,800 7,800 7,800
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $108 $179 $321 $ 807 $1,099
Working capital (deficit)................................... 158 319 (103) 260 221
Total assets................................................ 198 365 910 1,886 3,362
Long-term obligations....................................... 70 72 -- 7 --
Total shareholders' equity.................................. 98 267 47 584 842
</TABLE>
- -------------------------
(1) Prior to 1997, WebTrends had elected to have taxes on WebTrends' income paid
by WebTrends' shareholders rather than by WebTrends. Pro forma net income
data has been presented for comparison purposes only, as if WebTrends had
been organized as a taxable entity for periods prior to 1997.
(2) See Note 1 of Notes to Financial Statements for the determination of shares
used in computing basic and diluted net income per share and pro forma net
income per share data.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Financial Statements and related notes thereto
included elsewhere in this prospectus. The following "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contains
forward-looking statements that involve risks and uncertainties, such as
WebTrends' plans, objectives, expectations, and intentions. WebTrends' actual
results could differ materially from those anticipated in these forward-looking
statements as a result of factors, including, but not limited to, those
discussed below, those set forth under "Risk Factors," and elsewhere in this
Prospectus.
OVERVIEW
WebTrends Corporation provides comprehensive, integrated, scaleable,
modular, and easy-to-use solutions that enable organizations to cost-effectively
manage and report on their Internet-based systems. WebTrends was incorporated on
August 31, 1993 and reorganized effective January 1, 1997. Prior to 1997,
WebTrends was not taxable as an entity because the shareholders had elected to
be taxed individually based on their percentage ownership of the outstanding
common stock.
Since the year ended December 31, 1996, WebTrends has generated most of its
revenue from licensing its traffic analysis and management suite products and
related support services. WebTrends' initial traffic analysis product, the
WebTrends Log Analyzer, was introduced in February 1996 and is currently offered
in version 4.5. In September and November 1997, respectively, WebTrends
introduced its Enterprise and Professional Suite products. The Professional
Suite integrates Web site traffic analysis with proxy server traffic analysis,
link analysis, quality control, content management, as well as monitoring,
alerting, and recovery. The Enterprise Suite enables users to manage more
complex server configurations and to integrate Web site traffic analysis data
with existing databases, permitting advanced, custom analyses. Both products are
currently in version 3.0. In May 1998, WebTrends introduced the WebTrends Suite
for Lotus Domino, which is the first software package on the market to offer
full management, reporting, and analysis for Lotus Domino Web servers. In June
1998, WebTrends introduced WebTrends for Firewalls and VPNs, which is a
real-time solution to manage, report, and monitor firewall activity. In January
1999, WebTrends introduced the WebTrends Security Analyzer, which helps secure
Internet servers and other Internet devices. Prior to 1996, WebTrends generated
substantially all of its revenue from the license of its AuditTrack product and
related products developed as solutions for managing Novell networks. WebTrends
continues to sell AuditTrack, and revenue from this product represented
approximately 13.2% of total revenue during 1998. It expects that revenue from
its AuditTrack product will decrease both in absolute dollars and as a
percentage of revenue as sales of its Internet products continue to increase.
Software license revenue consists of fees for licenses of WebTrends'
software products. Revenue allocated to software licenses is recognized upon
delivery of software, assuming no significant obligations or customer acceptance
rights exist. WebTrends generally provides a thirty-day right of return for each
product sold. Estimated sales returns and allowances are recorded upon shipment
of the product.
WebTrends sells a portion of its products domestically and internationally
through resellers. Revenue from sales to domestic resellers is managed directly
by WebTrends, and it recognizes revenue from sales primarily at the time of
shipment, net of estimated returns
19
<PAGE> 24
and allowances. In December of 1998, WebTrends entered into domestic
distribution agreements with Merisel Americas, Inc. and Ingram Micro, Inc. These
agreements offer expanded rights of return and price protection beyond our
normal reseller agreements. For these distributors, WebTrends is recognizing
revenue upon sales from the distributor to a third-party or end user until a
returns history can be established. Revenue from sales to international
resellers is managed by a third party export management company and revenue is
recognized upon sales from the reseller to a third party or end user.
Support services revenue consists of annual subscriptions for upgrades,
post customer support services. and professional services. Revenue allocated to
subscriptions, which allow the subscriber to purchase the right to obtain
upgrades, when and if available, are paid in advance and revenues are recognized
ratably over the term of the subscription. Revenue allocated to professional
services is recognized as the services are performed.
WebTrends generates revenue through direct sales to end users and through
its indirect distribution channels. Direct sales are generated by its telesales
organization, direct field sales force, and through on-line sales. The indirect
distribution channel includes distributors, resellers, and value added
resellers. WebTrends also conducts joint marketing and distribution programs
with strategic partners. It derives its international revenue primarily through
its indirect distribution channel.
Approximately 22.0% and 27.5% of WebTrends' total revenue for the years
ended December 31, 1997 and 1998, respectively, was attributable to sales made
outside the United States. It expects that international sales will continue to
represent a significant portion of its total revenue. WebTrends' international
sales are currently denominated in U.S. dollars. As a result, increases in the
value of the U.S. dollar relative to foreign currencies could make its products
more expensive and, therefore, potentially less competitive in those markets.
WebTrends has recorded net deferred compensation of approximately $282,000
as of December 31, 1998, which represents the difference between the exercise
price and the fair value of the shares of common stock issuable upon the
exercise of stock options that were granted to employees in July and August
1998. The deferred compensation is being amortized over the vesting period of
the stock options.
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, WebTrends
has not capitalized any software development costs and charged all such costs to
research and development expense.
WebTrends has grown rapidly, with revenue increasing from $1.9 million in
1996 to $8.0 million in 1998. During this period, it has experienced continued
profitability and, as of December 31, 1998, had retained earnings of $544,000.
However, this growth rate and profitability may not be sustainable, and it
should not be relied upon as predictive of future performance. WebTrends expects
to continue to increase its expenditures in all areas in order to execute its
business plan. In particular, WebTrends currently expects to expand its sales
and marketing operations, expand its international distribution channels,
increase its investment in product development, and improve its internal
operating and financial
20
<PAGE> 25
infrastructure. As a result, it does not expect to increase profitability in
line with revenue growth.
WebTrends' prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets.
WebTrends may not be successful in addressing such risks and difficulties or
sustaining or increasing profitability in the future.
RESULTS OF OPERATIONS
The following table sets forth historical operating information of
WebTrends, as a percentage of total revenue, for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statement of Operations Data
Revenue:
Software licenses................................. 99.6% 94.6% 90.0%
Support services.................................. 0.4 5.4 10.0
----- ----- -----
Total revenue................................ 100.0 100.0 100.0
Cost of revenue...................................... 11.0 7.2 7.9
----- ----- -----
Gross margin...................................... 89.0 92.8 92.1
----- ----- -----
Operating expenses:
Research and development.......................... 21.6 26.1 27.6
Sales and marketing............................... 29.6 37.7 45.5
General and administrative........................ 16.5 18.5 16.2
----- ----- -----
Total operating expenses..................... 67.7 82.3 89.3
----- ----- -----
Income from operations................................. 21.3 10.5 2.8
Other income, net...................................... 0.4 0.3 0.4
----- ----- -----
Income before income taxes............................. 21.7 10.8 3.2
Income taxes........................................... -- 3.7 0.4
----- ----- -----
Net income............................................. 21.7% 7.1% 2.8%
===== ===== =====
</TABLE>
REVENUE
Total revenue increased from $1.9 million in 1996 to $4.1 million in 1997,
and $8.0 million in 1998. The increases reflect year to year revenue growth of
117.4% and 97.5%, respectively.
Software Licenses. Software license revenue represented 90% or more of
total revenue for all periods reported. Software license revenue increased from
$1.9 million in 1996, to $3.8 million in 1997, and $7.2 million in 1998. The
increase in software license revenue from 1996 to 1997 is primarily attributable
to the effect of a full year of sales of the WebTrends Log Analyzer, which
accounted for approximately 86% of the license revenue growth, and sales of our
suite products, which were introduced in late 1997, and which accounted for
approximately 11% of the license revenue growth. The increase in software
license revenue from 1997 to 1998 is primarily attributable to the effect of a
full year of sales of our suite products, which accounted for approximately 78%
of the license revenue growth, and sales of WebTrends for Firewalls and VPNs,
which was introduced in mid-1998, and which accounted for approximately 17% of
the license revenue growth. The
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<PAGE> 26
slowing of revenue attributable to the WebTrends Log Analyzer reflects our
customers' preferences to obtain traffic analysis functionality from our suite
products.
Support Services. Support services revenue increased from $7,000 in 1996,
to $218,000 in 1997, and $802,000 in 1998, representing approximately 0.4%,
5.4%, and 10.0% of total revenues, respectively. The increases in support
services revenue are primarily attributable to an increase in the installed base
of customers over the comparable periods and the initiation of WebTrends
subscription program in the fourth quarter of 1996.
COST OF REVENUE
Cost of revenue includes product packaging, software documentation,
duplication, labor, and other costs associated with handling, packaging, and
shipping product, royalties associated with the sale of WebTrends' products, and
costs associated with providing technical support and consulting services to
customers. The cost of revenue increased from $205,000 in 1996, to $292,000 in
1997, and $633,000 in 1998. As a percentage of total revenue, the cost of
revenue increased from 7.2% for the year ended December 31, 1997 to 7.9% for the
year ended December 31, 1998. The increase in cost of revenue is primarily
attributable to the hiring of seven additional employees for customer support
between 1996 and 1998 to handle the increased demand from a larger installed
base. As a percentage of total revenue, the cost of revenue decreased from 11.0%
for the year ended December 31, 1996 to 7.2% for the year ended December 31,
1997. This decrease is primarily due to leveraging fixed costs across increased
license revenue and greater material and shipping discounts associated with
higher sales volume.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
primarily of salaries and related costs associated with the development of new
products, the enhancement of existing products, and the performance of quality
assurance and documentation activities. Research and development expenses
increased from $403,000 in 1996, to $1.1 million in 1997, and $2.2 million in
1998, representing 21.6%, 26.1%, and 27.6% of total revenues, respectively. The
increases in research and development expenses, both in absolute dollars and as
a percent of total revenue, are primarily attributable to increasing the number
of research and development employees from four in 1996, to 13 in 1997, and 27
in 1998, and costs related to supporting the development of new products and
enhanced versions of existing products. During the year ended December 31, 1998,
WebTrends released three new products. It continues to believe that significant
investment in research and development is required to remain competitive in its
markets, and therefore anticipates that research and development expenses will
increase in absolute dollars in future periods, but may vary as a percent of
total revenue.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, trade shows, commissions, and advertising costs. Sales and marketing
expenses increased from $553,000 in 1996, to $1.5 million in 1997, and $3.6
million in 1998, representing 29.6%, 37.7%, and 45.5% of total revenues,
respectively. The increases in sales and marketing expenses are primarily
attributable to increasing the number of sales, marketing, and customer support
employees from four in 1996, to 16 in 1997, and 37 in 1998, including additional
personnel required to support indirect distribution channels, and increased
spending on advertising which grew from $266,000 for 1996, to $553,000 in 1997,
and $957,000 in 1998. WebTrends expects that sales and marketing expenses will
continue to increase in absolute dollars as it continues to expand its marketing
programs and sales force to increase brand awareness, but they may vary as a
percent of total revenue.
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<PAGE> 27
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resource, information services, and other administrative
personnel, as well as legal, accounting, and insurance costs. General and
administrative expenses increased from $307,000 in 1996, to $749,000 in 1997,
and $1.3 million in 1998, representing 16.5%, 18.5%, and 16.2% of total
revenues, respectively. The increase in absolute dollars is primarily
attributable to increasing the number of accounting, administration, and
information services employees from four in 1996, to nine in 1997, and 14 in
1998 and increased costs for rent, which grew from approximately $5,000 in 1996,
to $17,000 in 1997, and $36,000 in 1998. WebTrends expects general and
administrative expenses to increase in absolute dollars to support the
anticipated sales and operations, but they may vary as a percent of total
revenue.
INCOME TAXES
Income taxes decreased from $151,000 for the year ended December 31, 1997
to $31,000 for the year ended December 31, 1998, primarily due to lower income
from operations resulting from WebTrends' increased operating expenses during
1998 and from the utilization of research and development tax credits associated
with its investment in developing new products. WebTrends was organized as an S
Corporation, meaning that under federal and state taxation laws, taxes on
Webtrends' income were paid by our shareholders and not by us, prior to 1997.
Income taxes for the year ended December 31, 1997 reflect an effective tax rate
of approximately 34.4% of taxable income and is comprised of federal and state
income taxes. Income taxes for the year ended December 31, 1998 reflect
WebTrends' estimated consolidated tax rate for federal and state taxes of
approximately 12.5% of taxable income.
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<PAGE> 28
SELECTED QUARTERLY FINANCIAL RESULTS
The following table sets forth a summary of WebTrends' unaudited quarterly
operating results for each of the eight quarters in the period ended December
31, 1998, as well as results expressed as a percentage of its total revenue for
the periods indicated. This information has been derived from unaudited interim
financial statements that, in the opinion of management, have been prepared on a
basis consistent with the financial statements contained elsewhere in this
prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with Financial Statements and notes thereto appearing elsewhere in
this prospectus. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Software licenses.................... $ 785 $ 877 $ 967 $1,208 $1,496 $1,661 $1,868 $2,181
Support services..................... 22 42 66 88 125 168 221 288
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 807 919 1,033 1,296 1,621 1,829 2,089 2,469
Cost of revenue........................ 76 87 49 80 129 149 167 188
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......................... 731 832 984 1,216 1,492 1,680 1,922 2,281
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development............. 181 200 238 440 456 512 639 604
Sales and marketing.................. 259 351 449 469 720 800 877 1,245
General and administrative........... 130 176 196 247 292 329 356 323
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 570 727 883 1,156 1,468 1,641 1,872 2,172
------ ------ ------ ------ ------ ------ ------ ------
Income from operations................. 161 105 101 60 24 39 50 109
Other income, net...................... 1 3 3 4 5 8 9 7
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes............. 162 108 104 64 29 47 59 116
Income taxes........................... 55 37 35 24 3 6 7 16
------ ------ ------ ------ ------ ------ ------ ------
Net income............................. $ 107 $ 71 $ 69 $ 40 $ 26 $ 41 $ 52 $ 100
====== ====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF TOTAL REVENUE
Revenue:
Software licenses.................... 97.3% 95.4% 93.6% 93.1% 92.3% 90.8% 89.4% 88.3%
Support services..................... 2.7 4.6 6.4 6.9 7.7 9.2 10.6 11.7
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue........................ 9.4 9.5 4.7 6.2 8.0 8.1 8.0 7.6
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......................... 90.6 90.5 95.3 93.8 92.0 91.9 92.0 92.4
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development............. 22.4 21.8 23.0 33.9 28.1 28.0 30.6 24.5
Sales and marketing.................. 32.1 38.2 43.5 36.1 44.4 43.7 42.0 50.4
General and administrative........... 16.1 19.1 19.0 19.1 18.0 18.0 17.0 13.1
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 70.6 79.1 85.5 89.1 90.5 89.7 89.6 88.0
------ ------ ------ ------ ------ ------ ------ ------
Income from operations................. 20.0 11.4 9.8 4.7 1.5 2.2 2.4 4.4
Other income, net...................... 0.1 0.3 0.3 0.3 0.3 0.4 0.4 0.3
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes............. 20.1 11.7 10.1 5.0 1.8 2.6 2.8 4.7
Income taxes........................... 6.8 4.0 3.4 1.9 0.2 0.3 0.4 0.6
------ ------ ------ ------ ------ ------ ------ ------
Net income............................. 13.3% 7.7% 6.7% 3.1% 1.6% 2.3% 2.4% 4.1%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 29
During WebTrends' history, its operating results have varied on a quarterly
basis and may fluctuate significantly in the future on a quarterly and annual
basis as a result of a combination of factors. The second and third quarters of
the year have been typically characterized by lower levels of revenue growth.
This seasonal reduction in the rate of growth is due primarily to a general
reduction in the amount and frequency of new sales in the European markets
during the summer months. WebTrends expects this seasonality to continue, and it
may result in lower revenue during those quarters. In addition to these seasonal
fluctuations, factors that could cause WebTrends' quarterly operating results to
fluctuate include:
- The level of demand for its products;
- The volume and timing of orders;
- The level of product and price competition;
- The ability to expand its domestic and international sales, and marketing
organizations;
- The ability to develop new and enhanced products;
- The ability to attract and retain key technical, sales and managerial
personnel;
- The mix of distribution channels through which its products are sold;
- The growth in the acceptance of, and activity on, the Internet,
particularly by users within organizations;
- The level of growth of intranets;
- Customer budgets;
- Foreign currency exchange rates; and
- General economic factors.
In addition, the amount of revenue associated with particular licenses can
vary significantly based upon the number of products licensed and the number of
devices involved in the installation. WebTrends establishes its expenditure
levels for product development, sales and marketing and other operating expenses
based, in large part, on its expected future revenue. WebTrends' expectations
regarding future revenue may not be accurate. As a result, if revenues fall
below expectations, operating results and net income are likely to be adversely
and disproportionately affected because only a small portion of WebTrends'
expenses vary with its revenue.
WebTrends is also increasing its sales and marketing efforts focused on
larger purchases by larger customers. Such transactions are generally more
complex and may increase the length of WebTrends' average sales cycle. It
anticipates that an increasing portion of its revenue could be derived from
larger orders, in which case the timing of receipt and fulfillment of any such
orders could cause fluctuations in its operating results, particularly on a
quarterly basis.
Due to the foregoing factors, WebTrends' operating results are difficult to
forecast. It believes that period-to-period comparisons of its historical
operating results are not meaningful and should not be relied upon as an
indication of future performance. Also, WebTrends' operating results may fall
below its expectations and those of securities analysts, or investors in some
future quarter. In such event, the market price of its common stock would likely
be materially adversely affected.
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<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
WebTrends has financed its operations primarily with cash from operations
and loans and capital contributions from shareholders. As of December 31, 1998,
it had working capital of approximately $221,000, compared to working capital of
$260,000 at December 31, 1997.
Net cash provided by operating activities was approximately $441,000 for
the year ended December 31, 1996, $808,000 for the year ended December 31, 1997,
and $866,000 for the year ended December 31, 1998. Net cash provided by
operating activities resulted primarily from profitable operations, higher
credit card sales volume, and increased accrued liabilities, partially offset by
increased accounts receivable for the periods indicated.
Net cash used by investing activities was approximately $156,000 for the
year ended December 31, 1996, $270,000 for the year ended December 31, 1997, and
$479,000 for the year ended December 31, 1998. Investing activities for the
periods were primarily purchases of computer equipment and related software. At
December 31, 1998, WebTrends had no material commitments for capital
expenditures.
Net cash used by financing activities was approximately $142,000 for the
year ended December 31, 1996, $53,000 for the year ended December 31, 1997, and
$95,000 for the year ended December 31, 1998. The use of cash was primarily for
the repayment of loans made to WebTrends by its shareholders and the payment of
shareholder dividends, partially offset by the private sale of stock during
March 1997.
As of December 31, 1998, WebTrends had approximately $1.1 million in cash
and cash equivalents and a $750,000 bank line of credit with a major financial
institution. The line of credit expires on April 30, 1999. Borrowings under the
line generally are limited to 80% of WebTrends' eligible accounts receivable.
Interest on the unpaid balance accrues at a rate of prime plus 0.25%. Borrowings
under the line of credit are collateralized by WebTrends' accounts receivable,
inventory, and general intangible assets, including its intellectual property
rights. The line of credit agreement contains financial covenants, including the
ratio of current assets to liabilities, and tangible net worth. As of December
31, 1998, WebTrends had a letter of credit for $225,000 outstanding against this
line and was in compliance with all covenants. Since its inception, WebTrends
has significantly increased its operating expenses. It anticipates that it will
continue to experience significant growth in its operating expenses for the
foreseeable future and that its operating expenses and capital expenditures will
constitute a material use of its cash resources. In addition, WebTrends may
utilize cash resources to fund acquisitions or investments in businesses,
technologies, or product lines that are complementary to its business. WebTrends
believes that the net proceeds to it from this offering, together with its
current cash and cash equivalents, and funds expected to be generated from
operations, will satisfy its anticipated working capital and other cash
requirements for at least the next 12 months.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing
26
<PAGE> 31
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
STATE OF READINESS OUR PRODUCTS
All new products introduced by WebTrends will be year 2000 compliant. It
has been testing its existing products for use in the year 2000 and beyond. The
results suggest that the following versions of its products, and later versions
of such products, are year 2000 compliant:
- AuditTrack v 3.2
- SmartPass v1.09
- WebTrends Log Analyzer v 4.0a
- WebTrends Professional Suite v3.0a
- WebTrends Enterprise Suite v3.0a
- WebTrends Suite for Lotus Domino v2.0a
- WebTrends for Firewalls and VPNs v1.0
However, its testing does not cover every possible computing environment.
Accordingly, some customers may have year 2000 problems with products that
WebTrends believes are year 2000 compliant.
WebTrends' customers may be using older versions of the above products.
Problems encountered by such customers could be quickly remedied because of the
availability of year 2000 upgrades and updates for such products. In addition,
WebTrends has not tested discontinued products that it no longer markets for
year 2000 compliance, some of which might still be in use. These discontinued
products are not widely deployed. WebTrends expects that any customers that
materially rely on such discontinued products will test them for year 2000
compliance and notify WebTrends if there are problems. WebTrends' experience in
developing year 2000 compliant versions of its existing products, suggests that
if it is required to correct year 2000 problems in such discontinued products,
it could do so without incurring material expenses.
STATE OF READINESS OF OUR INTERNAL SYSTEMS
WebTrends may be affected by year 2000 issues related to non-compliant
internal systems developed by WebTrends or by third-party vendors. It has
received assurances from its third-party vendors for all material systems in use
by WebTrends that such systems are year 2000 compliant. WebTrends is not
currently aware of any year 2000 problem relating to any of its internal,
material systems. WebTrends plans to test all such systems for year 2000
compliance by June 30, 1999. It does not believe that it has any material
systems that contain embedded chips that are not year 2000 compliant.
WebTrends' internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. It believes that absent a systemic failure outside the
control of WebTrends, such as a prolonged loss of electrical or telephone
service, year 2000 problems at such third parties will not have a material
impact on WebTrends. WebTrends has no contingency plan for systemic failures.
WebTrends' contingency plan in the event of a non-systemic failure is to
establish relationships with alternative suppliers or vendors to replace failed
suppliers or vendors. Other than the previously described testing, and remedying
problems identified by testing or from external sources, WebTrends has no other
contingency plans or intention to create other contingency plans.
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<PAGE> 32
COST
WebTrends does not separately track expenditures relating to year 2000
compliance. Such expenditures are primarily absorbed within WebTrends'
development organization. Based on its overall development expenditures and the
amount of time people in the organization are spending on year 2000 compliance,
WebTrends believes that its spending on compliance to date has not been
material. Furthermore, based on its experiences to date, and its assessment that
all material internal systems and all currently marketed products are year 2000
compliant, WebTrends does not anticipate that costs associated with remediating
WebTrends' non-compliant products or internal systems will be material.
RISKS
Any failure of WebTrends to make its products year 2000 compliant could
result in a decrease in sales of its products, an increase in allocation of
resources to address year 2000 problems of its customers without additional
revenue commensurate with such dedication of resources, or an increase in
litigation costs relating to losses suffered by WebTrends' customers due to such
year 2000 problems. Failures of the internal systems of WebTrends could
temporarily prevent it from processing orders, issuing invoices, and developing
products, and could require it to devote significant resources to correcting
such problems. Due to the general uncertainty inherent in the year 2000 computer
problem, resulting from the uncertainty of the year 2000 readiness of
third-party suppliers and vendors, WebTrends is unable to determine at this time
whether the consequences of year 2000 failures will have a material impact on
its business, results of operations, and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. This statement of position is effective for financial
statements for fiscal years beginning after December 15, 1998. WebTrends does
not expect that it will have a material impact on its consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133, "Accounting for Derivative Instruments and
Hedging Activities." This standard establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The standard
also requires that changes in the derivatives' fair value be recognized
currently in results of operations unless specific hedge accounting criteria are
met. It is effective for fiscal years beginning after June 15, 1999. WebTrends
does not expect it to have a material impact on its consolidated financial
statements.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, Modification of Statement of Position 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. This
statement of position amends Statement of Position 97-2 to require recognition
of revenue using the "residual method" in circumstances outlined in the
statement of position. Under the residual method, revenue is recognized as
follows:
(1) the total fair value of undelivered elements, as indicated by
vender specific objective evidence, is deferred and subsequently recognized
in accordance with the relevant sections of Statement of Position 97-2 and
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<PAGE> 33
(2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to
the delivered elements.
Statement of Position 98-9 is effective for fiscal years beginning after
March 15, 1999. Also, the provisions of Statement of Position 97-2 that were
deferred by Statement of Position 98-4 will continue to be deferred until the
date Statement of Position 98-9 becomes effective. WebTrends is in the process
of evaluating the impact of Statement of Position 98-9.
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<PAGE> 34
BUSINESS
The following Business Section contains forward-looking statements that
involve risks and uncertainties. WebTrends' actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
WebTrends is a leading provider of enterprise management and reporting
solutions for Internet-based systems. WebTrends offers organizations a
comprehensive set of solutions that are integrated, scaleable, modular, and
easy-to-use. Its enterprise management products facilitate analysis and
reporting of:
- Web site traffic: the number of visitors to a Web site, the timing of
visits, and other related characteristics;
- Web site quality: errors that prevent a Web site's content from being
displayed properly or efficiently;
- Internet advertising campaigns: the number of visitors drawn to your Web
site by particular Internet advertisements;
- Web site content: information specific to particular Web site pages, such
as the most popular pages on your Web site;
- usage patterns: the order in which visitors see the pages on your Web
site, and the Web sites most visited by an organization's employees;
- e-commerce activities: information relating to the volume of business
driven by your Web site, such as the number of visitors to a Web site's
order entry page; and
- return on investment: information relating to revenues and profits
generated or costs saved from specific Internet expenditures.
WebTrends' solutions also help organizations manage their Internet
infrastructure by providing valuable information about firewall activity,
virtual private networks, and security vulnerabilities, as well as capacity
requirements for the organization's computers and bandwidth requirements for the
organization's communications lines. Its products have been specifically
designed to enable organizations to centrally manage and administer multiple
Internet-based systems across the enterprise regardless of the quantity or
geographic locations of servers supporting those systems.
INDUSTRY BACKGROUND
EXPLOSIVE GROWTH OF THE INTERNET
The Internet has grown in less than a decade from a limited research tool
to a global network consisting of millions of computers and users. The Internet
is expected to continue to grow rapidly. We estimate that the number of Internet
users worldwide will grow from approximately 69 million in 1997 to 320 million
in 2002. The U.S. Department of Commerce estimates that Internet traffic doubles
every 100 days. The number of Internet Web sites is also growing rapidly. The
number of Web sites detected by the Netcraft Web Server Survey increased from
approximately 526,000 in November 1996 to approximately 1.6 million in November
1997, and to over 3.5 million in November 1998, reflecting annual growth
exceeding 100%. Network Solutions, Inc., which estimates that it holds a
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75% worldwide market share in domain name registrations, registered over 1.9
million new domains in 1998, nearly double the previous year.
The growth of the Internet is primarily attributable to its value as a
low-cost, open, and ubiquitous platform for communications and commerce. As a
result of these attributes, organizations are increasingly embracing the
Internet as a critical platform for communicating with key constituents and
conducting business. Internally, many organizations have adopted Internet-based
systems to facilitate communications among employees and to automate internal
business processes. Many organizations are adding Web-based applications to
increase sales, cut costs, and improve customer service. Customer-centric
applications range from Web sites offering electronic brochures, to electronic
acquisition of goods and services, and automated customer service and support.
Organizations are making large investments in these applications to create
meaningful and attractively presented content that informs, entertains, and
communicates. Emerging applications now enable organizations to attract
customers and build customer loyalty by offering dynamic, personalized content.
Web-based applications for suppliers and distributors have also significantly
improved business-to-business procurement, payment systems, and logistics
planning. Entirely new businesses have emerged that have been developed
specifically to exploit the unique characteristics of the Internet and
e-commerce. We estimate that the volume of Internet commerce will increase from
approximately $12 billion in 1997 to over $400 billion in 2002.
Advertising revenue has also played an important role in the growth of the
Internet. Attracted by increasing numbers of users, Internet-based businesses
have developed that are supported primarily by advertising revenue. Traditional
businesses have also realized incremental advertising spending from their Web
sites. We estimate that Internet advertising spending will grow from $1.9
billion in 1998 to $7.7 billion in 2002.
GROWTH OF INTERNET TECHNOLOGY, CONTENT, AND INFRASTRUCTURE
Organizations are supporting their Internet-based systems by investing
heavily in technology, content, and infrastructure. Forrester Research estimates
that spending on software and services for e-commerce alone will exceed $5.6
billion in 1998 and $35 billion by 2002. The creation of Internet content
continues to grow rapidly by any measure. For example, as of May 27, 1998, the
AltaVista search engine had indexed more than 140 million Web pages, an increase
of more than 40 million pages in the first five months of 1998. The Internet
uses Web and specialized servers for different tasks and forms of
communications. For example, specialized servers are used for Web browsing,
mail, chat, news groups, file transfers, and audio and video streaming. A
measure of the growth of the Internet infrastructure is the number of Web and
other Internet servers that are installed. These servers are programs that
respond to requests for information and manage data from back-end computing
resources. We estimate that the number of Web and other Internet servers
installed will grow from approximately 6.3 million in 1998 to nearly 12 million
in the year 2002.
Two other important components of the Internet infrastructure are proxy
servers and firewalls, which are network computers that are used to improve the
performance of information gathering and to prevent unauthorized access to
network resources, respectively. Firewalls are also used to implement virtual
private networks. We expect the worldwide firewall market to grow from
approximately $353 million in 1997 to $1.2 billion by the year 2000.
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NEED FOR ENTERPRISE MANAGEMENT AND REPORTING SOLUTIONS FOR INTERNET-BASED
SYSTEMS
As organizations have increased their reliance on the Internet, their
fundamental challenge has been to ensure that their investments in Internet
technology, content, and infrastructure are furthering their strategic goals.
These organizations are increasingly looking for management and reporting
solutions that track and control the effectiveness of their Internet-based
systems by optimizing Internet advertising, measuring return on investment,
monitoring performance, and determining usage patterns. Specifically,
organizations need to track and optimize a user's experience on the
organization's Internet sites, whether it be an employee, customer, or business
partner. Organizations also must manage their investments in Internet
advertising.
Without effective management and reporting, Internet-based systems are
unlikely to fulfill their strategic missions. Many Web sites do not provide
enough information and suffer from reliability problems and quality issues, such
as broken links and failed functions. A 1997 survey from InfoWeek/Ernst & Young
revealed a significant increase in security threats and insufficient resources
to monitor network security.
In order for management to optimize the effectiveness and value of
Internet-based systems, such systems must fulfill the business needs of the
critical functional areas within the organization. Examples include:
- EXECUTIVE MANAGEMENT. How successful is the implementation of our
Internet strategy? What is the return on investment?
- MARKETING AND SALES. Which Web site visitors are purchasing our products
and services? Is our advertising effective in bringing qualified prospects
to our Web site?
- INFORMATION TECHNOLOGY. Is our existing Internet infrastructure secure
and does it have sufficient capacity? Are we providing reports to
functional managers that enable them to effectively manage our Internet
investment?
- CUSTOMER SERVICE. Has our Web site reduced the volume and duration of
telephone support calls? What are the most common support issues?
- FINANCE. Are we allocating Internet-related expenditures correctly? How
is our Internet strategy affecting employee productivity?
Despite the widespread need for comprehensive, scaleable, and easy-to-use
management and reporting solutions for Internet-based systems, there have been
no solutions offering all of these capabilities. Several companies offer
reporting and management tools designed for previous generations of computer
networks that are still widely deployed. These traditional network management
tools, however, are not designed specifically for the Internet and do not allow
business managers to analyze Internet-specific activities and content
effectively, increasing the likelihood that Internet investments will be
misallocated. Another approach is to develop a custom application to analyze
Internet data or to port Internet data to a database management system that can
generate reports from user queries. These custom applications and database query
tools, however, are not cost-effective solutions because of the volume and
complexity of the underlying data. The few Internet tools available are
typically limited to particular needs, such as traffic analysis, security
analysis, or quality analysis. Furthermore, stand-alone tools for traffic
analysis are prohibitively expensive, yet do not scale to high volume Web sites.
In addition, piecing together individual tools from different vendors for
traffic analysis, security analysis, quality
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control, and other management functions into a complete solution is expensive,
difficult to manage, and results in a confusing array of inconsistent user
interfaces and report formats.
THE WEBTRENDS SOLUTION
WebTrends offers a comprehensive solution of integrated, scaleable, and
modular software products that enable organizations to cost-effectively manage
and report on their Internet-based systems. Its enterprise management products
facilitate analysis and reporting of Web site traffic, quality, content, usage,
and e-commerce activities, as well as returns on investments from Internet-based
systems and Internet advertising campaigns. WebTrends' solutions also help
organizations manage their Internet infrastructure by providing valuable
information about firewall activity, virtual private networks, and security
vulnerabilities, as well as capacity and bandwidth requirements.
The WebTrends solution has the following key benefits:
Comprehensive Solution. WebTrends' products provide a comprehensive
solution to important Internet management needs. As Internet technology has
evolved and additional management requirements have become apparent, its modular
architecture has enabled WebTrends to rapidly develop additional products and
product enhancements to meet customer needs.
Centralized Management. The WebTrends solution enables organizations to
centrally manage and administer multiple Internet-based systems across the
enterprise regardless of the quantity or geographic locations of servers
supporting those systems. WebTrends' products analyze data from servers that run
in numerous operating environments, including UNIX, Windows NT, NetWare, and
others. Organizations can also use WebTrends' products to manage Web sites
hosted by third parties such as Internet service providers.
Scaleability and Performance. The WebTrends solution is capable of managing
and reporting on high-traffic and distributed Internet-based systems. The
WebTrends solution is designed to scale to the following environments:
- A single system hosting up to 500 Web sites.
- One Internet server spread across a 50-server cluster.
- One Internet server or firewall generating over 40 million hits per day.
- One Internet server or firewall generating log files exceeding 10
gigabytes per day.
- One Internet server or firewall consisting of tens of thousands of Web
pages.
WebTrends products are designed to produce results quickly. For example,
server logs can be analyzed in real time while transactions are being processed.
In addition, results of traffic analyses can be stored using WebTrends'
FastTrends caching technology, allowing customers to perform further analyses or
reorganize results quickly.
Comprehensive and Flexible Reporting. Each WebTrends product produces
dozens of reports that can be customized for format and content. Reports can be
generated in HTML for on-line browsing or in Microsoft Word or other formats for
professional looking printed output.
Ease of Use and Installation. WebTrends' solutions have features that make
them easy to use, including fast installation, automatic detection of data
sources such as server logs, and an award-winning user-interface consistent
across all products. These features
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permit WebTrends' solutions to be used throughout an organization by marketing,
sales, and financial managers, as well as Webmasters and other IT professionals.
Open and Flexible. WebTrends solutions are designed to integrate with other
systems. Data can be analyzed from numerous Internet system components developed
by dozens of vendors. Results can be exported to either our FastTrends cache or
most database management systems. Internet service providers can use the
WebTrends Internet service providers application programming interface to
automate configuration for their own customers. Independent software developers
can develop their own applications as cartridges that interface with the
WebTrends framework.
STRATEGY
WebTrends' objectives are to continue to lead and expand the market for
enterprise management and reporting solutions for Internet-based systems. Key
strategies to achieving these objectives include:
Leverage Market Leadership to Build Brand Awareness. WebTrends believes it
is the leading provider of enterprise management and reporting solutions for
Internet-based systems. WebTrends has been able to accomplish this by being the
first company to market a solution combining Web site traffic analysis -- a
market in which WebTrends is the leader with almost three times the share of its
next closest competitor according to a March 1998 International Data Corporation
report -- with a variety of other products that enable organizations to manage
several critical aspects of their Internet investments, such as firewall
activity and virtual private networks. Fundamental to WebTrends' strategy has
been its belief that enterprise management and reporting solutions for
Internet-based systems require broad, integrated solutions that track not just
Internet traffic, but also quality, performance, and security. Thus, WebTrends
has, and will continue to leverage its market leadership to offer additional
traffic analysis, security, e-commerce management, and other new products that
enable organizations to manage the evolving needs of their Internet-based
systems.
Offer Comprehensive Internet Management Solutions. WebTrends intends to
reinforce and aggressively market its existing position as the only vendor
offering a comprehensive set of solutions for important Internet management
needs. WebTrends believes that individuals within an organization making
purchase decisions for Internet management and reporting solutions prefer a set
of solutions that offer consistent features for installation, reporting format,
user interface, and scaleability. It introduced its Enterprise and Professional
Suites in 1997, its Server Cluster Add-on and Lotus Domino Suite in 1998, its
Security Analyzer in January 1999, and has additional new products planned for
1999. It intends to continue to develop new features and products to meet the
additional management demands that will arise as Internet usage and technologies
evolve.
Address Needs of Both IT Professionals and Other Business Managers. In
addition to marketing its products to IT professionals on the basis of
performance and technical capabilities, WebTrends' strategy is to market
directly to the needs of business managers in such departments as sales and
marketing, customer service, finances, and human resources. WebTrends' products
enable these managers to make informed enterprise-wide management decisions. At
the same time, it markets its products as the preferred solution for the IT
professional to not only manage essential Internet issues such as network
bandwidth, navigation, capacity, quality assurance, system availability, and
security, but also increasingly to provide vital information to other managers
across the enterprise.
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Exploit Architecture to Expand Product Line for Evolving Internet Systems.
WebTrends' extensible, modular product architecture significantly reduces the
design cycle, allowing it to bring new products and features to market on a
frequent, timely basis. This strategy is critical because WebTrends must
continue to provide management solutions for evolving Internet technologies.
Since the introduction of its original Web site traffic analysis product in
1996, WebTrends has introduced five additional product offerings, with an
additional three scheduled for introduction through June 1999.
Aggressively Expand Channels and Geographic Scope of Sales. To increase the
distribution and visibility of its products, WebTrends intends to continue to
expand its domestic and international sales capabilities. It anticipates adding
telesales and on-line sales resources and augmenting its field sales staffing
and locations. WebTrends also intends to invest significant efforts in further
developing its indirect channels with key value added resellers, distributors,
resellers, original equipment manufacturers, Internet service providers, and
other channel partners in both domestic and international markets.
Continue to Offer Scaleable Solutions that Address All Segments of
WebTrends' Market. WebTrends intends to reinforce its image as the leading
provider of enterprise management and reporting solutions of Internet systems by
continuing to offer a wide range of product choices and suite configurations at
price points appropriate to the resources and requirements of a broad spectrum
of business users. The speed, utility, and scaleability of WebTrends' products
make them appropriate for the enterprise management and reporting needs of the
largest Internet systems. Customers include large organizations managing
networks of hundreds of servers as well as Internet service providers providing
hosted Internet resource management to thousands of customers. In addition,
WebTrends has provided its solutions to organizations that require information
management for specific high-traffic Internet events such as NASA's Web site for
the John Glenn shuttle mission that received over seven million hits on its most
active day. All of these customers look to WebTrends' solutions for their
ability to scale to the demands of large volumes of Internet users. At the same
time, the price/performance attributes of WebTrends' products make them
affordable and appropriate solutions for business users with more modest system
requirements.
Invest in Technology to Maintain Leadership and Product
Performance. WebTrends believes that its customers purchase its solutions
primarily due to their superior performance characteristics. WebTrends' existing
products offer superior reliability, high speed relative to other available
solutions, a broad array of information reporting and analysis choices, and the
ability to scale up to very high traffic requirements. WebTrends believes that
the reputation of its existing products for performance will facilitate
acceptance of additional products into its market. It intends to continue to
devote substantial resources to the enhancement of its existing solutions and
the development of new products as the demands of its market evolve.
PRODUCTS AND SERVICES
WebTrends markets management suites, as well as stand-alone products for
traffic analysis, security analysis, and firewall management.
MANAGEMENT SUITES AND TRAFFIC ANALYSIS
WebTrends Professional Suite. WebTrends Professional Suite is an integrated
enterprise solution that manages and reports on an organization's important
Internet-related functions. The suite bundles together four related
applications, called cartridges:
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1. Web Site Traffic Analysis: The Web Site Traffic Analysis cartridge
analyzes log files created by Web servers to provide valuable information
concerning the site and the users that visit it. It is compatible with all
significant Web servers and can analyze server log files that were created by
the same computer running the WebTrends software, or that were created on
remotely located computers. The Web Site Traffic Analysis cartridge can produce
separate analyses for each of multiple Web sites that share a single Web server.
Traffic analysis reports answer questions such as:
- How many qualified prospects are being drawn to the Web site by an
advertising campaign?
- Which search engines and portals are referring qualified prospects to the
Web site?
- Which pages are most popular? What changes can be made to the Web site to
make the most popular pages easy to find?
- How can the appearance of the Web site be improved in light of the most
frequently used browsers and access speeds of our visitors?
2. Proxy Server Traffic Analysis: The Proxy Server Traffic Analysis
cartridge enables real-time analysis of employee Internet usage. Proxy server
traffic analysis reports answer questions such as:
- What Web sites provide useful information to employees?
- Which employees use the most resources?
- How much time do employees spend browsing Web sites that are unrelated to
their work?
3. Link Analysis and Quality Control: The Link Analysis and Quality Control
cartridge detects broken links and other quality related problems on Web sites.
Link analysis and quality control reports answer questions such as:
- Does my Web site contain links to nonexistent Web pages?
- Which Web pages are slow to load in a browser?
- Does the Web site include duplicative images?
4. Monitoring, Alerting, and Recovery: The Monitoring, Alerting, and
Recovery cartridge monitors devices such as servers, routers and databases, and
both issues alerts by e-mail or pager and runs automatic recovery routines when
failures are detected. Monitoring, alerting, and recovery reports answer
questions such as:
- What is the total downtime of our Internet-based system?
- Which components in our Internet-based system have experienced the
greatest number of failures?
WebTrends Enterprise Suite. The WebTrends Enterprise Suite adds advanced
capabilities to the WebTrends Professional Suite. The WebTrends Enterprise Suite
includes DBTrends technology. DBTrends allows an IT professional to integrate
Web traffic analysis results with data from the organization's existing
databases for custom analysis of e-commerce and other advanced applications. The
WebTrends Enterprise Suite also permits WebTrends analyses to be exported to
most database management systems for archiving and historical analyses.
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WebTrends Log Analyzer. The WebTrends Log Analyzer is a stand-alone product
that provides all of the capabilities of the Web Site Traffic Analysis cartridge
included in the WebTrends suites. The WebTrends Log Analyzer was our first
product for managing Internet-based systems and is a popular choice for
organizations that require an inexpensive, feature-rich solution for traffic
analysis.
WebTrends Enterprise Reporting Server for UNIX. The WebTrends Enterprise
Reporting Server for UNIX is a Web site traffic analysis solution that runs on
Sun's Solaris UNIX platform. It is designed to serve the needs of Internet
service providers and enterprise customers by allowing multiple users
concurrent, remote management and access to reports via Web browsers residing on
any Windows, UNIX, or Macintosh client. The WebTrends Enterprise Reporting
Server for UNIX is currently under development. A prototype of the product
exists and has been released to third-parties for testing and evaluation. The
product is expected to be publicly released in the first quarter of 1999.
WebTrends does not expect the remaining development to consume a material amount
of resources. Aside from discussions with third-parties that are subject to
non-disclosure agreements, this prospectus, and discussions relating to this
prospectus, WebTrends has not publicized this product.
WebTrends Server Cluster Add-on. The WebTrends Server Cluster Add-on
enables the WebTrends Enterprise Suite to analyze multiple log files created by
Web servers in a cluster -- a group of Web servers cooperating to provide high
bandwidth and reliable access to a single Web site -- automatically
reconstructing the correct time of arrival for each and every hit, to produce
accurate Web traffic analysis reports. The WebTrends Server Cluster Add-on also
reports how well the load is balanced across the servers in the cluster and how
well a redirector device is distributing requests to servers that are installed
in different geographic locations.
WebTrends Suite for Lotus Domino. The WebTrends Suite for Lotus Domino
contains the functionality of the cartridges of the WebTrends Professional
Suite, with each cartridge customized for the Lotus Domino Web server
environment.
WebTrends CommerceTrends Add-on. The WebTrends CommerceTrends Add-on helps
organizations manage their e-commerce and on-line advertising activities. The
WebTrends CommerceTrends Add-on creates a profile of an organization's
Internet-based advertising campaigns and expenditures and assigns a monetary
value for individual Web site visitors by analyzing their activity and their
interest in specific products or services. The Add-on supplements the existing
capabilities of WebTrends Enterprise Suite relating to return on investment
reporting by using the profile and traffic data to calculate the organization's
return on investment from each advertisement, allowing the organization to make
more effective advertising investments.
The WebTrends CommerceTrends Add-on is currently in development. A
prototype of the product has been developed, but has not been released to
internal testers. It is expected to be released as an add-on product to the
WebTrends Enterprise Suite during the first half of 1999. WebTrends does not
expect the remaining development to consume a material amount of resources.
Aside from this prospectus and discussions relating to this prospectus,
WebTrends has not publicized this product.
WebTrends Streaming Media Cartridge. The WebTrends Streaming Media
cartridge reports on traffic of audio and video servers available from
RealNetworks, Inc. and Microsoft. Reports from this cartridge will identify the
number of streams requested, the connection speeds for browsers, and the most
popular content. This cartridge is currently in
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development. A prototype of this cartridge has been developed that is currently
being tested internally. It is expected to be released as part of the WebTrends
Enterprise Suite during the first quarter of 1999. WebTrends does not expect the
remaining development to consume a material amount of resources. Aside from this
prospectus and discussions relating to this prospectus, WebTrends has not
publicized this cartridge.
SECURITY AND FIREWALL MANAGEMENT
WebTrends for Firewalls and VPNs. WebTrends for Firewalls and VPNs is an
enterprise management solution that provides information that enables
organizations to manage bandwidth usage, security, employee usage of Web sites
outside of the firewall, and traffic originating from outside the firewall.
WebTrends for Firewalls and VPNs is compatible with firewall products from all
of the leading firewall vendors including Check Point Software Technologies,
Inc., Cisco Systems, Inc., Lucent Technologies Inc., and Network Associates.
Firewall and VPN reports answer questions such as:
- Have hackers tried to breach our security?
- Does my Internet-based system have sufficient memory and disk capacity
and communications bandwidth to service current traffic volume?
- What errors are occurring during user sessions?
- Which employees and departments use the most resources?
WebTrends Security Analyzer. The WebTrends Security Analyzer helps secure
Internet servers and other Internet devices by detecting security
vulnerabilities and recommending fixes that decrease the likelihood of
intrusions by hackers. An AutoSync capability updates the WebTrends Security
Analyzer as system vendors discover new vulnerabilities. WebTrends offers
Professional and Enterprise versions of this product as well as versions
tailored for security consultants.
AUDITTRACK
When WebTrends was founded in 1993, its business plan was to develop
solutions for managing Novell networks. WebTrends continues to sell, support,
and enhance AuditTrack, a solution for auditing activity on Novell network
servers.
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AWARDS
WebTrends' products have received over 25 industry awards including the
following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AWARD PRODUCT DATE AWARDED DESCRIPTION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Network World's Blue WebTrends December 1998 Received top score (8.45 out of 10.00
Ribbon Award Enterprise possible) of three Web management tools
Suite 3.0 tested. Score was a weighted average of
scores in the following categories:
monitoring and alerting, site quality
analysis; log file analysis; user
interface; installation; and
documentation.
- ---------------------------------------------------------------------------------------------------
Network Computing WebTrends November 1998 Received top score (4.40 out of 5.00
Editor's Choice Award Enterprise possible) of 5 Web site management suites
Suite 2.1 tested. Score was a weighted average of
scores in the following categories:
analysis; reporting; ease of use;
performance; and price.
- ---------------------------------------------------------------------------------------------------
Finalist, PC Computing WebTrends November 1998 One of two runners up among Internet site
1998 MVP Award Professional management products.
Suite 2.1
- ---------------------------------------------------------------------------------------------------
Internet Commerce Expo, WebTrends September 1998 Awarded for achievement in the product
Best of Class Professional category of analysis/performance,
Suite networking and other services.
- ---------------------------------------------------------------------------------------------------
PC Magazine Editor's WebTrends March 1998 Received highest ranking for ease of use
Choice Log and second highest ranking for power out
Analyzer of 11 Web site analysis tools considered.
4.0 Evaluation was in the following
categories: installation; importing log
files; generating reports; and analysis
aids.
- ---------------------------------------------------------------------------------------------------
VAR Business Magazine, WebTrends January 1998 One of two products to receive top overall
VAR Business Professional ranking of "A" out of 7 Web site
Recommends Suite management tools considered. Evaluation
was in the following categories: ease of
installation; ease of use; site
management; site tracking; reports; and
VAR program.
- ---------------------------------------------------------------------------------------------------
Software Publisher's WebTrends January 1998 One of five runners up in the category of
Association CODIE Professional best enterprise management Tools and only
Award Finalist for Suite Web site management product to be so
Best Enterprise recognized.
Management Tools
- ---------------------------------------------------------------------------------------------------
ZDNet Editor's Choice WebTrends December 1997 Both products received highest possible
(Five Star Rating) Log rating.
Analyzer
4.0 and
WebTrends
Professional
Suite 1.0
- ---------------------------------------------------------------------------------------------------
</TABLE>
LICENSING AND PRICING
All of WebTrends' products are licensed for use and are priced to be
affordable to both large and small organizations. In general, WebTrends'
products are licensed to be run on a single computer. WebTrends offers customers
who license its products the option to purchase one-year subscriptions that
permit users to download all new versions of the licensed product during the
subscription period. Subscriptions are generally priced at 20% of the license
fee. Changes to its pricing and licensing policies are periodically made as a
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result of competitive conditions and other factors. The following table lists
end-user product prices as of January 1, 1999 (upgrade pricing and shipping and
handling charges not shown). WebTrends offers reseller discounts, volume
discounts, and occasional promotional pricing.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PRODUCTS SCOPE U.S. INTRODUCTION
LIST PRICE DATE
- -------------------------------------------------------------------------------------------------------
MANAGEMENT SUITES AND TRAFFIC ANALYSIS
- -------------------------------------------------------------------------------------------------------
WebTrends Enterprise Suite 500 virtual domains $1,499 September 1997
- -------------------------------------------------------------------------------------------------------
WebTrends Professional Suite 100 virtual domains $ 599 November 1997
- -------------------------------------------------------------------------------------------------------
WebTrends Log Analyzer 50 virtual domains $ 399 February 1996
- -------------------------------------------------------------------------------------------------------
WebTrends Enterprise Reporting Server for 1 server/5 user $2,999* 1st Qtr. 1999
Unix Additional 5 user pack $ 999*
Additional server $ 999*
- -------------------------------------------------------------------------------------------------------
Server Cluster Add-on Each additional server $ 999 August 1998
- -------------------------------------------------------------------------------------------------------
WebTrends Suite for Lotus Domino 500 virtual domains $ 999 May 1998
- -------------------------------------------------------------------------------------------------------
CommerceTrends Add-on TBD** TBD** 2nd Qtr. 1999
- -------------------------------------------------------------------------------------------------------
SECURITY AND FIREWALL MANAGEMENT
- -------------------------------------------------------------------------------------------------------
WebTrends for Firewalls and VPNs Each firewall $1,499 June 1998
- -------------------------------------------------------------------------------------------------------
WebTrends Security Analyzer 255 IP Addresses $1,499 January 1999
Unlimited IP Addresses $4,999
- -------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
* Projected
** To Be Determined
PRODUCT ARCHITECTURE AND TECHNOLOGY
The focus of product development at WebTrends is to bring new products as
well as new versions of existing products to market quickly in order to keep
pace with the rapid evolution of Internet technologies and increasing customer
demands. WebTrends devotes a substantial portion of its resources to developing
new products. Research and development expenses were approximately $403,000 in
1996, $1.1 million in 1997, and $2.2 million in 1998. WebTrends has recruited a
product development team experienced in bringing quality products to market
on-time. As of December 31, 1998, our product development team consisted of 27
employees with responsibilities that include software engineering, quality
assurance, and technical writing. This team is currently developing new versions
of most of the existing products as well as new add-ons for analyzing e-commerce
and on-line advertising activities and a new cartridge for managing streaming
audio and video Internet servers.
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[WEBTRENDS ILLUSTRATION]
WebTrends' product architecture and technologies, as shown in the above
diagram, provide significant competitive advantages. The architecture consists
of application cartridges atop a shared foundation of base technologies. The
application cartridges request services from the foundation, where most of the
code is located, through a well-defined set of conventions called an application
programming interface. This shared foundation shortens the product development
cycle because the shared components do not have to be redeveloped for each new
application cartridge. In addition, enhancements to the foundation, such as
improving the speed of the report generator, benefit all cartridges.
Some of the important base technologies are:
Scheduler. The Scheduler automatically runs analyses and reports at
specified times and intervals, without the presence of an operator.
User-Interface Framework. WebTrends improves the usability of its products
by presenting a consistent look and feel to the end-user.
Reporting Engine. WebTrends' Reporting Engine permits customers to
customize the reports generated by the application cartridges. In addition, many
reports can be generated in HTML, Microsoft Word, Microsoft Excel, and other
standard formats.
Language Editor. A language editor is built into the products that
facilitates customizing the product for international use.
WebTrends has numerous additional technologies and product features,
including the following:
Direct Analysis of Server Logs. WebTrends' products can analyze server logs
as they are created or at scheduled times. In either case, the server logs are
read and analyzed in a single pass. WebTrends believes that the alternative
approach of first importing the log data into a database management system and
then analyzing the data is slow and costly.
FastTrends Cache. The FastTrends technology stores the results of an
analysis allowing customers to quickly perform further analysis or reorganize
the results in meaningful ways. FastTrends contributes to the scaleability of
WebTrends' products by efficiently handling large amounts of data.
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64-bit Technology. WebTrends has implemented 64-bit technology to permit
its products to analyze log files containing more than four gigabytes of data.
WebTrends' products are compiled to run on 32-bit processors.
Standard Programming Languages. WebTrends' engineers develop software using
C and C++ programming languages to produce fast, scaleable products. Standard
programming languages also ease porting the technology to new operating
environments.
Remote Analysis. WebTrends' products need not reside on the server being
analyzed. Server logs can be exported to the system where the product resides or
can be remotely accessed.
Compatibility with Database Management Systems. WebTrends' products can
obtain data from databases that are compatible with the popular Open DataBase
Connectivity standard. In addition, the results of analyses can be exported to
such databases.
Information Gathering. The registration engine built into WebTrends'
products collects detailed customer information. The products also have a
customer feedback feature that encourages customers to communicate with
WebTrends. Information from both of these sources is used for sales leads and as
input for the next round of product upgrades and improvements.
SERVICES AND SUPPORT
WebTrends provides technical support to its registered users by telephone,
e-mail, and on its Web site. Products are easy to install and use, and WebTrends
also maintains an extensive database of support information on its Web site, all
of which enables the support organization to operate efficiently and increases
customer loyalty and satisfaction.
WebTrends intends to continue to enhance its services capabilities. Its
recently-formed professional services organization will provide end-user
implementation and training, certification and training for third-party service
providers and resellers, and management and reporting for high-traffic Internet
events and seminars. WebTrends also relies on value added resellers and Internet
service providers that distribute and promote its products to provide similar
services.
CUSTOMERS
As of December 31, 1998, WebTrends had licensed over 50,000 products to
over 20,000 customers. Some of its customers are Internet-based businesses that
were specifically formed to take advantage of emerging Internet opportunities.
However, the bulk of its customers are traditional companies from all segments
of the economy that are developing new applications and porting existing
applications to the Internet. WebTrends' products are used by over one-third of
the Fortune 500, but are also affordable to small organizations.
An important customer segment is Internet service providers that sell Web
site hosting services. Several of these Internet service providers use
WebTrends' products to perform WebTrends' analyses on their customers' Web sites
as an added service. Some of the Internet service providers' own customers have
become WebTrends' customers to do more sophisticated analyses in-house or to
analyze other in-house, Internet servers.
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Representative customers include:
TECHNOLOGY
Cisco Systems
Compaq Computer
Dell Computer
EDS
Hewlett-Packard
IBM
Intel
Siemens
TELECOMMUNICATIONS
AT&T
Ameritech
Bell Atlantic
British Telecom
GTE
PUBLIC SECTOR
City of San Jose
NASA
University of Illinois
U.S. Air Force
U.S. Dept. of Labor
U.S. House of Representatives
INTERNET SERVICE PROVIDERS
@Home
Cable and Wireless
DIGEX
NETCOM
Prodigy
PSINet
Verio
MEDIA
BBC
Dow Jones & Company
NBC
Playboy Enterprises
Washington Post
MANUFACTURING
Boeing
Caterpillar
DaimlerChrysler
Eastman-Kodak
Ford Motor Co.
Pharmacia & Upjohn
INTERNET COMPANIES
InfoSeek
Netscape
Peapod
USWeb
UUNet
FINANCIAL SERVICES
American Express
BankAmerica
Chase Manhattan
Dun and Bradstreet
Union Bank
TRANSPORTATION
Air New Zealand
Alaska Airlines
American Airlines
Greyhound Lines
KLM Royal Dutch Airlines
CASE STUDIES
DIGEX Incorporated -- Internet Service Provider Managing Web Sites for its
Customers
DIGEX is a leading national Internet carrier that hosts and manages
hundreds of Web sites and firewalls for companies including America's Health
Network and Nike. DIGEX derives competitive advantage from its sophisticated Web
site management organization that includes 250 employees.
In August 1997, DIGEX initiated an engineering effort to evaluate Web site
reporting and analysis solutions to provide management reports to its customers.
After running a full battery of tests and comparing several competing traffic
analysis solutions, DIGEX decided to standardize on a single traffic analysis
software package to avoid the difficulties and expense in providing world-class
support on a variety of different applications.
DIGEX selected WebTrends' products because of their industry-leading
functionality, high quality, attractive prices, and ease of use. WebTrends'
support for server clusters and ability to perform with little to no demand on
the Web servers during peak hours were also critical. For example, the WebTrends
Log Analyzer generates reports between 1 a.m. and 2 a.m. daily for one of
DIGEX's largest customers whose site runs on a cluster of nine Web servers each
producing a 200 megabyte log file each day.
DIGEX cites three key benefits from its use of WebTrends' products:
- Increased Customer Satisfaction: DIGEX is experiencing improved customer
retention because customers are more satisfied with their overall hosting
solution.
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- Reduced Cost: DIGEX estimates that it is saving $200,000 per year,
compared to when it was supporting multiple reporting packages.
- Increased Competitiveness: DIGEX's ability to deliver industry-leading
reporting functionality provides a competitive advantage over Web-hosting
competitors.
Since standardizing on WebTrends, DIGEX has installed hundreds of copies of
WebTrends' products.
Cable & Wireless USA -- Internet Service Provider Keeping Up With Customer
Demands
Cable & Wireless owns and operates one of the world's premier Internet
networks. Its Internet Solutions Center manages mission-critical Web sites for
hundreds of global corporations. In May 1998, after extensive testing and
evaluation of off-the-shelf packages, the Internet Solutions Center decided to
replace its internally developed management applications with the WebTrends
Enterprise Suite. WebTrends Enterprise Suite met all of the Internet Solutions
Center's evaluation criteria including maintaining all of the existing
functionality of the internally developed applications and handling its largest
Web sites reliably.
The Internet Solutions Center installed WebTrends Enterprise Suite onto
numerous processing servers dedicated to running WebTrends software. Log files
from hundreds of Web Sites are moved to these processing servers each night by 2
a.m. The WebTrends Enterprise Suite automatically detects the type of each log
file, then creates up to 33 reports for each Web site, processing approximately
three gigabytes of data. By morning, daily and month-to-date reports are created
for every customer and are available on a reporting server via a Web browser.
Cable & Wireless has seen three clear benefits from the WebTrends solution:
- Increased Customer Satisfaction: Cable & Wireless customers are receiving
the reports they need, on a timely basis, to manage their businesses.
Requests to Cable & Wireless from its customers for customized reports
have significantly decreased.
- Lowered Operating Cost: Operational support effort has been reduced from
about 25 hours per week to about 10 hours per week, saving about $30,000
annually.
- Eliminated Development Costs: Two software developers who were developing
enhancements to the Internet Solutions Center's internally-developed
management software have been redeployed, saving about $200,000 annually.
Pharmacia & Upjohn -- Managing a Global Intranet
Pharmacia & Upjohn is a pharmaceutical and healthcare company with offices
in 54 countries and over 30,000 employees. Pharmacia & Upjohn used Internet
technology to develop an internal use network for communication of company
information and news that generates over 13 million hits per month to 400,000
Web pages housed on 50 geographically dispersed servers. Using WebTrends
Professional Suite, Pharmacia & Upjohn's Webmaster analyzes and monitors the
entire worldwide network from a single workstation in his office. Analyses are
scheduled for automatic execution and the reports are made available on the
network where they are regularly reviewed by 50 to 100 managers. The WebTrends
solution has benefited Pharmacia & Upjohn in the following ways:
- Improved Design: Frequently accessed information has been made easier to
find. Certain low-traffic pages have been deleted.
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- Increased Availability: E-mail messages or pager messages are
automatically sent when a server is down, reducing recovery delays.
- Facilitates Capacity Planning: Overall usage trends permit Pharmacia &
Upjohn to anticipate needs and upgrade servers and communications
facilities before network performance degrades.
- Reduced Overhead: The WebTrends' scheduler automates many of the
management activities. Furthermore, functional management is able to
review and customize their own reports reducing the stress on the IT
organization.
SALES, MARKETING, AND DISTRIBUTION
WebTrends conducts a number of marketing programs to promote its brand and
to support the sale and distribution of its products. These programs are
designed to inform existing and potential resellers and end-user customers about
the capabilities and benefits of its products. Marketing activities include:
press relations; publication of technical and educational articles in its
on-line magazine, WebTrends Corporation Alert; participation in industry trade
shows; product/technology conferences and seminars; Web-based and traditional
advertising; development and distribution of literature; and maintenance of the
WebTrends Web site. It also conducts joint marketing and distribution with
strategic partners, including:
- Oracle: Distributes trial versions of Web site management products with
Oracle's Internet Application Server.
- Netscape: Sells WebTrends' products through its Software-Depot Store
e-commerce Web site.
- Microsoft: WebTrends promotes its products at the microsoft.com Web site
and at the Microsoft Partners' Pavilion at selected trade conferences.
- Check Point Software: Distributes trial versions of WebTrends' products
from its Web site and partner for marketing, advertising, and trade show
activities.
- Hewlett-Packard: Promotes WebTrends' products on the HP Covision Web site
as a strategic part of an integrated solution for electronic business.
Many of WebTrends' sales leads are generated from its own Web site, which
is often a customer's first contact with WebTrends. The Web site contains
extensive product information and sales literature. The Web site also has an
on-line purchasing capability. Many visitors download free trial versions of
WebTrends' products from the Web site. Customers can purchase the product during
the trial period. For 1998, on-line sales accounted for approximately 18% of
WebTrends' revenue.
In addition to on-line sales, the sales force consists of a telesales
organization and a direct field sales organization. The telesales organization
responds to incoming inquiries generated by advertising and marketing
activities. Telesales representatives also initiate calls to contact customers
who download trial software from the Web site, and offer new products to
existing customers. Data from software downloads and license registrations are
used to identify volume licensing opportunities that are generally referred to a
direct field sales representative or a value added reseller. As of December 31,
1998, the telesales organization consisted of one manager and ten sales
representatives.
The direct field sales organization is focused on large enterprises and
strategic sales. Strategic sales efforts are targeted at Internet service
providers, Internet-based companies,
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and other organizations with significant on-line presences. By selling its
solutions to the perceived Internet technology leaders, WebTrends believes it
enhances its own brand image. As of December 31, 1998, the direct field sales
organization consisted of five sales representatives. WebTrends plans to grow
its direct field sales force and base more of its direct field sales
representatives in their respective geographic territories in 1999. In 1998,
direct sales, excluding on-line sales, accounted for approximately 51% of
WebTrends' revenue.
WebTrends' domestic, indirect distribution channel consists of numerous
resellers and a value added reseller program. WebTrends relies on the value
added reseller program not only to expand sales but also to meet the demand for
value-added services related to the installation and use of its products.
Recently it established national distribution relationships with Merisel and
Ingram. WebTrends expects that its resellers and value added resellers will
acquire product through Merisel, Ingram, or other distributors in the future. As
of December 31, 1998, WebTrends employed three value added reseller partner
managers to establish new value added resellers and manage relationships with
existing value added resellers and one reseller manager to manage relationships
with new and existing resellers. In 1998, indirect sales, both domestic and
international, accounted for approximately 31% of WebTrends' revenue.
WebTrends has a nonexclusive relationship with a third-party export
management company to establish indirect distribution channels outside of the
United States. The export management company is responsible for shipment of
products to the international distributor, reseller, or value added reseller and
for all documentation of such export shipments. International resellers and
value added resellers are responsible for the localization of reports, marketing
materials and packaging in the countries where they distribute WebTrends'
products. In 1998, international sales, both direct and indirect and primarily
from European markets, accounted for approximately 28% of WebTrends' revenues.
COMPETITION
We compete in the markets for Web site traffic analysis solutions, alerting
and monitoring solutions, firewall and proxy server traffic analysis solutions,
and security analysis solutions. These markets are intensely competitive,
increasingly subject to rapid changes, and significantly affected by new product
introductions and other activities of market participants. In addition, these
markets are highly fragmented, and our competitors vary depending upon the
market that our Internet management solutions address.
In the market for Web site traffic analysis solutions, our primary
competitors are Andromedia, Inc., Accrue Software Inc., Internet Profiles
Corporation (I/Pro), Marketwave Corporation, and net.Genesis Corp. In the Web
site link analysis and quality control market, our primary competitors are
Tetranet Software Incorporated and Coast Software Inc. In the alerting and
monitoring market, our primary competitors are IPSwitch, Inc. and Geneva
Software, Inc. In the firewall and proxy analysis market, our primary
competitors are Telemate Software, Inc. and SecureIT, Inc., a division of
VeriSign, Inc. In the security analysis market, we expect to compete primarily
with ISS Group, Axent Technologies, and Network Associates. Although the markets
in which we compete are highly fragmented, we may face additional competition
from existing competitors if any of them were to broaden the scope of their
Internet management products either by developing or acquiring additional
products or distribution channels.
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We also compete with vendors of Internet servers, operating systems, and
networking hardware. In particular, Microsoft, Netscape, Sun Microsystems,
Oracle, and others bundle Internet management solutions with their Internet
products. We expect this bundling activity to increase in the future. The
bundling of competing products with standard features of operating systems,
Internet servers or networking hardware could render our products obsolete and
unmarketable. Even if the functionality, ease of use, and performance of the
products included with operating systems, Internet servers, or networking
hardware is inferior to our products, a significant number of customers may
elect to accept these products instead of purchasing additional software from
us.
We believe that additional competitors will continue to enter the market as
the size and visibility of the market opportunity increases. These new market
entrants may include traditional system and network management software
developers. For example, Computer Associates is currently beta testing an
extension to its Unicenter TNG product line that includes functions for alerting
and monitoring, Web site traffic analysis, and link analysis.
We also face competition and potential competition from Web management
service providers, such as consulting firms, Web design firms, Internet audit
firms, site management vendors, Internet service providers, and independent
software vendors. These service providers may use our solutions, our
competitors' solutions, or custom-developed solutions to manage Web sites for
their customers who otherwise would have been sale opportunities for us. Some
larger potential customers may rely on their IT departments to internally
develop Internet management solutions.
PROPRIETARY RIGHTS
WebTrends relies on a combination of copyright, trade secret, patent,
trademark, confidentiality procedures, and contractual provisions to protect its
proprietary rights. WebTrends' software, documentation and other written
materials are provided limited protection by international and United States
copyright laws. WebTrends licenses its products in object code format for
limited use by customers. It treats the source code for its products as a trade
secret and requires all employees and third-parties who require access to the
source code to sign non-disclosure agreements.
WebTrends currently has two pending United States patents that seek to
protect inventions underlying the FastTrends cache and server cluster analysis
technology, respectively. WebTrends is in the process of preparing an additional
United States patent application. WebTrends does not have any issued patents.
WebTrends has developed and published a log format for firewall data that
it hopes to establish as a standard. WebTrends may develop additional formats to
facilitate the standardization process for enterprise management of Internet and
intranet servers. It permits such formats to be implemented by vendors of
servers and other Internet products, and by competing enterprise management
software companies.
WebTrends has registered the trademark AuditTrack in the United States. It
has applied for United States trademark registrations for the following:
AlertTrack, ClusterTrends, CommerceTrends, DBTrends, FastTrends, FireTrends,
Manage Your WWWorld, SmartPass, WebTrends, and WWWorld. Certain of these marks
are also protected in other jurisdictions.
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EMPLOYEES
As of December 31, 1998, WebTrends had 78 employees, including 37 in sales,
marketing, and customer support, 27 in research and development, and 14 in
finance and administration. All of the employees were located at its
headquarters in Portland, Oregon, except for three sales representatives. None
of the employees is represented by a labor union. WebTrends has experienced no
work stoppages and believes its relationships with its employees are good.
FACILITIES
WebTrends is headquartered in Portland, Oregon, where it leases
approximately 22,000 square feet pursuant to a recently executed five-year
lease. Pursuant to the new lease, WebTrends will occupy an additional 15,000
square feet by July 1999. WebTrends has sales offices in Boston, Massachusetts
and Houston, Texas.
LEGAL PROCEEDINGS
WebTrends is not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY PERSONNEL
The executive officers, directors, and key personnel of WebTrends, and
their ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Elijahu Shapira................. 33 Chairman of the Board and Chief
Executive Officer
W. Glen Boyd.................... 31 President, Chief Technical Officer, and
Director
James T. Richardson............. 51 Vice President, Chief Financial Officer,
and Secretary
Gregory D. Applegate............ 38 Vice President of Sales
Daniel J. Meub.................. 45 Vice President of Marketing
Michael Burmeister-Brown........ 40 Director
John W. Ryan.................... 37 Director
Srivats Sampath................. 39 Director
John D. Teddy................... 34 Vice President of Research & Development
</TABLE>
There are no family relationships among any of the directors, executive
officers, or key personnel of WebTrends.
Elijahu Shapira is a co-founder of WebTrends and has served as its Chief
Executive Officer since December 1997 and as a director since September 1993.
From September 1994 to November 1995 and from November 1996 to December 1998, he
served as its Vice President and Secretary. Mr. Shapira has 14 years of
experience in the software industry. From June 1991 to September 1994, Mr.
Shapira was the Product Development Manager for the AntiVirus product line of
Central Point Software, an anti-virus software development company that was
acquired by Symantec Corporation in 1994. From March 1987 to October 1990, Mr.
Shapira was the Vice President of International Business Development for Carmel
Software Engineering, a company specializing in network security and encryption
products.
W. Glen Boyd is a co-founder of WebTrends and has served as its President
since December 1996, as its Chief Technical Officer since December 1997, and as
a director since September 1993. Mr. Boyd served as the President of WebTrends
from September 1993 to November 1995 and as its Vice President and Secretary
from November 1995 to December 1996. Mr. Boyd has more than 12 years of
experience in the software industry. Prior to co-founding WebTrends in 1993,
from October 1990 to January 1993, Mr. Boyd was a Section Manager for the
AntiVirus, Commute, and PCTools product lines of Central Point Software.
James T. Richardson has served as WebTrends' Vice President and Chief
Financial Officer since July 1998 and as Secretary since December 1998. From
April 1994 to December 1997, Mr. Richardson served as the Senior Vice President
of Corporate Operations and Chief Financial Officer of Network General, a
producer of networking software that merged with McAfee Associates in December
1997 to form Network Associates. From July 1992 to April 1994, Mr. Richardson
served as the Vice President of Finance and Chief Financial Officer of Logic
Modeling Corporation, an electronic design automation software company that
merged with Synopsys, Inc. in February 1994. From
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November 1989 to June 1992, Mr. Richardson served as the Vice President of
Finance and Administration and as Chief Financial Officer of Advanced Logic
Research, a manufacturer of personal computers. Mr. Richardson has served in
various management positions in the high-technology industry since 1977.
Gregory D. Applegate has served as WebTrends' Vice President of Sales since
April 1998. From December 1996 to April 1998, Mr. Applegate served as the Vice
President of Sales of OrCAD Inc., an electronic design automation software
company. From October 1993 to November 1996, Mr. Applegate served in a variety
of other management roles at OrCAD. Prior to his employment with OrCad, Mr.
Applegate served in sales and management positions at INTERSOLV, Inc., an
enterprise solution and software management company.
Daniel J. Meub has served as WebTrends' Vice President of Marketing since
December 1998. From December 1996 to October 1998, Mr. Meub served as the
President and Chief Executive Officer of Adaptive Solutions Inc., a supplier of
forms processing software and imaging solutions for the health care and
governmental markets that filed a voluntary petition under Chapter 7 of the
United States Bankruptcy Code due to insolvency. From January 1995 to November
1996, Mr. Meub served as the Executive Vice President of Marketing and Product
Development of Now Software Inc., a supplier of time management and utility
software. From February 1993 to June 1994, Mr. Meub served as the Vice
President/General Manager of the Desktop Product Group of Central Point
Software. From November 1991 to February 1993, Mr. Meub served as the Vice
President of Marketing and Development of Calera Recognition Systems, a
character recognition software development company. Mr. Meub has served in a
variety of sales and marketing roles since 1976.
Srivats Sampath has served as a director of WebTrends since January 1998.
Since July 1998, Mr. Sampath has served as the Vice President of Worldwide
Marketing of Network Associates, a provider of security and management solutions
for enterprise networks. From June 1996 to December 1997, Mr. Sampath served as
the Vice President of Product Marketing for Netscape Communications, a provider
of Internet software and services. From June 1993 to June 1996, Mr. Sampath
served as the President and Chief Executive Officer of Discussions Corporation,
a company that he founded to develop e-mail based groupware solutions. From 1984
to 1991, Mr. Sampath managed the LAN Enhancement Operations and Microcomputer
Communications Division of Intel Corporation. Mr. Sampath has over 15 years of
experience serving in management and executive roles in the computer industry.
John W. Ryan has served as a director of WebTrends since January 1998.
Since January 1997, Mr. Ryan has served as the President of J Ryan & Associates,
a provider of high technology marketing and sales consulting services. From
September 1995 to January 1997, Mr. Ryan served as the Vice President of
Marketing Strategy and Programs for Tivoli Systems, a systems management
division of IBM. From April 1994 to September 1995, Mr. Ryan served as the Vice
President of Marketing for Mergent International, a producer of security
software. From December 1990 to April 1994, he served as the director of a
business unit for Central Point Software. Mr. Ryan has 15 years of experience in
executive level and senior management roles in the computer industry.
Michael Burmeister-Brown has served as a director of WebTrends since
October 1996. Since July 1997, Mr. Burmeister-Brown has served as a software
engineer at Yahoo!, Inc., a company that provides services as a Web portal.
Since May 1992, Mr. Burmeister-Brown has also served as the President of Second
Nature Software, a software development
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company. From 1981 to 1991, Mr. Burmeister-Brown served in various executive
management roles, including President, Chief Executive Officer, and Chief
Technology Officer, for Central Point Software, a company he founded in 1981.
Mr. Burmeister-Brown has 16 years of experience in senior management roles in
the computer industry.
John D. Teddy has served as WebTrends' Vice President of Research &
Development since November 1998. From April 1997 to November 1998, Mr. Teddy
served as the Vice President of Engineering and Director of Engineering for
Cybermedia, Inc., a software development company. From April 1994 to April 1997,
Mr. Teddy served as the Chief Architect and Senior Development Manager for
Symantec, where he helped create software such as PCTools, Norton Navigator, and
CrashGuard. From October 1991 to April 1994, Mr. Teddy served as a Senior
Development Manager of Central Point Software.
CLASSIFIED BOARD; REMOVAL OF DIRECTORS
WebTrends' bylaws provide that if the number of directors is increased to
six or more, the board of directors will, at the next annual meeting of
shareholders, be divided into three classes, each of which will serve for a
staggered three-year term. Currently, the board is comprised of five directors,
each serving a one-year term. The articles of incorporation provide that a
director may be removed only for cause. The bylaws provide that a director may
be removed at a special meeting of the shareholders specifically called for that
purpose, and the meeting notice must state that the purpose, or one of the
purposes, of the meeting is removal of the director by a vote of the holders of
a majority of the shares then entitled to vote on the election of directors.
BOARD COMMITTEES
WebTrends maintains two standing committees, an Audit Committee and a
Compensation Committee.
Audit Committee. In December 1998, the board of directors formed the audit
committee for the purpose of reviewing WebTrends' internal accounting procedures
and consulting with and reviewing the services provided by WebTrends'
independent public accountants. Messrs. Sampath and Burmeister-Brown constitute
the audit committee.
Compensation Committee. In December 1997, the board of directors formed the
compensation committee. The compensation committee reviews and recommends to the
board the compensation and benefits of all WebTrends' officers and reviews
general policy relating to compensation and benefits of employees. The
compensation committee also administers WebTrends' stock option plans and will
administer its stock purchase plan upon completion of this offering. Messrs.
Shapira, Burmeister-Brown, and Ryan constitute the compensation committee.
COMPENSATION OF DIRECTORS
Directors do not currently receive cash compensation for services rendered
as members of the board of directors. WebTrends does, however, reimburse the
directors for reasonable expenses incurred in connection with their attendance
at board and committee meetings.
In August 1998, WebTrends entered into a consulting agreement with J Ryan &
Associates, a company founded by Mr. Ryan. Consulting services pursuant to the
agreement include assistance related to WebTrends' North American distribution
channels
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and its overall market positioning and planning. WebTrends has paid Mr. Ryan
$45,000, and in August 1998, granted Mr. Ryan an option to purchase 7,500 shares
of common stock at an exercise price of $1.82 per share. The shares vest yearly
over a four-year period. See "Insider Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 1997, WebTrends board of directors did not maintain a
standing compensation committee, and the entire board, including Messrs. Boyd
and Shapira, participated in all decisions regarding compensation of its
executive officers. In December 1997, the board formed the compensation
committee and appointed Messrs. Burmeister-Brown, Ryan, and Shapira as committee
members. Mr. Shapira serves as the Chairman of the Board and Chief Executive
Officer of WebTrends. Messrs. Burmeister-Brown and Ryan are not employees or
officers or former employees or officers of WebTrends. No executive officer of
WebTrends serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
WebTrends' board of directors or compensation committee.
In November 1996, Messrs. Boyd and Shapira each extended a $300,000 line of
credit to WebTrends to provide working capital. In March 1997, WebTrends
borrowed $125,000 from each of Messrs. Boyd and Shapira under the line of credit
and issued them promissory notes. The notes bear interest at 5% per annum and
mature in December 1997. In August 1998, the payment terms of these notes were
amended to provide that payments in amounts not less than $25,000 per quarter
would be made on each promissory note until the entire principal and accrued
interest is paid in full. WebTrends has made two quarterly payments totalling
$60,858 to each of Messrs. Boyd and Shapira as of December 31, 1998.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to WebTrends' Chief
Executive Officer and its other executive officers whose salary and bonus
exceeded $100,000 for services rendered to WebTrends in all capacities during
fiscal 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1998 1997
ANNUAL COMPENSATION ANNUAL COMPENSATION
-------------------- --------------------
NAME AND PRINCIPAL POSITION SALARY BONUS SALARY BONUS
--------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Elijahu Shapira, Chairman of the Board
and
Chief Executive Officer............... $150,000 $20,000 $133,333 $30,000
W. Glen Boyd, President and Chief
Technical Officer..................... 150,000 20,000 133,333 30,000
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers during the
year ended December 31, 1998.
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EMPLOYEE BENEFIT PLANS
401(K) PLAN
WebTrends maintains a 401(k) tax-qualified employee savings and retirement
plan covering all employees who satisfy eligibility requirements relating to
minimum age and length of service. Pursuant to the 401(k) plan, eligible
employees may elect to reduce their current compensation by up to the lesser of
15% of their annual compensation or the statutorily prescribed annual limit and
have the amount of such reduction contributed to the 401(k) plan. The 401(k)
Plan is intended to qualify under applicable law, so that contributions to the
401(k) plan, and income earned on the 401(k) plan contributions are not taxable
until withdrawn. The 401(k) plan is available to WebTrends' executive officers
on terms not more favorable than those offered to other employees.
1999 EMPLOYEE STOCK PURCHASE PLAN
WebTrends adopted the 1999 employee stock purchase plan in December 1998.
The 1999 employee stock purchase plan will be implemented upon the effectiveness
of this offering. WebTrends intends for the 1999 employee stock purchase plan to
qualify under Section 423 of the Internal Revenue Code. The 1999 employee stock
purchase plan permits eligible employees of WebTrends and its subsidiaries to
purchase common stock through payroll deductions of up to 15% of their cash
compensation. WebTrends will implement the 1999 employee stock purchase plan
with six-month offering periods, except that the first offering period will
begin on the effectiveness of this offering and end on June 30, 1999. Subsequent
offering periods will begin on each January 1 and July 1. Under the 1999
employee stock purchase plan, no employee may purchase common stock worth more
than $25,000 in any offering period or in any calendar year, valued as of the
first day of each offering period. In addition, owners of 5% or more of the
combined voting power or value of all classes of stock of WebTrends or its
subsidiary may not participate in the 1999 employee stock purchase plan.
WebTrends authorized the issuance of a total of 350,000 shares of common stock
under the 1999 employee stock purchase plan, plus an automatic increase on
January 1, 2000 and each anniversary thereafter that will be equal to the lesser
of
(a) 16,250 shares;
(b) 0.125% of the average common shares outstanding as used to calculate
fully diluted earnings per share as reported in the annual report to
shareholders for the preceding year; or
(c) a lesser amount determined by its board of directors.
Any unissued shares resulting from increases in previous years will be
added to the aggregate number of shares available for issuance under the 1999
employee stock purchase plan.
The price of the common stock purchased under the 1999 employee stock
purchase plan will be the lesser of 85% of the fair market value on the first
day of an offering period and 85% of the fair market value on the last day of an
offering period, except that the purchase price for the first offering period
will be equal to the lesser of 100% of the initial public offering price for the
common stock and 85% of the fair market value on June 30, 1999. The 1999
employee stock purchase plan will terminate in December 2008, but the board of
directors may terminate it at any earlier time. WebTrends has not issued any
shares of common stock under the 1999 employee stock purchase plan.
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In the event of a merger or proposed sale of all or substantially all of
WebTrends' assets, the 1999 employee stock purchase plan provides that each
outstanding option to purchase shares under the 1999 employee stock purchase
plan will be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation refuses to assume or provide an
equivalent substitute for the option, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
merger or proposed sale. In the event of a proposed liquidation or dissolution
of WebTrends, the offering period during which a participant may purchase stock
will be shortened to a specified date before the date of the proposed
liquidation or dissolution.
1998 STOCK INCENTIVE COMPENSATION PLAN
In December 1998, WebTrends adopted the 1998 option plan. The purpose of
the 1998 option plan is to enhance the long-term shareholder value of WebTrends
by offering opportunities to its selected employees, directors, officers,
consultants, agents, advisors, and independent contractors to participate in its
growth and success, to encourage them to remain in its service, and to own its
stock. The 1998 option plan permits both option and stock grants. The board has
reserved a total of 1,465,475 shares of common stock for the 1998 option plan,
plus:
- any shares returned to the 1997 option plan upon termination of option
and stock grants, other than terminations due to exercise or settlement
of such awards; and
- an automatic annual increase, to be added on the first day of the fiscal
year beginning in 2001, equal to the lesser of 500,000 shares or 5% of
the average common shares outstanding as used to calculate fully diluted
earnings per share as reported in WebTrends' annual report to
shareholders for the preceding year.
Stock Option Grants. The compensation committee will serve as the plan
administrator of the 1998 option plan. The plan administrator will have the
authority to select individuals to receive options under the 1998 option plan
and to specify the following:
- the terms and conditions of each option granted;
- the exercise price;
- the vesting provisions; and
- the option term.
For incentive stock options, the exercise price must be at least equal to the
fair market value of the common stock on the date of grant and for nonqualified
options must be at least 85% of the fair market value of the common stock on the
date of grant. For purposes of the 1998 option plan, fair market value means the
average of the high and low per share sales price as reported on the Nasdaq
National Market on the date of grant. Unless otherwise provided by the plan
administrator, and to the extent required for incentive stock options by
applicable law, an option granted under the 1998 option plan generally will
expire on the earliest of:
- ten years from the date of grant,
- one year after the optionee's retirement, early retirement, death, or
disability,
- notice to the optionee of termination for cause, and
- three months after other terminations.
Stock Awards. The plan administrator is authorized under the 1998 option
plan to issue shares of common stock to eligible participants with terms,
conditions, and restrictions established by the plan administrator in its sole
discretion. Restrictions may be based on continuous service with WebTrends or
the achievement of performance goals.
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Holders of restricted stock are shareholders of WebTrends and have, subject to
established restrictions, all the rights of shareholders with respect to such
shares.
Termination of the 1998 Option Plan. Unless terminated sooner by the board
of directors, the 1998 option plan will terminate in December 2008.
Adjustments. The plan administrator will make proportional adjustments to
the aggregate number of shares issuable under the 1998 option plan and to
outstanding awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of corporate transactions, such as a
merger or sale, each outstanding option to purchase shares under the 1998 option
plan may be assumed or an equivalent option substituted by the buyer. If the
buyer does not assume or provide an equivalent substitute for the option, the
option terminates, but the holder has the right to exercise the vested portion
of the option immediately before the corporate transaction. Some option
agreements call for accelerated vesting in the event of a corporate transaction.
In the event of a proposed dissolution or liquidation of WebTrends, the plan
administrator, in its discretion, may accelerate options and cancel any
forfeiture provisions or repurchase options applicable to stock awards.
1997 STOCK INCENTIVE COMPENSATION PLAN
WebTrends' 1997 option plan provides for the grant of incentive and
nonqualified stock options and stock awards to its employees, directors and
consultants. An aggregate of 1,534,524 shares of common stock has been
authorized for issuance under the 1997 option plan. As of December 31, 1998,
options to purchase an aggregate of 1,471,149 shares of common stock were
outstanding under the 1997 option plan, with exercise prices ranging from $0.61
to $8.00 per share. As of December 31, 1998, options to purchase 8,437 shares of
common stock had been exercised under the 1997 option plan. No additional
options will be granted under the 1997 option plan, as future option grants will
be made under the 1998 option plan. Any shares that are returned to the 1997
option plan upon termination of options and stock grants, other than
terminations due to exercise or settlement of such awards, will be added to the
number of shares reserved for issuance under the 1998 option plan. Options
outstanding under the 1997 option plan will continue to be governed by the terms
of the 1997 option plan. In the event of a merger of WebTrends with or into
another corporation, the options may be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of such
corporation. If the successor corporation refuses to assume or provide an
equivalent substitute for the option, unless otherwise provided in an
individual's option letter agreement, the option will terminate, but the holder
of the option shall have the right to exercise the vested portion of the option
immediately before the corporate transaction.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Oregon law, WebTrends' articles of incorporation require
indemnification against liabilities and expenses of a director, and the articles
and bylaws permit such indemnification of an officer, where either is made or
threatened to be made a party to a proceeding, other than a proceeding by or in
the right of WebTrends to procure a judgment in its favor, because such person
is or was its director or officer. Indemnification is provided if the director
or officer acted in good faith and in a manner he or she reasonably believed was
in or not opposed to WebTrends' best interests, and, with respect to any
criminal action or proceeding, the director or officer, in addition, had no
reasonable cause to believe his or her conduct was unlawful. In the case of any
proceeding by or in the right of WebTrends, a director or officer is entitled to
indemnification of expenses if he
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<PAGE> 60
or she acted in good faith and in a manner he or she reasonably believed was in
or not opposed to WebTrends' best interests. However, pursuant to Oregon law, no
indemnification would be made if the director's or officer's errors or omissions
were shown to have involved any:
- breach of the director's or officer's duty of loyalty to WebTrends;
- act or omission not in good faith or that involved intentional misconduct
or a knowing violation of law;
- distribution that was unlawful under Oregon law;
- transaction from which the director or officer received an improper
personal benefit; or
- profits made from the purchase and sale by the director or officer of
securities of WebTrends within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provision of any state
statutory law or common law.
The articles also provide that no director will be liable to WebTrends or
its shareholders for monetary damages for conduct as a director, except that a
director may be personally liable in the instances set forth in the list above.
Indemnification may also be provided to persons other than directors or
officers.
WebTrends understands that the current position of the Securities and
Exchange Commission is that any indemnification of liabilities arising under the
Securities Act of 1933, is against public policy and is, therefore,
unenforceable.
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<PAGE> 61
INSIDER TRANSACTIONS
On August 24, 1998, WebTrends entered into a consulting agreement with J
Ryan & Associates, a consulting company formed by John W. Ryan, a director of
WebTrends, pursuant to which WebTrends is required to pay a fee of $45,000,
grant Mr. Ryan an option to purchase 7,500 shares of common stock and reimburse
him for reasonable out-of-pocket expenses incurred in connection with his
providing services as a consultant. The consulting services include assistance
related WebTrends' North American distribution channels and assisting with
company positioning and overall market planning. The consulting agreement has a
term of six months, ending on February 28, 1999. As of December 31, 1998,
WebTrends has made payments totaling $45,000 and has granted Mr. Ryan an option
to purchase 7,500 shares of common stock under the 1997 option plan. See
"Management -- Compensation of Directors."
In November 1996, W. Glen Boyd and Elijahu Shapira, executive officers and
directors of WebTrends, each extended a $300,000 line of credit to WebTrends to
provide working capital. In March 1997, WebTrends borrowed $125,000 from each of
Messrs. Boyd and Shapira under the line of credit, and issued them promissory
notes. The Notes bear interest at 5% per annum and mature in December 1997. In
August 1998, the payment terms of these notes were amended to provide that
payments in amounts not less than $25,000 per quarter would be made on each
promissory note until the entire principal and accrued interest is paid in full.
WebTrends has made two quarterly payments totalling $60,858 to each of Messrs.
Boyd and Shapira as of December 31, 1998.
WebTrends believes that all of the transactions set forth above were made
on terms no less favorable to it than could have been obtained from unaffiliated
third parties. Any future transactions between WebTrends and its officers,
directors, and principal shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to WebTrends
than could be obtained from unaffiliated third parties.
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<PAGE> 62
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of WebTrends common stock as of December 31, 1998 by the following:
- Each person or group of affiliated persons known by WebTrends to
beneficially own more than a number of shares equal to 5% of the common
stock;
- Each director and Named Executive Officer;
- The selling shareholders;
- All of the directors and executive officers as a group.
Beneficial ownership of shares includes any shares over which a person
exercises sole or shared voting or investment power, or of which a person has
the right to acquire ownership at any time within 60 days, for example, through
the exercise of a vested option that has vested as to all or a portion of the
underlying shares. Shares of common stock subject to options currently
exercisable or exercisable within 60 days are deemed outstanding for purposes of
computing the percentage ownership of the person holding the options, but are
not deemed outstanding for computing the percentage ownership of any other
person. Except as otherwise indicated, WebTrends believes that the beneficial
owners of the common stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED BEFORE OFFERING BEING OWNED AFTER OFFERING
--------------------- OFFERED ------------------------
NAME AND ADDRESS(1) NUMBER PERCENT FOR SALE NUMBER(2) PERCENT(2)
------------------- --------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Elijahu Shapira................... 3,900,000(3) 47.5% 250,000 3,650,000 32.5%
Anne Lim Shapira
as trustee of The Shapira Group 500,000 500,000
Trust, U/A/D 9/29/98............ 6.1 -- 4.5
W. Glen Boyd...................... 3,900,000(4) 47.5 250,000 3,650,000 32.5
Alice Ferguson Boyd
as trustee of The Boyd Group 500,000 500,000
Trust, U/A/D 9/29/98............ 6.1 -- 4.5
Michael Burmeister-Brown.......... 410,527 5.0 -- 410,527 3.7
John W. Ryan...................... 20,526(5) * -- 20,526(5) *
Srivats Sampath................... 20,526(5) * -- 20,526(5) *
All directors and executive 8,278,945(5) 7,778,945(5)
officers as a group (eight
persons)........................ 99.9 500,000 68.9
</TABLE>
- -------------------------
* Less than 1%.
(1) The address of Messrs. Shapira and Boyd; The Shapira Group Trust; and The
Boyd Group Trust is c/o WebTrends Corporation, 851 SW Sixth Avenue, Suite
1200, Portland, Oregon 97204. The address of Mr. Burmeister-Brown is c/o
Second Nature Software, 1325 Officers' Row, Vancouver, Washington 98661. The
address of Mr. Ryan is c/o J Ryan & Associates, 2903 Mill Reef Cove, Austin,
Texas 78746. The address of Mr. Sampath is c/o Network Associates, Inc.,
3965 Freedom Circle, Santa Clara, California 95054.
(2) Assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, the selling shareholders will
sell an aggregate of an additional 525,000 shares of common stock.
Specifically, Elijahu Shapira and W. Glen Boyd will each sell an additional
262,500 shares and will each beneficially own 3,137,500 shares, or 28.0% of
the outstanding common stock after completion of this offering.
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<PAGE> 63
(3) Includes 500,000 shares of common stock held by Anne Lim Shapira as trustee
of The Shapira Group Trust, U/A/D 9/29/98. Mr. Shapira disclaims beneficial
ownership of such shares.
(4) Includes 500,000 shares of common stock held by Alice Ferguson Boyd as
trustee of The Boyd Group Trust, U/A/D 9/29/98. Mr. Boyd disclaims
beneficial ownership of such shares.
(5) Includes shares subject to options exercisable within 60 days after December
31, 1998, as follows: John W. Ryan, 20,526 shares; and Srivats Sampath,
20,526 shares; for all officers and directors as a group, 68,418 shares.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of WebTrends consists of 60 million shares of
common stock, no par value per share, and 15 million shares of preferred stock,
no par value per share.
COMMON STOCK
As of December 31, 1998, there were 8,218,964 shares of common stock
outstanding, held of record by seven shareholders. Following this offering,
11,218,964 shares of common stock will be issued and outstanding. This number
does not reflect the exercise of stock options subsequent to December 31, 1998.
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the shareholders. Because holders of common stock do not have
cumulative voting rights, the holders of a majority of the shares of common
stock can elect all of the members of the board of directors standing for
election. Subject to preferences of any preferred stock that may be issued in
the future, the holders of common stock are entitled to receive such dividends
as may be declared by the board of directors. If WebTrends is liquidated,
dissolved, or wound up, the holders of common stock are entitled to receive pro
rata all of its assets available for distribution to its shareholders after
payment of liquidation preferences of any outstanding shares of preferred stock.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
Subject to the provisions of the articles of incorporation and limitations
prescribed by law, the board of directors has the authority to issue, without
further vote or action by the shareholders, up to 15 million shares of preferred
stock in one or more series. The board has the power and authority to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series. Any series of
preferred stock may have rights and privileges superior to those of the common
stock. There will be no shares of preferred stock outstanding upon the
completion of this offering, and WebTrends has no present plans to issue any
preferred stock.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage a third-party's
attempt to obtain control of WebTrends by means of a tender offer, proxy
contest, merger, or otherwise. The issuance of shares of the preferred stock may
also discourage a party from making a bid for the common stock because such
issuance may adversely affect the rights of the holders
59
<PAGE> 64
of common stock. For example, preferred stock may rank prior to the common stock
as to dividend rights, liquidation preference, or both, may have full or limited
voting rights and may be convertible into shares of common stock. Accordingly,
the issuance of shares of preferred stock may discourage bids for the common
stock or may otherwise adversely affect the market price of the common stock.
ANTI-TAKEOVER MEASURES
ARTICLES AND BYLAWS
WebTrends' articles and bylaws contain provisions that may have the effect
of delaying, deferring or preventing a change in control. Such provisions
include:
- The ability of the board of directors, without further shareholder
approval, to issue up to 15 million shares of preferred stock;
- Requiring a classified board whenever there are six or more directors,
with each class containing as nearly as possible one-third of the total
number of directors and the members of each class serving for staggered
three-year terms;
- Prohibiting cumulative voting for the election of directors;
- Requiring supermajority approval of the shareholders to effect amendments
to the bylaws; and
- Requiring no less than 60 days' advance notice with respect to
nominations of directors or other matters to be voted on by shareholders
other than by or at the direction of the board of directors.
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
Oregon law may restrict the ability of significant shareholders of
WebTrends to exercise voting rights. The law generally applies to a person who
acquires voting stock of an Oregon corporation in a transaction that results in
such person holding more than 20%, 33 1/3% or 50% of the total voting power of
the corporation. If such a transaction occurs, the person cannot vote the shares
unless voting rights are restored to those shares by:
- a majority of the outstanding voting shares, including the acquired
shares, and
- the holders of a majority of the outstanding voting shares, excluding the
acquired shares and shares held by the corporation's officers and inside
directors.
This law is construed broadly and may apply to persons acting as a group.
The restricted shareholder may, but is not required to, submit to the
corporation a statement setting forth information about itself and its plans
with respect to the corporation. The statement may request that the corporation
call a special meeting of shareholders to determine whether voting rights will
be granted to the shares acquired. If a special meeting of shareholders is not
requested, the issue of voting rights of the acquired shares will be considered
at the next annual or special meeting of shareholders. If the acquired shares
are granted voting rights and they represent a majority of all voting power,
shareholders who do not vote in favor of granting such voting rights will have
the right to receive the appraised fair value of their shares. The appraised
fair value will, at a minimum, be equal to the highest price paid per share by
the person for the shares acquired in a transaction subject to this law.
WebTrends is also subject to provisions of Oregon law that govern business
combinations between corporations and interested shareholders. These provisions
generally
60
<PAGE> 65
prohibit a corporation from entering into a business combination transaction
with a person, or affiliate of such person, for a period of three years from the
date such person acquires 15% or more of the voting stock of the corporation.
For the purpose of this law, the prohibition generally applies to the following:
- A merger or plan of share exchange;
- Any sale, lease, mortgage or other disposition of 10% or more of the
assets of the corporation; and
- Transactions that result in the issuance of capital stock of the
corporation to the 15% shareholder.
However, the general prohibition does not apply if:
- The 15% shareholder, as a result of the transaction in which such person
acquired 15% of the shares, owns at least 85% of the outstanding voting
stock of the corporation;
- The board of directors approves the share acquisition or business
combination before the shareholder acquired 15% or more of the
corporation's outstanding voting stock; or
- The board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation, excluding shares owned by
the 15% shareholder, approve the transaction after the shareholder
acquires 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.,
located in Canton, Massachusetts.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for WebTrends'
common stock. Future sales of substantial amounts of the common stock in the
public market, or even the prospect of such sales, could adversely affect the
prevailing market prices of the common stock or WebTrends' future ability to
raise capital through an offering of equity securities.
Upon the closing of this offering, and assuming no exercise of outstanding
stock options subsequent to December 31, 1998, WebTrends will have 11,218,964
shares of common stock outstanding. The 3,500,000 shares sold in this offering
will be freely tradable without restriction or limitation under the Securities
Act, except for any such shares purchased by "affiliates" of WebTrends, as such
term is defined under Rule 144 of the Securities Act, which will be subject to
the resale limitations of Rule 144. The remaining 7,718,964 shares of WebTrends
common stock issued and outstanding are "restricted securities" within the
meaning of Rule 144 and were issued and sold by WebTrends in private
transactions. Such restricted securities may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. WebTrends and the holders of all such remaining
shares will agree that, without the prior written consent of Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, they will not, directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge, make any short sale, or
61
<PAGE> 66
otherwise dispose of shares of common stock, for a period of 180 days after the
date of this prospectus. Upon expiration of the lock-up agreements, all of these
restricted securities will be eligible for immediate resale in the public market
subject to the limitations of Rule 144.
In general, under Rule 144, a person, or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, would be entitled to sell, within any three-month period, that number of
shares that does not exceed the greater of
(a) 1% of the then-outstanding shares of common stock, which is
approximately 112,000 shares upon the closing of this offering, and
(b) the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which a notice of sale
is filed with the Securities and Exchange Commission, provided that the
manner of sale and notice requirements and requirements as to the
availability of current public information about WebTrends are
satisfied.
In addition, in order to sell shares of common stock that are not
restricted securities, affiliates of WebTrends must comply with all restrictions
and requirements of Rule 144 other than the one-year holding period requirement.
As defined in Rule 144, an "affiliate" of an issuer is a person who directly or
indirectly through the use of one or more intermediaries controls, or is
controlled by, or is under common control with, such issuer. Under Rule 144(k),
a holder of "restricted securities" who is not deemed an affiliate of the issuer
and who has beneficially owned shares for at least two years would be entitled
to sell shares under Rule 144(k) without regard to the limitations described
above.
WebTrends intends to file a registration statement under the Securities Act
following the date of this prospectus to register the future issuance of up to
3,341,562 shares of common stock under the 1997 option plan, the 1998 option
plan and the 1999 employee stock purchase plan. The registration statement will
become effective immediately upon filing. After the registration statement is
effective, subject to the vesting of stock options, Rule 144 volume limitations
applicable to affiliates, and expiration of lock-up agreements with the
underwriters, the shares of common stock to be issued pursuant to the 1999
employee stock purchase plan or upon exercise of outstanding options granted
pursuant to the 1997 option plan and 1998 option plan will be available for
immediate resale in the open market. As of December 31, 1998, no options were
outstanding under the 1998 option plan and no shares had been issued under the
1999 employee stock purchase plan.
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<PAGE> 67
UNDERWRITING
The underwriters named below, acting through their representatives, Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, and SoundView
Technology Group, Inc., have severally agreed, subject to the terms and
conditions of the underwriting agreement, to purchase from WebTrends and the
selling shareholders the number of shares of common stock set forth opposite
their respective names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased, subject to the conditions stated in
the underwriting agreement.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Dain Rauscher Wessels.......................................
SoundView Technology Group, Inc.............................
---------
Total............................................. 3,500,000
=========
</TABLE>
The representatives have advised WebTrends and the selling shareholders
that the underwriters propose to offer the shares of common stock to the public
at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the public offering, the public offering price, concession and reallowance
to dealers may be reduced by the representatives. No such reduction shall change
the amount of proceeds to be received by WebTrends as set forth on the cover
page of the prospectus.
The underwriting agreement contains covenants of indemnity among the
underwriters, WebTrends, and the selling shareholders against civil liabilities,
including liabilities under the Securities Act and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
The selling shareholders have granted to the underwriters an option to
purchase up to 525,000 additional shares of common stock. This option may be
exercised at any time up to 30 days after the date of this prospectus. The
option entitles the underwriters to purchase the additional shares of common
stock at the same price per share as the 3,500,000 shares being sold in this
offering. If the underwriters exercise the option, each of the underwriters must
purchase approximately the same percentage of additional shares from the selling
shareholders that they purchased from WebTrends. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
3,500,000 shares are being sold.
The price of the shares of common stock purchased by the underwriters will
be the public offering price set forth on the cover page of the prospectus less
the following underwriting discounts and commissions, to be provided by
WebTrends and the selling shareholders:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- --------------- ---------------
<S> <C> <C> <C>
By WebTrends...............................
By selling shareholders....................
</TABLE>
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<PAGE> 68
WebTrends will also pay offering expenses estimated to total $1 million.
Without the prior written consent of the underwriters, WebTrends'
shareholders and option holders have agreed, for a period of 180 days after the
date of this prospectus, not to sell, transfer, grant any third party the right
to purchase, or otherwise dispose of any shares of common stock or other
securities that they own or acquire. This 180-day period is known as the lock-up
period. The representatives may, without notice and in their sole discretion,
allow any shareholder or option holder to dispose of common stock or other
securities prior to the expiration of the lock-up period. There are, however, no
agreements between the underwriters and any of WebTrends' shareholders or option
holders that would allow them to do so.
In addition, WebTrends has agreed that it will not issue, sell, offer to
sell, or otherwise dispose of any shares of its common stock or other securities
during the lock-up period without the prior consent of the underwriters. This
agreement does not include shares of common stock or other securities issued
pursuant to employee stock option plans, employee stock purchase plans, or
common stock or other securities issued pursuant to options or other securities
outstanding on the date of this prospectus. However, WebTrends has agreed that
employee stock options issued during the lock-up period may not be exercised
prior to the expiration of the lock-up period. Any shares of common stock issued
during the lock-up period pursuant to the exercise of stock options or other
securities outstanding on the date of this prospectus shall bear a restrictive
legend restricting the transfer of such shares during the lock-up period.
The underwriters have advised WebTrends that in connection with this
offering, certain persons participating in this offering may engage in
transactions that may have the effect of stabilizing or maintaining the market
price of the common stock at a level above that which might otherwise prevail in
the open market. These transactions may include stabilizing bids, syndicate
covering transactions and the imposition of penalty bids. A "stabilizing bid" is
a bid for or the purchase of common stock on behalf of the underwriters for the
purpose of preventing or retarding a decline in the market price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by such underwriter or syndicate
member. The representatives have advised WebTrends that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commence, may be
discontinued at any time.
Prior to this offering, there was no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between WebTrends, the selling shareholders and the underwriters.
Among other factors to be considered in determining the initial public offering
price are prevailing market and economic conditions, revenues and earnings of
WebTrends, the state of its business operation, an assessment of its management
and consideration of the above factors in relation to market valuation of
companies in related businesses and other factors deemed relevant. There can be
no assurance, however, that the prices at which the common stock will sell in
the public market after this offering will be equal to or greater than the
initial public offering price.
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<PAGE> 69
LEGAL MATTERS
The validity of the common stock offered hereby and other legal matters
will be passed upon for WebTrends by Perkins Coie LLP, Portland, Oregon. Legal
matters will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, P.C., Palo Alto, California.
EXPERTS
WebTrends' financial statements as of December 31, 1997 and 1998, and for
each of the years in the three-year period ended December 31, 1998, have been
included in this prospectus and elsewhere in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
WebTrends has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information contained in the registration statement, together with the exhibits
and schedules to the registration statement, on file with the Securities and
Exchange Commission. The registration statement, including the exhibits and
schedules, may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Securities and Exchange
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies may be obtained at the prescribed rates from the Public Reference
Section of the Securities and Exchange Commission at its principal office in
Washington, D.C. The Securities and Exchange Commission also maintains a Web
site on the Internet that contains reports, proxy and information statements,
and other information regarding registrants, including WebTrends, that file
electronically with the Securities and Exchange Commission at
http://www.sec.gov.
Statements contained in this prospectus concerning the provisions of
documents are necessarily summaries of the material provisions of such documents
and each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Securities and Exchange Commission.
WebTrends intends to furnish its shareholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent auditors and may furnish its shareholders with quarterly reports for
the first three quarters of each fiscal year containing unaudited summary
financial information.
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<PAGE> 70
WEBTRENDS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP............................. F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WebTrends Corporation:
We have audited the accompanying balance sheets of WebTrends Corporation as
of December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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 WebTrends Corporation as of
December 31, 1997 and 1998, and the results of its operations, and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
January 11, 1999, except for note 10
which is as of January 19, 1999
F-2
<PAGE> 72
WEBTRENDS CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 806,916 1,098,847
Accounts receivable, net............................. 526,641 977,577
Inventories.......................................... 89,135 62,115
Prepaid expenses..................................... 41,999 190,530
Deferred offering costs.............................. -- 255,394
Deferred taxes....................................... 90,500 157,500
---------- ---------
Total current assets......................... 1,555,191 2,741,963
Property and equipment, net............................ 325,966 598,407
Other assets........................................... 5,032 5,016
Deferred taxes, net.................................... -- 17,000
---------- ---------
Total assets................................. $1,886,189 3,362,386
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... 243,830 383,187
Accrued liabilities.................................. 59,311 385,233
Accrued compensation and employment taxes............ 165,805 508,422
Accrued sales taxes.................................. 155,137 268,533
Accrued income taxes................................. 24,548 --
Deferred revenue..................................... 387,074 824,013
Notes and interest payable to shareholders........... 259,709 151,103
---------- ---------
Total current liabilities.................... 1,295,414 2,520,491
Deferred taxes......................................... 6,500 --
---------- ---------
Total liabilities............................ 1,301,914 2,520,491
---------- ---------
Commitments and contingencies (note 9)
Shareholders' equity:
Preferred stock, no par value. Authorized 15,000,000
shares; no shares outstanding..................... -- --
Common stock, Class A voting, no par value.
Authorized 30,000,000 shares; issued and
outstanding 8,210,527 at December 31, 1997 and
1998.............................................. 260,000 260,000
Common stock, Class B non-voting, no par value.
Authorized 30,000,000 shares; none and 8,437
shares issued and outstanding at December 31, 1997
and 1998.......................................... -- 320,387
Deferred compensation, net............................. -- (282,227)
Retained earnings...................................... 324,275 543,735
---------- ---------
Total shareholders' equity................... 584,275 841,895
---------- ---------
Total liabilities and shareholders' equity... $1,886,189 3,362,386
========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 73
WEBTRENDS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Software licenses....................... $1,858,014 3,836,657 7,206,461
Support services........................ 6,824 218,233 801,963
---------- ---------- ---------
Total revenue................... 1,864,838 4,054,890 8,008,424
Cost of revenue........................... 204,546 292,268 632,925
---------- ---------- ---------
Gross margin.................... 1,660,292 3,762,622 7,375,499
---------- ---------- ---------
Operating expenses:
Research and development................ 402,583 1,059,439 2,211,029
Sales and marketing..................... 552,634 1,526,889 3,641,965
General and administrative.............. 307,318 748,832 1,300,626
---------- ---------- ---------
Total operating expenses........ 1,262,535 3,335,160 7,153,620
---------- ---------- ---------
Income from operations.......... 397,757 427,462 221,879
---------- ---------- ---------
Other income (expense):
Interest income......................... 9,042 21,769 41,997
Interest expense........................ (2,097) (11,358) (13,111)
---------- ---------- ---------
Other income, net............... 6,945 10,411 28,886
---------- ---------- ---------
Income before income taxes...... 404,702 437,873 250,765
Income taxes.............................. -- 150,500 31,305
---------- ---------- ---------
Net income...................... $ 404,702 287,373 219,460
========== ========== =========
Basic net income per share................ $ .04 .03
========== =========
Diluted net income per share.............. $ .04 .02
========== =========
Shares used in basic net income per share
calculation............................. 8,126,173 8,210,651
========== =========
Shares used in diluted net income per
share calculation....................... 8,126,173 9,003,209
========== =========
Pro forma net income data:
Income before income taxes as
reported............................. 404,702
Pro forma income taxes.................. 140,027
----------
Pro forma net income.................... $ 264,675
==========
Pro forma net income per share -- basic
and diluted.......................... $ .03
==========
Shares used in pro forma net income per
share calculation -- basic and
diluted.............................. 7,800,000
==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 74
WEBTRENDS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A, CLASS B,
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- ----------------- DEFERRED RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION EARNINGS TOTAL
--------- -------- --------- -------- ------ -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... -- $ -- 6,300,300 $ 10,000 -- $ -- -- 257,150 267,150
Conversion of S
Corporation shares to C
Corporation shares...... -- -- 1,499,700 -- -- -- -- -- --
Dividend distribution..... -- -- -- -- -- -- -- (624,950) (624,950)
Net income................ -- -- -- -- -- -- -- 404,702 404,702
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1996.................... -- -- 7,800,000 10,000 -- -- -- 36,902 46,902
Sale of common stock...... -- -- 410,527 250,000 -- -- -- -- 250,000
Net income................ -- -- -- -- -- -- -- 287,373 287,373
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1997.................... -- -- 8,210,527 260,000 -- -- -- 324,275 584,275
Deferred compensation..... -- -- -- -- -- 315,268 (315,268) -- --
Amortization of deferred
compensation............ -- -- -- -- -- -- 33,041 -- 33,041
Exercise of stock
options................. -- -- -- -- 8,437 5,119 -- -- 5,119
Net income................ -- -- -- -- -- -- -- 219,460 219,460
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1998.................... -- $ -- 8,210,527 $260,000 8,437 $320,387 (282,227) 543,735 841,895
========= ======== ========= ======== ===== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 75
WEBTRENDS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 404,702 287,373 219,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........ 29,447 88,375 206,417
Provision for doubtful accounts...... 12,423 32,705 43,548
Loss on marketable securities........ 1,323 -- --
Loss on sale of assets............... -- -- 293
Amortization of deferred stock
compensation...................... -- -- 33,041
Changes in assets and liabilities:
Accounts receivable.................. (261,525) (149,443) (494,484)
Inventories.......................... (9,728) (76,027) 27,020
Prepaid expenses..................... (14,216) (26,209) (403,925)
Deferred taxes, net.................. -- (84,000) (90,500)
Other assets......................... (4,101) 407 16
Accounts payable..................... 78,561 165,269 139,357
Accrued liabilities.................. 12,409 31,273 325,922
Accrued compensation and employment
taxes............................. 57,809 97,719 342,617
Accrued sales taxes.................. -- 155,137 113,396
Accrued income taxes................. -- 24,548 (24,548)
Accrued interest..................... 2,097 5,503 (8,606)
Deferred revenues.................... 131,592 255,481 436,939
--------- -------- ---------
Net cash provided by operating
activities..................... 440,793 808,111 865,963
--------- -------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..... (156,422) (269,533) (479,151)
--------- -------- ---------
Net cash used by investing
activities..................... (156,422) (269,533) (479,151)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.... -- 250,000 5,119
Dividend payments to shareholders......... (142,068) (482,882) --
Principal payments on borrowings from
shareholders........................... -- (70,000) (100,000)
Borrowings from shareholders.............. -- 250,000 --
--------- -------- ---------
Net cash used by financing
activities..................... (142,068) (52,882) (94,881)
--------- -------- ---------
Increase in cash and cash equivalents....... 142,303 485,696 291,931
Cash and cash equivalents, beginning of
year...................................... 178,917 321,220 806,916
--------- -------- ---------
Cash and cash equivalents, end of year...... $ 321,220 806,916 1,098,847
========= ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest............................... $ -- 5,855 21,717
Income taxes........................... -- 208,000 155,500
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 76
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
WebTrends was incorporated as an S Corporation on August 31, 1993 in
Delaware and was reorganized into a C Corporation effective January 1, 1997 in
Oregon. WebTrends is a leading provider of enterprise management solutions for
Internet-based systems.
USE OF ESTIMATES
The presentation 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, WebTrends considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$20,000 and $40,000 at December 31, 1997 and 1998, respectively.
NEED FOR NEW PRODUCT DEVELOPMENT
A substantial portion of WebTrends' revenues each year are generated from
the development and rapid release to market of computer software products newly
introduced during the year. In the extremely competitive industry environment in
which WebTrends operates, such product generation, development and marketing
processes are uncertain and complex, requiring accurate prediction of market
trends and demand as well as successful management of various development risks
inherent in such products. In light of these requirements, it is reasonably
possible that failure to successfully manage a significant product introduction
could have a severe near-term impact on WebTrends' growth and results of
operations.
INVENTORIES
Inventory is valued at the lower of estimated cost or market determined
using the "first-in, first-out" ("FIFO") method. Inventories consist of CDs,
printing, packaging and receiving costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of individual assets of
three to five years. Expenditures for renewals and improvements that
significantly add to the useful life of an asset are capitalized. Expenditures
for repairs and maintenance are charged to income. When depreciable properties
are retired or otherwise disposed of, the cost and related
F-7
<PAGE> 77
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
accumulated depreciation are removed from the accounts and the resulting gain or
loss is reflected in operations.
REVENUE RECOGNITION
In October 1997, The American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. Subsequently, in March 1998, the Financial Accounting Standards
Board ("FASB") approved SOP 98-4, Deferral of the Effective Date of a Provision
of 97-2, Software Revenue Recognition. SOP 98-4 defers for one year, the
application of several paragraphs and examples in SOP 97-2 that limit the
definition of vendor specific objective evidence ("VSOE") of the fair value of
various elements in a multiple element arrangement. The provisions of SOP's 97-2
and 98-4 have been applied to transactions entered into beginning January 1,
1998. Prior to 1997, WebTrends' revenue policy was in accordance with the
preceding authoritative guidance provided by SOP No. 91-1, Software Revenue
Recognition.
SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on VSOE of the
relative fair values of each element in the arrangement.
Software license revenue consists of fees for licenses of WebTrends'
software products. Revenue allocated to software licenses is recognized upon
delivery of software, assuming no significant obligations or customer acceptance
rights exist. WebTrends generally provides a thirty-day right of return for each
product sold. Estimated sales returns and allowances are recorded upon shipment
of the product.
WebTrends sells a portion of its products domestically and internationally
through resellers. Revenue from sales to domestic resellers is managed directly
by WebTrends, and it recognizes revenue from sales primarily at the time of
shipment, net of estimated returns and allowances. In December of 1998,
WebTrends entered into domestic distribution agreements with Merisel and Ingram.
These agreements offer expanded rights of return and price protection beyond our
normal reseller agreements. For these distributors, WebTrends is recognizing
revenues upon sales from the distributor to a third-party or end user until a
returns history can be established. Revenue from sales to international
resellers is managed by a third party export management company and revenue is
recognized upon sales from the reseller to a third party or end user.
Support services revenue consists of annual subscriptions for upgrades,
post customer support services. and professional services. Revenue allocated to
subscriptions, which allow the subscriber to purchase the right to obtain
upgrades, when and if available, are paid in advance and revenues are recognized
ratably over the term of the subscription. Revenue allocated to professional
services is recognized as the services are performed.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. This SOP
amends SOP 97-2 to require recognition of revenue using the "residual method" in
circumstances outlined in the SOP. Under the residual method, revenue is
recognized as follows: (1) the total fair value of undelivered elements, as
indicated by VSOE, is deferred and subsequently recognized in accordance with
the relevant sections of SOP 97-2 and (2) the difference
F-8
<PAGE> 78
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
between the total arrangement fee and the amount deferred for the undelivered
elements is recognized as revenue related to the delivered elements.
SOP 98-9 is effective for fiscal years beginning after March 15, 1999.
Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will continue to
be deferred until the date SOP 98-9 becomes effective.
CONCENTRATION OF CREDIT RISK
Sales outside of the United States were approximately $336,000, $893,000
and $2.2 million for the years ended December 31, 1996, 1997 and 1998,
respectively. During these same periods, no individual customer or reseller
accounted for 10% or more of total revenue. However, sales managed by a third
party export management company were 8.1%, 11.8%, and 16.7% for the years ended
December 31, 1996, 1997, and 1998, respectively. Accounts receivable at December
31, 1997 and 1998 includes balances due from a third-party export management
company that manages most of our international sales through invoicing and
initiating collection procedures. This account comprised 21% and 28%,
respectively, of the total outstanding accounts receivable balance at those
respective dates of which 81% and 94%, respectively, was due less than thirty
days from billing. For 1997 and 1998, except for the one third-party export
management company, no customer comprised greater than 10% of the total accounts
receivable balance.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and notes payable to shareholders approximate fair value due to
the short-term nature of these instruments. Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instrument when available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
ADVERTISING COSTS
Advertising costs are generally expensed when incurred. Total advertising
costs were approximately $266,000, $553,000 and $957,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
RESEARCH AND DEVELOPMENT
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, WebTrends
has not capitalized any software development costs and charged all such costs to
research and development expense.
F-9
<PAGE> 79
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Prior to January 1, 1997, WebTrends was taxed under the S Corporation
provisions of the Internal Revenue Code. Under those provisions, WebTrends did
not pay federal or state corporate income taxes on its taxable income. Instead,
the shareholders were liable for federal and state income taxes on WebTrends'
taxable income. Supplemental pro forma net income data for the year ended
December 31, 1996, as if WebTrends was a C Corporation, are presented for
comparison purposes only.
Effective January 1, 1997, the S Corporation election was terminated. The
Company's income taxes since that date are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
STOCK-BASED EMPLOYEE COMPENSATION
WebTrends adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, ("SFAS No. 123") which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures as if the
fair-value-based method defined in SFAS No. 123 had been applied. WebTrends has
elected to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
NET INCOME PER SHARE
Basic and diluted net income per share were computed using the weighted
average number of common shares outstanding during each year, with diluted net
income per share including the effect of potentially dilutive common stock
equivalents. The weighted average number of common shares outstanding for basic
net income per share computations for the years ended December 31, 1997 and 1998
were 8,126,173 and 8,210,651, respectively. For diluted net income per share,
- -0- and 792,558 shares were added to the weighted average number of common
shares outstanding for the same periods, respectively, representing potential
dilution for stock options outstanding, calculated using the treasury stock
method. Basic and diluted net income per share have been calculated in
accordance with SEC Staff Accounting Bulletin No. 98. Pro forma net income per
share data is presented for comparison purposes only as if WebTrends were taxed
as a C Corporation in 1996. WebTrends had no potentially dilutive common stock
equivalents prior to 1997.
F-10
<PAGE> 80
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- --------
<S> <C> <C>
Computer hardware and equipment......................... $ 416,166 813,255
Furniture and fixtures.................................. 4,383 4,383
Computer software....................................... 32,061 113,830
--------- --------
Total......................................... 452,610 931,468
Less accumulated depreciation and amortization.......... (126,644) (333,061)
--------- --------
Total assets, net............................. $ 325,966 598,407
========= ========
</TABLE>
(3) INCOME TAXES
Components of the 1997 provision for income taxes include:
<TABLE>
<CAPTION>
CHANGE IN TOTAL TAX
CURRENT DEFERRED TOTAL TAX STATUS EXPENSE
-------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Federal.......................... $187,000 (75,000) 112,000 7,000 119,000
State and local.................. 47,500 (18,000) 29,500 2,000 31,500
-------- ------- ------- ----- -------
Total.................. $234,500 (93,000) 141,500 9,000 150,500
======== ======= ======= ===== =======
</TABLE>
Components of the 1998 provision for income taxes include:
<TABLE>
<CAPTION>
TOTAL TAX
CURRENT DEFERRED EXPENSE
-------- -------- ---------
<S> <C> <C> <C>
Federal........................................ $102,000 (75,000) 27,000
State and local................................ 19,805 (15,500) 4,305
-------- ------- ------
Total................................ $121,805 (90,500) 31,305
======== ======= ======
</TABLE>
The 1997 and 1998 provision for income taxes varies from the amounts
computed by applying the federal statutory rate to income before taxes:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Federal income tax computed at statutory rates.............. 34.0% 34.0%
State and local taxes, net of federal benefits.............. 8.5 8.0
Research and development credits............................ (14.2) (37.3)
Foreign sales corporation benefit........................... -- (1.2)
Deferred stock compensation................................. -- 4.3
Change in tax status........................................ 2.0 --
Other....................................................... 4.1 4.7
----- -----
Total............................................. 34.4% 12.5%
===== =====
</TABLE>
F-11
<PAGE> 81
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred incentive compensation.......................... $16,600 --
Allowance for doubtful accounts.......................... 7,800 15,700
Accrued sales tax........................................ 54,600 94,800
Research and development credits......................... -- 23,600
Accrued vacation and bonus............................... 2,600 34,000
Other.................................................... 8,900 13,000
------- -------
Deferred tax assets.............................. 90,500 181,100
Deferred tax liabilities:
Depreciation of equipment................................ (6,500) (6,600)
------- -------
Net deferred tax assets.......................... $84,000 174,500
======= =======
</TABLE>
Webtrends has not recorded a valuation allowance against its deferred tax
assets existing at December 31, 1997 or 1998, as it believes it is more likely
than not that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets for which no valuation allowance has
been assigned.
At December 31, 1998, Webtrends had approximately $24,000 of federal and
state tax credit carryforwards to offset future taxable income which will expire
in the year 2013.
(4) DEFERRED REVENUE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Deferred customer support................................. $ -- 107,055
Deferred product revenues................................. 115,308 68,166
Deferred subscription revenues............................ 218,277 533,893
Other..................................................... 53,489 114,899
-------- -------
$387,074 824,013
======== =======
</TABLE>
(5) NOTES PAYABLE TO SHAREHOLDERS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Notes payable to officer/shareholders, unsecured, due on
demand with interest at 5%.............................. $250,000 150,000
Accrued interest on notes................................. 9,709 1,103
-------- -------
$259,709 151,103
======== =======
</TABLE>
F-12
<PAGE> 82
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) LINE OF CREDIT
As of December 31, 1998, WebTrends had a $750,000 bank line of credit with
a major financial institution. The line of credit expires on April 30, 1999.
Borrowings under the line generally are limited to 80% of WebTrends' eligible
accounts receivable. Interest on the unpaid balance accrues at a rate of prime
plus 0.25%. Borrowings under the line of credit are collateralized by WebTrends'
accounts receivable, inventory and general intangible assets, including its
intellectual property rights. The line of credit agreement contains financial
covenants, including tangible net worth and the ratio of current assets to
liabilities. As of December 31, 1998, WebTrends had a letter of credit for
$225,000 outstanding against its line of credit.
(7) EMPLOYEE BENEFIT PLAN
WebTrends established an employee benefit plan, effective January 1, 1997,
that features a 401(k) salary reduction provision, covering all employees who
meet eligibility requirements. Eligible employees can elect to defer up to 15%
of compensation or the statutorily prescribed annual limit. WebTrends, at its
discretion, may make contributions to the plan. To date, WebTrends has made no
contributions to the plan and has incurred administrative costs of $1,775 and
$3,328 for the years ended December 31, 1997 and 1998, respectively.
(8) SHAREHOLDERS' EQUITY
PREFERRED STOCK
WebTrends is authorized to issue 15,000,000 shares of preferred stock, no
par value. The board of directors has the authority to divide the preferred
stock into as many series as it shall from time to time determine. Each series
of preferred stock shall have the powers, preferences and rights as determined
by the board at its discretion.
COMMON STOCK
Effective December 31, 1996, the shareholders exchanged 300 shares, no par
value, of the S Corporation for 1,500,000 shares, no par value, of the C
Corporation as part of its restructuring into a C Corporation which became
effective January 1, 1997. At the same time, WebTrends authorized 30,000,000
shares of Class A voting common stock, no par value, to be made available for
issuance. Effective March 17, 1997, WebTrends authorized a stock for stock
exchange of the then outstanding 1,500,000 shares for 7,800,000 shares. This
stock for stock exchange has been retroactively reflected for all periods
presented. Also on March 17, 1997, WebTrends authorized the sale of 410,527
shares to one of its board members.
In May 1998, WebTrends approved a 3-for-1 stock split. Accordingly, share
and per share amounts for common stock have been retroactively restated to
reflect the stock split for all periods presented. See note 10 for additional
discussion.
In December of 1998, WebTrends approved a recapitalization of its common
stock to be effected upon the closing of its initial public offering. Under the
terms of the recapitalization, the Class A common stock will be redesignated
common stock, no par value per share, and will be the only authorized class of
common stock. Each share of
F-13
<PAGE> 83
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Class B common stock will automatically be converted into one share of such
common stock, and the recorded value of the Class B common stock will be
transferred to common stock.
Deferred compensation cost recognized for 1998 totaled $315,268 for stock
option awards that were granted with exercise prices that were less than the
estimated value of the stock at the date of grant. Amortization of $33,041 of
deferred compensation was recorded for the year ended December 31, 1998.
STOCK OPTIONS
Effective March 28, 1997, WebTrends established the 1997 Key Employees'
Incentive Stock Option Plan and subsequently authorized 1,500,000 shares of
Class B non-voting common stock, no par value, to be reserved for grants under
the plan. Effective December 5, 1997, the board approved the 1997 Stock
Incentive Compensation Plan (the "Plan") which replaced the Key Employee
Incentive Stock Option Plan. Options granted under the Plan may be designated as
incentive or nonqualified at the discretion of the plan administrator. On
October 30, 1998, WebTrends increased the number of shares authorized under the
plan to 2,000,000. In December 1998, WebTrends reduced the number of shares
authorized in the Plan to 1,534,524 and WebTrends determined that no additional
options will be granted under the Plan.
In December 1998, WebTrends adopted the 1998 Stock Incentive Compensation
Plan (the "1998 Plan"). The 1998 Plan permits both option and stock grants. The
board has reserved a total of 1,465,475 shares of common stock for the 1998
Plan, plus (a) any shares returned to the 1997 Plan upon termination of option
and stock grants (other than terminations due to exercise or settlement of such
awards); and (b) an automatic annual increase, to be added on the first day of
the fiscal year beginning in 2001, equal to the lesser of 500,000 shares or 5%
of the average common shares outstanding as used to calculate fully diluted
earnings per share as reported in the WebTrends' annual report for the preceding
year.
The option price for incentive stock options are set at not less than the
market value of WebTrends' common stock (market value plus 10% for shareholders
who possess more than 10% of the combined voting power of all classes of shares
of WebTrends) at the date of the grant. Employee options generally vest 25%
after the first year of employment and in equal amounts on a monthly or annual
basis thereafter over the term of the option. Options are contingent on
continued employment with WebTrends and expire ten years (five years for 10%
shareholders as defined above) from the date of grant. Option vesting may
accelerate upon a change in control of WebTrends as defined in the option
agreements.
WebTrends applies APB Opinion No. 25 in accounting for its stock options
plans. Accordingly, compensation cost is generally not recognized for stock
option grants.
F-14
<PAGE> 84
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of stock options follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1996................. -- $ --
Granted.................................................. 666,708 0.6067
Canceled................................................. -- --
Forfeited................................................ (37,500) 0.6067
--------- -------
Options outstanding at December 31, 1997................. 629,208 0.6067
Granted.................................................. 1,000,567 3.3488
Canceled................................................. (35,000) 0.7800
Forfeited................................................ (115,187) 0.6566
Exercised................................................ (8,437) 0.6067
--------- -------
Options outstanding at December 31, 1998................. 1,471,149 $2.4630
========= =======
</TABLE>
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of the outstanding options were $0.6067 to $8 and
9.22 years, respectively. At December 31, 1998, 134,802 options were exercisable
with a weighted average exercise price of $0.6067.
WebTrends adopted the 1999 employee stock purchase plan in December 1998.
WebTrends intends for the employee stock purchase plan to qualify under Section
423 of the Internal Revenue Code of 1986, as amended. WebTrends authorized the
issuance of a total of 350,000 shares of common stock plus an automatic annual
increase as defined in the employee stock purchase plan.
SFAS NO. 123 DISCLOSURE
WebTrends applies APB No. 25 and related interpretations in accounting for
its plans. However, pro forma information regarding net income is required by
SFAS No. 123, which also requires that the information be determined as if
WebTrends had accounted for its employee stock options granted under the fair
value method prescribed by that statement. In accordance with SFAS No. 123 pro
forma disclosures as if WebTrends adopted the cost recognition requirements
under SFAS No. 123 in 1997 are presented below.
The per share weighted average fair value of stock options granted during
1997 and 1998 was $.44 and $3.08, respectively. For SFAS No. 123 purposes, the
fair value of each option has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions for grants in
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Average dividend yield...................................... $ --% --%
Expected life in years...................................... 4 4
Risk free interest rate..................................... 7.0% 6.0%
Expected volatility......................................... 100% 100%
</TABLE>
F-15
<PAGE> 85
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Had the Company used the fair value methodology for determining
compensation expense, the Company's net income net of related tax effects would
have approximated the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Net income:
As reported............................................... $287,373 219,460
Pro forma................................................. 240,947 20,033
Net income per share, basic and diluted:
As reported............................................... $ .04 .03
Pro forma................................................. .03 --
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
(9) COMMITMENTS AND CONTINGENCIES
Webtrends leases its office facilities under a six-year operating lease
which commenced October 1, 1997. This lease was amended in September 1998 to
terminate on January 31, 1999. As consideration for the early termination,
Webtrends paid the landlord $20,548.
In November 1998, Webtrends negotiated a new five-year lease for office
facilities in a new premises with the option to extend for an additional five
years. The lease term begins on January 15, 1999. The new lease provides for a
base rent of $34,208 per month for the first six months. Beginning July 1999,
Webtrends will lease additional space in the same building. At that time, the
base rent will increase to $57,467 for all space occupied, with annual
adjustments thereafter. For the years ended December 31, 1996, 1997 and 1998,
rent expense was approximately $31,000, $84,000 and $204,000, respectively.
Future minimum lease payments under this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1999............................................. $ 532,946
2000............................................. 689,599
2001............................................. 712,696
2002............................................. 735,794
2003............................................. 735,794
Thereafter....................................... 61,316
----------
$3,468,145
==========
</TABLE>
(10) SUBSEQUENT EVENTS
In January 1999, Webtrends approved a 1-for-2 reverse stock split.
Accordingly, share and per share amounts for common stock have been
retroactively restated to reflect the reverse stock split for all periods
presented.
F-16
<PAGE> 86
DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Top Center:
Text:
Enterprise Management Solutions for Internet Systems
Center:
Graphic:
A large WebTrends logo centered on the page with the text "Manage Your
WWWorld-TM" centered below the logo. The logo and text are in the middle of a
ring of eight circles. Each of the eight circles contains text. Starting with
the circle directly above the logo and proceeding clockwise, the texts in the
circles state: "Web Site Traffic Analysis," "Proxy Server Traffic Analysis,"
"Site Content & QA Management," "E-Commerce and ROI Reports," "Alerting,
Monitoring & Recovery," "Streaming Media Server Management," Firewall and VPNs
Management," and "Server & Network Security Analysis."
Bottom:
Text:
Awards for the WebTrends product family:
Graphic:
Nine graphics appear below the text representing awards that have been given to
WebTrends' products. The awards depicted from left to right are: (1) PC
Magazine Editors' Choice, (2) ICE Best of Class, (3) PC Computing MVP Finalist,
(4) Network Computing Editors' Choice, (5) iw Labs Best of Test, (6) The Best
of LANTIMES, (7) Network Computing Best Value, (8) CODIE Awards Finalist, and
(9) ZDNET Editors' Pick.
GATEFOLD (LEFT SIDE)
Top Right:
Graphic:
The WebTrends logo.
Top Left:
Text:
WebTrends Enterprise Suite
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Enterprise Suite, (2) screen shot of the
site manager feature, and (3) screen shot of a traffic analysis report.
Middle:
Test:
WebTrends Professional Suite
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Professional Suite, (2) screen shot of an
alerting, monitoring, and recovery report, and (3) screen shot of the main
console.
Bottom:
Text:
WebTrends for Firewalls and VPNs
Graphics:
There are four graphics under the text. From left to right they are (1)
product packaging for WebTrends for Firewalls and VPNs, (2) screen shot of the
general options feature, (3) screen shot of the scheduler feature, and (4)
screen shot of a firewall report.
GATEFOLD (RIGHT SIDE)
Top:
Text:
WebTrends Enterprise Reporting Server*; * Scheduled for release first quarter,
1999
Graphics:
There are four graphics under the text. From left to right they are: (1) product
packaging for the WebTrends Enterprise Reporting Server, (2) screen shot of a
user profile report, (3) screen shot of the content editor feature, and (4)
screen shot of the status feature.
Middle:
Text:
WebTrends Security Analyzer
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Security Analyzer, (2) screen shot of the
main viewer, and (3) screen shot of a security analysis report.
Bottom:
Text:
WebTrends Log Analyzer
Graphics:
There are four graphics under the text. From left to right they are: (1) product
packaging for the WebTrends Log Analyzer, (2) screen shot of the scheduler
feature, (3) screen shot of the options feature, and (4) screen shot of a
traffic analysis report.
Bottom Right:
Text:
Manage Your WWWorld-TM
INSIDE BACK COVER
Top Left:
Text:
www.webtrends.com
Top:
Graphics:
There are two screen shots inside a box. The first screen shot is the
Professional Suite product page from the WebTrends Web site. The second screen
shot is the "contact us" page from the Web Trends Web site.
Center:
Graphics:
There are two screen shots inside a box. The first screen shot is the products
page from the WebTrends Web site. The second screen shot is the ordering page
from the WebTrends Web site.
Bottom:
Graphics:
There are two screen shots inside a box. The first screen shot is the knowledge
base page from the WebTrends Web site. The second screen shot is the technical
support page from the WebTrends Web site.
<PAGE> 87
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS
UNLAWFUL TO DO SUCH. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AND CORRECT
ONLY AS OF , 1999, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF SECURITIES.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
3,500,000 SHARES OF COMMON STOCK
$9.00 TO $11.00 PER SHARE
LOGO
DAIN RAUSCHER WESSELS SOUNDVIEW TECHNOLOGY GROUP
a division of Dain Rauscher Incorporated
, 1999
- --------------------------------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered hereby. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 12,309
NASD filing fee............................................. 4,928
Nasdaq National Market listing fee.......................... 81,625
Printing and engraving expenses............................. 120,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 135,000
Directors' and Officers' Liability Insurance................ 250,000
Transfer agent and registrar fees........................... 6,500
Miscellaneous expenses...................................... 139,638
----------
Total............................................. $1,000,000
==========
</TABLE>
- -------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As an Oregon corporation, the Registrant is subject to the laws of the
State of Oregon governing private corporations and the exculpation from
liability and indemnification provisions contained therein. Pursuant to Section
60.047(2)(d) of the Oregon Revised Statutes ("ORS"), the Registrant's Second
Restated Articles of Incorporation (the "Articles") eliminates the liability of
the Registrant's directors to the Registrant or its shareholders except for any
liability related to (i) breach of the duty of loyalty; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) any unlawful distribution under ORS 60.367; or (iv) any
transaction from which the director derived an improper personal benefit.
ORS Section 60.391 allows corporations to indemnify their directors and
officers against liability where the director or officer has acted in good faith
and with a reasonable belief that actions taken were in the best interests of
the corporation or at least not opposed to the corporation's best interests and,
if in a criminal proceeding, the individual had no reasonable cause to believe
the conduct in question was unlawful. Under ORS Sections 60.387 to 60.414,
corporations may not indemnify a director or officer against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. ORS Section 60.394 mandates indemnification for all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, pursuant to the ORS Section 60.401, a court may order indemnification
in view of all the relevant circumstances, whether or not the director or
officer met the good-faith and reasonable belief standards of conduct set out in
ORS Section 60.391.
II-1
<PAGE> 89
ORS Section 60.414 also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.
The Articles provide that the Registrant is required to indemnify to the
fullest extent not prohibited by law any current or former director who is made,
or threatened to be made, a party to an action or proceeding by reason of the
fact that such person serves or served as a director of the Registrant. The
Articles also provide that the Registrant is permitted to indemnify to the
fullest extent not prohibited by law any current or former officer who is made,
or threatened to be made, a party to an action or proceeding by reason of the
fact that such person is or was an officer of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant since December
31, 1996 involving sales of the Registrant's securities that were not registered
under the Securities Act:
1. On March 17, 1997, the Registrant issued an aggregate of 410,527 shares
of Class A Common Stock to Michael Burmeister-Brown, a director of the
Registrant, at a price per share of $0.6067. In issuing these
securities, the Company relied on an exemption from registration under
Section 4(2) of the Securities Act.
2. Since December 1997, the Registrant has granted incentive stock options
and non-qualified stock options to purchase shares of Common Stock under
individual stock option agreements, its 1997 Stock Incentive
Compensation Plan and its 1998 Stock Incentive Compensation Plan to
eligible officers, directors, employees and consultants of the
Registrant. As of February 16, 1999, 1,441,408 shares were subject to
outstanding stock options under the 1997 Stock Incentive Compensation
Plan, 25,000 shares were subject to outstanding stock options under the
1998 Stock Incentive Compensation Plan, and options to purchase 37,678
shares of Common Stock had been exercised. The options were granted in
consideration of these individuals' services to the Registrant, and in
issuing these securities the Registrant relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) or Section 4(2) of
the Securities Act.
II-2
<PAGE> 90
ITEM 16. EXHIBITS
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1+ Registrant's Second Restated Articles of Incorporation
3.2+ Registrant's Second Restated Bylaws
4.1+ See Articles 4 and 9 of Exhibit 3.1 and Sections 2 and 6 of
Exhibit 3.2
4.2+ Form of Common Stock Certificate
5.1 Opinion of Perkins Coie LLP as to legality of the securities
being registered, including consent
10.1+ Registrant's 1998 Stock Incentive Compensation Plan
10.2 Registrant's 1999 Employee Stock Purchase Plan, as amended
10.3+ Registrant's 1997 Stock Incentive Compensation Plan
10.4+ Office Lease dated November 20, 1998, by and between the
Prudential Insurance Company of America and WebTrends
Corporation
10.5+ Office Lease dated September 15, 1998, by and between City
Center Retail Trust and WebTrends Corporation
10.6+ Office Lease dated May 22, 1997, by and between Pioneer
Square Associates, L.L.C. and e.g. Software, Inc., including
the amendment thereto dated September 8, 1998
10.7+ Note dated December 19, 1997, by WebTrends Corporation in
favor of U.S. Bank National Association
10.8 Export Agreement dated April 3, 1995 between Network Trade
Corporation and WebTrends Corporation
21.1+ List of subsidiaries
23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2+ Consent of KPMG Peat Marwick LLP, Independent Accountants
24.1+ Power of Attorney
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- -------------------------
+ Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery of such to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy 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
II-3
<PAGE> 91
appropriate jurisdiction the question of whether such indemnification 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 of
1933, 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
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on February 16, 1999.
WEBTRENDS CORPORATION
By: /s/ ELIJAHU SHAPIRA
------------------------------------
Elijahu Shapira
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
--------- ---------- ----
<S> <C> <C>
/s/ ELIJAHU SHAPIRA Chief Executive Officer February 16, 1999
- ----------------------------------------------------- and Director
Elijahu Shapira
*W. GLEN BOYD President, Chief Technical February 16, 1999
- ----------------------------------------------------- Officer, and Director
W. Glen Boyd
*JAMES T. RICHARDSON Vice President, Secretary, February 16, 1999
- ----------------------------------------------------- Chief Financial Officer,
James T. Richardson and
Chief Accounting Officer
*MICHAEL BURMEISTER-BROWN Director February 16, 1999
- -----------------------------------------------------
Michael Burmeister-Brown
*JOHN W. RYAN Director February 16, 1999
- -----------------------------------------------------
John W. Ryan
*SRIVATS SAMPATH Director February 16, 1999
- -----------------------------------------------------
Srivats Sampath
</TABLE>
*By: /s/ ELIJAHU SHAPIRA
-----------------------------------------------------
Elijahu Shapira
as Attorney-in-Fact
II-5
<PAGE> 93
WEBTRENDS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts..... $ -- $12,423 $ 2,423 $10,000
Year ended December 31, 1997:
Allowance for doubtful accounts..... 10,000 32,705 22,705 20,000
Year ended December 31, 1998:
Allowance for doubtful accounts..... 20,000 43,548 23,548 40,000
</TABLE>
<PAGE> 94
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1+ Registrant's Second Restated Articles of Incorporation
3.2+ Registrant's Second Restated Bylaws
4.1+ See Articles 4 and 9 of Exhibit 3.1 and Sections 2 and 6 of
Exhibit 3.2
4.2+ Form of Common Stock Certificate
5.1 Opinion of Perkins Coie LLP as to legality of the securities
being registered, including consent
10.1+ Registrant's 1998 Stock Incentive Compensation Plan
10.2 Registrant's 1999 Employee Stock Purchase Plan, as amended
10.3+ Registrant's 1997 Stock Incentive Compensation Plan
10.4+ Office Lease dated November 20, 1998, by and between the
Prudential Insurance Company of America and WebTrends
Corporation
10.5+ Office Lease dated September 15, 1998, by and between City
Center Retail Trust and WebTrends Corporation
10.6+ Office Lease dated May 22, 1997, by and between Pioneer
Square Associates, L.L.C. and e.g. Software, Inc., including
the amendment thereto dated September 8, 1998
10.7+ Note dated December 19, 1997, by WebTrends Corporation in
favor of U.S. Bank National Association
10.8 Export Agreement dated April 3, 1995 between Network Trade
Corporation and WebTrends Corporation
21.1+ List of subsidiaries
23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2+ Consent of KPMG Peat Marwick LLP, Independent Accountants
24.1+ Power of Attorney (see page II-4)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- -------------------------
+ Previously filed.
<PAGE> 1
3,500,000 Shares
WEBTRENDS CORPORATION
Common Stock
No Par Value Per Share
UNDERWRITING AGREEMENT
February __, 1999
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
SoundView Technology Group, Inc.
As Representatives of the several Underwriters
c/o Dain Rauscher Wessels
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
WebTrends Corporation, an Oregon corporation (the "Company"), and the
shareholders of the Company named in Schedule B hereto (the "Selling
Shareholders") propose, subject to the terms and conditions stated herein, to
issue and sell, or to sell, as the case may be, to the several Underwriters
named in Schedule A hereto (the "Underwriters"), for which you are acting as
representatives (the "Representatives"), an aggregate of 3,500,000 shares (the
"Firm Shares") of Common Stock, no par value per share, of the Company (the
"Common Stock"), including 3,000,000 shares to be sold by the Company and
500,000 shares to be sold by the Selling Shareholders. The Selling Shareholders
also propose, subject to the terms and conditions stated herein, to sell to the
Underwriters, at the Underwriters' election, up to an aggregate of 525,000
additional shares of Common Stock (the "Option Shares"). The Firm Shares and the
Option Shares are herein collectively called the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-69171) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act is herein
referred to as the "Registration Statement." The form of prospectus first filed
by the Company with the Commission pursuant to Rules 424(b) and 430A under the
Act is referred to herein as the "Prospectus." Each preliminary prospectus
included in the Registration Statement prior to the time it became effective or
filed with the Commission pursuant to Rule 424(a) under the Act is referred to
herein as a
<PAGE> 2
"Preliminary Prospectus." Copies of the Registration Statement, including all
exhibits and schedules thereto, any amendments thereto and all Preliminary
Prospectuses have been delivered to you.
The Company and the Selling Shareholders hereby confirm their respective
agreements with respect to the purchase of the Shares by the Underwriters as
follows:
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(i) The Registration Statement has been declared effective
under the Act, and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. No stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been instituted or threatened by the Commission.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, nor, to the best of
the Company's knowledge have proceedings for such purpose been instituted, and
each Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and regulations
of the Commission promulgated thereunder (collectively, the "Regulations"), and
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, the Company makes no representation or warranty
as to information contained in or omitted in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of any
Underwriter through the Representatives expressly for use in the preparation
thereof.
(iii) The Registration Statement conforms, and the
Prospectus and any amendments or supplements thereto will conform, in all
material respects to the requirements of the Act and Regulations. Neither the
Registration Statement nor any amendment thereto, and neither the Prospectus nor
any supplement thereto, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, expressly for use in the preparation thereof.
(iv) The Company has been duly organized, is validly
existing as a corporation under the laws of the state of Oregon, has the
corporate power and authority to own, lease, license and use its properties and
conduct its business as described in the Prospectus, and is
-2-
<PAGE> 3
duly qualified to transact business and is in good standing in all jurisdictions
in which the conduct of its business or its ownership, leasing, licensing or
using of property requires such qualification and the failure so to qualify
would have a material adverse effect on the business, properties, condition,
financial or otherwise, or results of operations of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect").
(v) The Company has no subsidiaries other than WebTrends
FSC Inc. (hereinafter referred to as its "subsidiaries"). Each subsidiary of the
Company has been duly incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own, lease, license and use its properties and
conduct its business as described in the Prospectus, and is duly qualified to
transact business in all jurisdictions in which the conduct of its business or
its ownership, lease, license or use of property requires such qualification and
the failure so to qualify would have a Material Adverse Effect. Other than the
Company's subsidiaries, the Company does not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity. All outstanding shares of capital stock of each of
the subsidiaries of the Company have been duly authorized and validly issued,
are fully paid and non-assessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, encumbrances and security interests. No
options, warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert any obligations into, shares of capital
stock or ownership interests in any of the subsidiaries of the Company are
outstanding.
(vi) The outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding shares of
capital stock and other securities of the Company, prior to the date hereof,
were made in compliance with the Act and all applicable state securities or blue
sky laws and were not issued in violation of any preemptive right, resale right,
right of first refusal or similar right. The Shares to be issued and sold by the
Company to the Underwriters pursuant to this Agreement have been duly authorized
and, when issued and paid for as contemplated herein, will be validly issued,
fully paid and nonassessable. Each of the Underwriters will receive good and
marketable title to the Shares purchased by it, free and clear of any and all
liens, encumbrances, pledges, security interests, charges, claims, equitable
interests, restrictions and defects. Except as otherwise stated in the
Prospectus, there are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
capital stock of the Company pursuant to the Company's Articles of
Incorporation, Bylaws or any agreement or other instrument to which the Company
is a party or by which the Company is bound. Neither the filing of the
Registration Statement nor the offering or the sale of the Shares as
contemplated by this Agreement gives rise to any rights for, or relating to, the
registration of any shares of capital stock or other securities of the Company,
accept such rights which have been validly waived or satisfied. Except as
described in the Prospectus, there are no outstanding options, warrants,
agreements or contracts to purchase or preemptive or other rights to purchase,
subscribe for or acquire from the Company any shares of its capital stock or any
securities or obligations convertible into or
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<PAGE> 4
exercisable for shares of the Company's capital stock. The Company has the
authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus as of the date set forth therein. The
outstanding capital stock of the Company, including the Shares, conforms, and
the Shares to be issued by the Company to the Underwriters will conform, to the
description thereof contained in the Prospectus.
(vii) The financial statements, together with the related
notes and schedules as set forth in the Registration Statement and Prospectus,
present fairly the consolidated financial position, results of operations and
changes in financial position of the Company and its subsidiaries on the basis
stated in the Registration Statement at the indicated dates and for the
indicated periods. Such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made, except as otherwise stated therein and
are in accordance with the books and records of the Company. The summary and
selected financial and statistical data included in the Registration Statement
present fairly the information shown therein on the basis stated in the
Registration Statement and have been compiled on a basis consistent with the
financial statements presented therein. The books, records and accounts of the
Company and its subsidiaries accurately and fairly reflect in all material
respects, in reasonable detail, the transactions in and dispositions of the
assets of, and the results of operations of, the Company and its subsidiaries.
(viii) There is no action, suit, claim, proceeding or
investigation pending or, to the knowledge of the Company, threatened or
contemplated against the Company or any of its subsidiaries or any of their
respective officers, directors, properties, assets or rights before any court or
administrative or regulatory agency which, if determined adversely to the
Company or any of its subsidiaries, would, individually or in the aggregate,
result in a Material Adverse Effect except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to all
properties and assets reflected in the financial statements hereinabove
described as owned by the Company (or as described in the Prospectus as owned by
the Company), in each case free and clear of all liens, encumbrances, pledges,
security interests, charges, claims, equitable interests, restrictions and
defects, except such as are described in the Prospectus or do not materially
affect the value of such properties and assets and do not materially interfere
with the use made and proposed to be made of such properties and assets by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid and
enforceable leases with such exceptions set forth in the Prospectus or as are
not material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries.
(x) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, as they may be amended or
supplemented, (A) there has not been any material adverse change, or any
development that could reasonably be expected to result in
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<PAGE> 5
a material adverse change, in or affecting the condition, financial or
otherwise, of the Company and its subsidiaries, taken as a whole, or the
business affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries, taken as a whole,
whether or not occurring in the ordinary course of business, (B) there has not
been any transaction not in the ordinary course of business entered into by the
Company or any of its subsidiaries which is material to the Company and its
subsidiaries, taken as a whole, other than transactions described or
contemplated in the Registration Statement, (C) the Company and its subsidiaries
have not incurred any material liabilities or obligations, direct or indirect or
contingent or non-contingent, which are not in the ordinary course of business
or which could result in a material reduction in the future earnings of the
Company and its subsidiaries, (D) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance, (E) there has not been any change in the capital stock
of the Company (other than upon the exercise of options and warrants described
in the Registration Statement), or any material increase in the short-term or
long-term debt (including capitalized lease obligations) of the Company and its
subsidiaries, taken as a whole, (F) there has not been any declaration or
payment of any dividends or any distributions of any kind with respect to the
capital stock of the Company, other than any dividends or distributions
described or contemplated in the Registration Statement, or (G) there has not
been any issuance of warrants, options, convertible securities or other rights
to purchase or acquire capital stock of the Company (other than options granted
under the Company's 1998 Stock Incentive Compensation Plan).
(xi) Neither the Company nor any of its subsidiaries is in
violation of, or in default under, its Articles of Incorporation or Bylaws, or
any statute, or any law, rule, regulation, order, judgment, injunction, decree
or authorization of any court or governmental or administrative agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
properties, or any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which it or any of them are bound or to
which any property or assets of the Company or any of its subsidiaries is
subject, which violation or default would have a Material Adverse Effect.
(xii) The issuance and sale of the Shares by the Company
and the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions contemplated herein will not violate
any provision of the Articles of Incorporation or Bylaws of the Company or any
of its subsidiaries or any statute or any order, judgment, decree, rule,
regulation or authorization of any court or governmental or administrative
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties, and will not conflict with, result in a breach or
violation of, or constitute, either by itself or upon notice or passage of time
or both, a default under any indenture, mortgage, deed of trust, loan agreement,
lease, franchise, license or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any property or assets of the Company or any
of its subsidiaries is subject. No approval, consent, order, authorization,
designation, declaration or filing by or with any court or governmental agency
or body
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<PAGE> 6
is required for the execution and delivery by the Company of this Agreement and
the consummation of the transactions herein contemplated, except as may be
required under the Act or any state securities or blue sky laws or under the
rules and regulations of the National Association of Securities Dealers, Inc.
(the "NASD"). No further approval or authorization of any securityholder, the
Company's Board of Directors or any duly appointed committee thereof or others
is required for the issuance and sale or transfer of the Shares, except as may
be required under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), by the NASD or under state securities or blue sky laws.
(xiii) The Company and each of its subsidiaries holds and
is operating in compliance with all licenses, approvals, certificates and
permits from governmental and regulatory authorities, foreign and domestic,
which are necessary or material to the conduct of its business as described in
the Prospectus (except where the failure to so hold or operate in compliance
with such a license, approval, certificate or permit would not have a Material
Adverse Effect) and there are no proceedings pending or, to the knowledge of the
Company, threatened, which may cause any such license, approval, certificate or
permit to be withdrawn, cancelled, suspended or not renewed.
(xiv) The Company has the power and authority to enter
into this Agreement and to authorize, issue and sell the Shares it will sell
hereunder as contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(xv) KPMG Peat Marwick LLP, which has certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and
Regulations.
(xvi) The Company has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xvii) The Company's registration statement pursuant to
Section 12(g) of the Exchange Act of 1934, has been declared effective by the
Commission; and the Shares have been approved for designation upon notice of
issuance on The Nasdaq National Market under the symbol "WEBT."
(xviii) The Company has obtained and delivered to the
Representatives written agreements (the "Lock-Up Agreements"), in form and
substance satisfactory to the Representatives, of each of its shareholders that
such shareholders shall not (A) offer, pledge, sell, offer to sell, contract to
sell, sell any option or contract to purchase, purchase any option to sell,
grant any option right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any of the shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock, or (B) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock (whether any such
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<PAGE> 7
transaction described in clause (A) or (B) above is to be settled by delivery of
the shares of Common Stock or such other securities, in cash or otherwise), in
each case, beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) or otherwise controlled by such shareholder on the date hereof or
hereafter acquired, for a period beginning from the date of execution of this
Agreement and continuing to and including the date 180 days after the date of
the Prospectus (the "Lock-Up Period"); provided, however, that, if such
shareholder is an individual, such shareholder may, without the prior written
consent of Dain Rauscher Wessels on behalf of the Underwriters, transfer shares
of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock either during his or her lifetime or, on death,
by will or intestacy to members of such shareholder's immediate family or to
trusts exclusively for the benefit of members of such shareholder's immediate
family or in connection with bona fide gifts, provided that, prior to any such
transfer, such transferee executes an agreement, satisfactory to Dain Rauscher
Wessels, pursuant to which such transferee agrees to receive and hold such
shares subject to the provisions of the Lock-Up Agreement and that there shall
be no further transfer except in accordance with the provisions of the Lock-Up
Agreement. For purposes of this paragraph, "immediate family" shall mean such
shareholder's spouse, lineal descendant, father, mother, brother or sister. The
restrictions on transfers described in the Lock-Up Agreements shall not apply to
(1) the sale of any shares of Common Stock to the Underwriters pursuant to this
Agreement or (2) transactions in shares of Common Stock acquired in open-market
transactions after completion of the Offering.
(xix) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xx) The Company is in compliance with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, laws of Florida). The Company
does not do any business, directly or indirectly, with the government of Cuba or
with any person or entity located in Cuba.
(xxi) The Company and its subsidiaries have timely filed
all federal, state, local and foreign tax returns or reports required to be
filed, and have paid in full all taxes indicated by said returns or reports and
all assessments received by it or any of them to the extent that such taxes have
become due and payable, except where the Company and its subsidiaries are
contesting in good faith such taxes and assessments and there is no tax
deficiency that has been or, to the Company's knowledge, might be asserted
against the Company or any of its subsidiaries which might have a Material
Adverse Effect and all material tax liabilities, whether or not disputed, are
adequately provided for on the books of the Company and its subsidiaries. Except
as set forth in the Registration Statement and the Prospectus, neither the
Company nor any subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes or is a party to any pending action or proceeding
by any foreign or domestic governmental agency for assessment or collection of
taxes, and no claims for assessment or collection of taxes have been asserted
against the Company or any of its subsidiaries.
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<PAGE> 8
(xxii) The Company and each of its subsidiaries owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets
know-how, technology and other similar rights necessary for or material to the
conduct of its business as described in the Prospectus (except for failures to
own or possess such rights that would not have a Material Adverse Effect). The
Company has no knowledge of any facts which would preclude it from having rights
to its patent applications described in the Prospectus. The Company has no
knowledge of any infringement by it or its subsidiaries of, or conflicts with,
any patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, know-how, technology or other similar rights of
others, and neither the Company nor any of its subsidiaries has any knowledge of
or has received any notice or claim of conflict with the asserted rights of
others with respect any of the foregoing, with the exception of (1) trademark
rights asserted by Desktalk Systems, Inc. relating to the asserted mark
"TrendWeb," and (2) copyrights asserted by certain individuals relating to
certain software implementing a user interface, both of which assertions are
without merit, and accordingly will not have a Material Adverse Effect.
(xxiii) The Company is not, and upon completion of the
sale of Shares contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.
(xxiv) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to records is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxv) Other than as contemplated by this Agreement,
neither the Company nor any of its subsidiaries has incurred any liability for
any finder's or broker's fee or agent's commission in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xxvi) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought
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<PAGE> 9
or applied for; and neither the Company nor any such subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect.
(xxvii) To the Company's knowledge, no labor disturbance
by the employees of the Company or any of its subsidiaries exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
subcontractors or international distributors that might be expected to result in
a material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise. No collective bargaining agreement exists with any
of the Company's employees and, to the Company's knowledge, no such agreement is
imminent.
(xxviii) The Company has not distributed and will not
distribute prior to the later of (A) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (B) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(xxix) Neither the Company nor any of its subsidiaries has
at any time during the last five (5) years (A) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (B) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(xxx) Except as set forth in the Registration Statement
and Prospectus, (i) the Company and each of its subsidiaries is in compliance
with all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business, except for such
instances of non-compliance as would not individually or in the aggregate have a
Material Adverse Effect (ii) neither the Company nor any of its subsidiaries has
received notice from any governmental authority or third party of an asserted
claim under Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus and is not so disclosed, (iii) to the
knowledge of the Company, neither the Company nor any of its subsidiaries will
be required to make future material capital expenditures to comply with
Environmental Laws and (iv) to the knowledge of the Company, no property which
is owned, leased or occupied by the Company or any of its subsidiaries has been
designated as a Superfund site pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section
9601, et seq.), or otherwise designated as a contaminated site under applicable
state or local law.
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<PAGE> 10
(xxxi) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters shall be deemed
to be a representation and warranty of the Company to each Underwriter as to the
matters covered thereby.
2. Representations, Warranties and Covenants of the Selling
Shareholders.
(a) Each Selling Shareholder severally represents and warrants
to, and covenants and agrees with, each of the Underwriters and the Company
that:
(i) Such Selling Shareholder has duly executed and
delivered a Power of Attorney (the "Power of Attorney"), appointing Elijahu
Shapira, W. Glen Boyd and James T. Richardson and each of them, as
attorney-in-fact (the "Attorneys-In-Fact") with full power and authority to
execute and deliver this Agreement on behalf of such Selling Shareholder, to
authorize the delivery of the Shares to be sold by the Selling Shareholder
hereunder, and otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement.
(ii) Such Selling Shareholder has duly executed and
delivered a Custody Agreement (the "Custody Agreement") with BankBoston, N.A.,
as Custodian, pursuant to which certificates in negotiable form for the Shares
to be sold by such Selling Shareholder hereunder have been placed in custody for
delivery under this Agreement.
(iii) Such Selling Shareholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder hereunder; and all consents, approvals, authorizations
and orders necessary for the execution and delivery by such Selling Shareholder
of this Agreement, the Power of Attorney and the Custody Agreement, and for the
sale and delivery of the Shares to be sold by such Selling Shareholder
hereunder, have been obtained, except such as may be required by any state
securities or blue sky laws.
(iv) Such Selling Shareholder has, and at the Closing Date
and the Option Closing Date, as the case may be (as such dates are hereinafter
defined), will have good and valid title to the Firm Shares and the Option
Shares, respectively, to be sold by such Selling Shareholder hereunder, free of
any liens, encumbrances, security interests; equities or claims whatsoever; and
upon delivery of and payment for such Firm Shares and Option Shares pursuant to
this Agreement, good and valid title thereto, free of any liens, encumbrances,
security interests, equities or claims whatsoever, will be transferred to the
several Underwriters.
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<PAGE> 11
(v) The execution and delivery by each Selling Shareholder
of this Agreement, the Power of Attorney and the Custody Agreement and the
consummation by such Selling Shareholder of the transactions herein and therein
contemplated and the fulfillment by such Selling Shareholder of the terms hereof
and thereof will not conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any will, mortgage,
deed of trust, loan agreement or other agreement, instrument or obligation to
which such Selling Shareholder is a party or to which any of the property or
assets of such Selling Shareholder is subject, except for such agreements,
instruments or obligations for which consents have been obtained, nor will such
actions result in any violations of the provisions of the charter or by-laws if
such Selling Shareholder is a corporation, the partnership agreement,
certificate or articles if the Selling Shareholder is a partnership, or any
statute, rule, regulation or order applicable to such Selling Shareholder of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction over such Selling Shareholder.
(vi) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(vii) To the extent that any statements or omissions made
in the Registration Statement, any Preliminary Prospectus thereof, the
Prospectus or any amendment or supplement thereto are made in reliance upon and
in conformity with written information with respect to such Selling Shareholder
furnished to the Company by such Selling Shareholder expressly for use therein,
such Preliminary Prospectus and the Registration Statement did not, and the
Prospectus and any further amendments or supplements to the Registration
Statement and the Prospectus will not, when they become effective or are filed
with the Commission, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(viii) Such Selling Shareholder will not offer to sell,
sell, transfer, assign or otherwise dispose of any Common Stock or other capital
stock of the Company, directly or indirectly, for a period of 180 days after the
date of the Prospectus, otherwise than as expressly permitted hereunder, under
the Lock-Up Agreement between such Selling Shareholders and the Representatives,
or with the written consent of the Representatives.
(ix) Such Selling Shareholder has reviewed the information
contained in the Registration Statement and, based on such review and such
Selling Shareholder's knowledge of the industry, the Company and its business
(but without further investigation), such Selling Shareholder does not have
knowledge that, and nothing has come to such Selling Shareholder's attention
that would give such Selling Shareholder reason to believe that, at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date and on any Option
Closing Date, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained or will contain any untrue
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<PAGE> 12
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, and any amendments or supplements thereto
effective on or prior to the Closing Date or any Option Closing Date, contained
or will contain any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(x) The Shares to be sold by such Selling Shareholder
pursuant to this Agreement have been duly authorized and are validly issued,
fully paid and non-assessable.
(xi) This Agreement, the Custody Agreement and the Power
of Attorney have been duly authorized, executed and delivered by such Selling
Shareholder and are valid and binding agreements of such Selling Shareholder.
(xii) Assuming the Underwriters purchase the Shares to be
sold by each Selling Shareholder for value, in good faith and without notice of
any adverse claim within the meaning of Article VIII of the Uniform Commercial
Code, delivery of the Shares to be sold by such Selling Shareholder pursuant to
this Agreement will pass marketable title to such Shares free and clear of any
security interests, claims, liens, equities and other encumbrances.
(b) The Selling Shareholders each represent and warrant to, and
agree with, the Underwriters to the same effect as the representations and
warranties of the Company set forth in Section 2 of this Agreement.
(c) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, each of the
Selling Shareholders agrees to deliver to you prior to or at the Closing Date a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(d) Each of the Selling Shareholders specifically agrees that the
Shares represented by the certificates held in custody for such Selling
Shareholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder, and that the arrangements made by such Selling
Shareholder for such custody and the appointment by such Selling Shareholder of
the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable.
Each of the Selling Shareholders specifically agrees that the obligations of the
Selling Shareholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling Shareholder or, in
the case of an estate or trust, by the death or incapacity of any executor or
trustee or the termination of such estate or trust, or in the case of a
corporation or partnership, by the dissolution of such corporation or
partnership, or by the occurrence of any other event. If any individual Selling
Shareholder or any such executor or trustee should die or become incapacitated,
or if any such estate or trust should be terminated, or if any such corporation
or partnership should be
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<PAGE> 13
dissolved, or if any other such event should occur before the delivery of the
Shares hereunder, certificates representing the Shares shall be delivered by or
on behalf of the Selling Shareholders in accordance with the terms and
conditions of this Agreement and of the Custody Agreement, and actions taken by
the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if
such death, incapacity, termination, dissolution or other event had not
occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity, termination,
dissolution or other event.
(e) Any certificate signed by or on behalf of any Selling
Shareholder and delivered to the Representatives or to counsel to the
Underwriters shall be deemed to be a representation and warranty of such Selling
Shareholder to each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and covenants contained herein, and subject to the
terms and conditions herein set forth, the Company and each Selling Shareholder
agrees, severally and not jointly, to sell to each Underwriter and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Shareholder, at a price of $_____ per share, the number of Firm
Shares (to be adjusted by you to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each of the Selling Shareholders, as set forth opposite their respective names
in Schedule B hereto, by a fraction, the numerator of which is the aggregate
number of Firm Shares to be purchased by such Underwriter as set forth opposite
the name of such Underwriter in Schedule A hereto and the denominator of which
is the aggregate number of Firm Shares to be purchased by all the Underwriters
from the Company and the Selling Shareholders hereunder.
In addition, on the basis of the representations, warranties and
covenants contained herein and subject to the terms and conditions herein set
forth, each of the Selling Shareholders, as and to the extent indicated in
Schedule B hereto, hereby grant, severally and not jointly, to the several
Underwriters an option to purchase at the Underwriters' election up to 525,000
Option Shares at the same price per share as set forth for the Firm Shares in
the paragraph above, for the sole purpose of covering over allotments in the
sale of the Firm Shares. The option granted hereby may be exercised in whole or
in part, but only once, and at any time upon written notice given within 30 days
after the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company, the Attorneys-in-Fact and the Custodian setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option and the time and date at which certificates are to be
delivered. Any such election to purchase Option Shares shall be made in
proportion to the maximum number of Option Shares to be sold by each Selling
Shareholder as set forth in Schedule B hereto. If any Option Shares are
purchased, each Underwriter agrees, severally and not jointly, to purchase that
portion of the number of Option Shares as to which such election shall have been
exercised (subject to adjustment to eliminate fractional shares) determined by
multiplying such number of Option Shares by a fraction the numerator of which is
the maximum number of Option Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule A hereto
and the denominator of which is the maximum number of Option Shares which all of
the
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<PAGE> 14
Underwriters are entitled to purchase hereunder. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than two or later than ten full
business days after the exercise of such option, and shall not in any event be
prior to the Closing Date. If the date of exercise of the option is three or
more full days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date.
Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Dain Rauscher Wessels may request upon at least forty-eight hours' prior notice
to the Company, shall be delivered by or on behalf of the Company to you for the
account of such Underwriter at such time and place as shall hereafter be
designated by the Representatives, against payment by such Underwriter or on its
behalf of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Company in next day funds. The time and date
of such delivery and payment shall be, with respect to the Firm Shares, 8:30
a.m. Palo Alto, California] time, at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, CA 94304, on _______________, 1999, or
such other time and date as you and the Company may agree upon in writing, such
time and date being herein referred to as the "Closing Date," and, with respect
to the Option Shares, at the time and on the date specified by you in the
written notice given by you of the Underwriters' election to purchase the Option
Shares, or such other time and date as you and the Company may agree upon in
writing, such time and date being referred to herein as the "Option Closing
Date." Such certificates will be made available for checking and packaging at
least twenty-four hours prior to the Closing Date or the Option Closing Date, as
the case may be, at a location as may be designated by you.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price and terms set forth
in the Prospectus. The Representatives may from time to time thereafter change
the public offering price and other selling terms. To the extent, if at all,
that any Option Shares are purchased pursuant to Section 3 hereof, the
Underwriters will offer such Option Shares to the public on the foregoing terms.
5. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A under the Act, and will not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy and as to which the
Representatives shall have reasonably objected in writing promptly after
reasonable notice thereof or which is not in compliance with the Act or the
Regulations.
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<PAGE> 15
(b) The Company will advise the Representatives promptly of any
request of the Commission for amendment of the Registration Statement or for any
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for that purpose, and the Company
will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus or suspending such
qualification and to obtain as soon as possible the lifting thereof, if issued.
(c) To the extent required of issuers listed on The Nasdaq
National Market, the Company will endeavor to qualify the Shares for sale under
the securities laws of such jurisdictions as the Representatives may reasonably
have designated in writing and will, or will cause counsel to, make such
applications, file such documents, and furnish such information as may be
reasonably requested by the Representatives, provided that the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents as are or may be required
to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many copies
of any Preliminary Prospectus as the Representatives may reasonably request and,
during the period when delivery of a prospectus is required under the Act, the
Company will furnish the Underwriters with as many copies of the Prospectus in
final form, or as thereafter amended or supplemented, as the Representatives
may, from time to time, reasonably request. The Company will deliver to the
Representatives, at or before the Closing Date, three signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement, without exhibits, and of all amendments thereto, as the
Representatives may reasonably request.
(e) If, during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or if
for any other reason it shall be necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company promptly will prepare and
file with the Commission an appropriate amendment to the Registration Statement
or supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein in
light of the circumstances existing when it is so delivered, not misleading, or
so that the Prospectus will comply with law. In case any Underwriter is required
to deliver a prospectus in connection with sales of any Shares at any time nine
months or more after the effective date of the Registration Statement, upon the
request of the Representatives
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<PAGE> 16
but at the expense of such Underwriter, the Company will prepare and deliver to
such Underwriter as many copies as the Representatives may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
18 months after the effective date of the Registration Statement, an earnings
Statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.
(g) During a period of five (5) years after the date hereof, or
such shorter period that the Company remains subject to the periodic reporting
requirements of the Exchange Act, the Company, as soon as practicable after the
end of each respective financial quarter or year, as applicable, will furnish to
its shareholders annual reports (including financial statements audited by
independent certified public accountants) and will furnish to its shareholders
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will, upon request, furnish to you and the other several
Underwriters hereunder (i) concurrently with making such reports available to
its shareholders, statements of operations of the Company for each of the first
three quarters in the form made available to the Company's shareholders; (ii)
concurrently with the furnishing thereof to its shareholders, a balance sheet of
the Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity and of cash flow of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants; and (iii)
concurrently with the furnishing of such reports to its shareholders, copies of
all reports (financial or other) mailed to shareholders; and (iv) as soon as
they are available, copies of all reports and financial statements furnished to
or filed with the Commission, any securities exchange or The Nasdaq National
Market by the Company (except for documents for which confidential treatment is
requested).
(h) No offering, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible securities
or other rights to acquire such Common Stock or other capital stock (other than
pursuant to employee stock option plans, employee stock purchase plans,
outstanding options or on the conversion of convertible securities outstanding
on the date of this Agreement; provided, that any employee stock options issued
pursuant to employee stock option plans during the Lock-Up Period shall not vest
and become exercisable to any extent prior to the expiration of the Lock-Up
Period; and, provided further, that any shares of Common Stock issued during the
Lock-Up Period pursuant to the exercise of stock options shall bear a
restrictive legend restricting the transfer of such shares during the Lock-Up
Period) will be made from the date of this Agreement until the end of the
Lock-Up Period, directly or indirectly, by the Company otherwise than hereunder
or with the prior written consent of the Representatives.
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<PAGE> 17
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the purposes
set forth under "Use of Proceeds" in the Prospectus. The Company will invest
such proceeds pending their use in such a manner that, upon completion of such
investment, the Company will not be an 'investment company' as defined in the
Investment Company Act of 1940, as amended.
(j) The Company will use its best efforts to maintain the
designation of the Common Stock on The Nasdaq National Market.
(k) The Company will file with the Commission such information
with respect to the use of proceeds from the sale of the Shares as may be
required pursuant to Rule 463 under the Act.
(l) From the date of this Agreement until the termination of the
Lock-Up Period, the Company will not, without the prior written consent of Dain
Rauscher Wessels on behalf of the Underwriters, alter or amend in any manner the
vesting schedule of any option, warrant or other security of the Company or its
subsidiaries.
(m) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(n) The Company hereby agrees with the Representatives that the
Market Standoff period provided for pursuant to Section 17 of the Company's 1997
Stock Incentive Compensation Plan and Section 13 of the Company's 1998 Stock
Incentive Compensation Plan shall be 180 days.
6. Costs and Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company and the Selling Shareholders under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company the cost of preparing, printing and filing of the Registration
Statement, Preliminary Prospectuses and the Prospectus and any amendments and
supplements thereto and the printing, mailing and delivery to the Underwriters
and dealers of copies thereof and of this Agreement, the Agreement Among
Underwriters, any Selected Dealers Agreement, the Underwriters' Selling
Memorandum, the Invitation Letter, the Power of Attorney, the Blue Sky
Memorandum and any supplements or amendments thereto (excluding, except as
provided below, fees and expenses of counsel to the Underwriters); the filing
fees of the Commission; the filing fees and expenses (including legal fees and
disbursements of counsel for the Underwriters) incident to securing any required
review by the NASD of the terms of the sale of the Shares; listing fees, if any,
transfer taxes and the expenses, including the fees and disbursements of counsel
for the Underwriters incurred in connection with the qualification of the Shares
under state securities or Blue Sky laws; the fees and expenses incurred in
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<PAGE> 18
connection with the designation of the Shares on The Nasdaq National Market; the
costs of preparing stock certificates; the costs and fees of any registrar or
transfer agent and all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section 6. In addition, the Company will pay all travel and lodging
expenses incurred by management of the Company in connection with any
informational "road show" meetings held in connection with the offering and will
also pay for the preparation of all materials used in connection with such
meetings. The Selling Shareholders will pay the fees and expenses of any
separate counsel retained by them in connection with the transactions
contemplated hereby. The Company and the Selling Shareholders shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification of the Shares under state securities or Blue Sky
laws and those incident to securing any required review by the NASD of the terms
of the sale of the shares but including, without limitation, the Underwriter
expenses specified in Section 5(e) of this Agreement) except that, if this
Agreement shall not be consummated because the conditions in Section 7 hereof
(other than the condition in Section 7(d)) are not satisfied or because this
Agreement is terminated by the Representatives pursuant to clause (i) of Section
11(a) hereof, or by reason of any failure, refusal or inability on the part of
the Company or the Selling Shareholders to perform any undertaking or satisfy
any condition of this Agreement or to comply with any of the terms hereof on
their respective parts to be performed, unless such failure to satisfy said
condition or to comply with said terms shall be due to the default or omission
of any Underwriter, then the Company shall promptly upon request by the
Representatives reimburse the several Underwriters for all appropriately
itemized out-of-pocket accountable expenses, including fees and disbursements of
counsel, reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company and the Selling Shareholders shall not in
any event be liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Shares.
7. Conditions of Obligations of the Underwriters. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company, and the
Selling Shareholders contained herein are true and correct, at and as of the
Closing Date or the Option Closing Date, as the case may be, the condition that
the Company and the Selling Shareholders shall have performed all of their
respective covenants and obligations hereunder (to the extent performance of
such covenants and obligations are due at such times) and to the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the Regulations and in accordance with Section 4(a) hereof; no stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, or any part thereof shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the Representatives.
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<PAGE> 19
(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Perkins Coie LLP,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation under the laws of the state of Oregon, with corporate
power and authority to own, lease, license and use its properties and conduct
its business as described in the Prospectus, and is duly qualified to transact
business and is in good standing in all jurisdictions in which the conduct of
its business or its ownership, lease, license or use of property requires such
qualification and the failure so to qualify would have a Material Adverse
Effect.
(ii) The Company has authorized and outstanding capital
stock as described in the Prospectus as of the date set forth therein. The
outstanding shares of the Company's capital stock have been duly authorized and
validly issued and are fully paid and nonassessable. The form of certificate for
the Shares is in due and proper form and complies with the requirements of the
Oregon Business Corporations Act. The Shares to be issued and sold by the
Company pursuant to this Agreement have been duly authorized and, when issued
and paid for as contemplated herein, will be validly issued, delivered, fully
paid and nonassessable. No preemptive right, co-sale right, registration right,
right of first refusal or other similar right of shareholders of the Company, or
of holders of warrants, options, convertible securities or other rights to
acquire shares of capital stock of the Company, exist with respect to any of the
Shares or the issue and sale thereof (i) pursuant to the terms of the Company's
Articles of Incorporation or Bylaws or (ii) to the knowledge of such counsel,
pursuant to the terms of any agreement or instrument to which the Company is a
party or by which the Company is bound. To the knowledge of such counsel, no
rights to register outstanding shares of the Company's capital stock, or shares
issuable upon the exercise of outstanding warrants, options, convertible
securities or other rights to acquire shares of such capital stock, exist which
have not been validly exercised or waived with respect to the Registration
Statement. The capital stock of the Company, including the Shares, conforms in
all material respects as to legal matters to the description thereof contained
in the Prospectus.
(iii) The Registration Statement has become effective
under the Act and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued under the Act
and no proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(iv) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder (except
that such counsel need express no opinion as to the financial statements and the
notes thereto and related schedules and other financial data included therein or
omitted therefrom).
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<PAGE> 20
(v) The statements (A) in the Prospectus under the caption
"Description of Capital Stock," "Management--Limitation of Liability;
Indemnification of Directors and Officers," and "Shares Eligible for Future
Sale" and (B) in the Registration Statement in Item 15 insofar as such
statements constitute a summary of matters of law, are in all material respects,
accurate summaries and fairly present the information called for with respect to
such matters.
(vi) Such counsel does not know of any contracts,
agreements, documents or instruments required to be filed as exhibits to the
Registration Statement, incorporated by reference into the Prospectus, or
described in the Registration Statement or the Prospectus which are not so
filed, incorporated by reference or described as required; and insofar as any
statements in the Registration Statement or the Prospectus constitute summaries
of any contract, agreement, document or instrument to which the Company is a
party, such statements are, in all material respects, accurate summaries and
fairly present the information called for with respect to such matters.
(vii) Such counsel knows of no legal or governmental
proceeding, pending or threatened, before any court or administrative body or
regulatory agency, to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
Prospectus and are not so described, or statutes or regulations that are
required to be described in the Registration Statement or the Prospectus that
are not so described.
(viii) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a violation of or default under the charter or bylaws
of the Company, or under any statute, permit, judgment, decree, order, rule or
regulation known to such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its properties (other than the
state securities and blue sky laws, as to which such counsel need express no
opinion) and do not and will not conflict with or result in a violation of or
default under (except for such conflicts, violations or defaults as would not
have a Material Adverse Effect) under any lease, license, contract, indenture,
mortgage, loan agreement or other agreement or other instrument or obligation
known to such counsel to which the Company is a party or by which the Company is
bound or to which any property or assets of the Company is subject, except such
agreements, instruments or obligations with respect to which valid consents or
waivers have been obtained by the Company.
(ix) The Company has the corporate power and authority to
enter into this Agreement and to authorize, issue, sell and deliver the Shares
as contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Company.
(x) No approval, consent, order, authorization,
designation, declaration, qualification or filing by or with any judicial,
regulatory, administrative or other governmental body is necessary in connection
with the execution and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by state
securities and blue
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<PAGE> 21
sky laws, as to which such counsel need express no opinion) except such as have
been obtained or made.
(xi) The Company is not, and immediately upon completion
of the sale of Shares contemplated hereby will not be, required to register as
an "investment company" under the Investment Company Act of 1940, as amended.
(xii) Although such counsel assumes no responsibility for
the factual accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in the
opinion in subsections (ii) and (v) of this Section 7(b) and on the basis of the
procedures undertaken by such counsel (and relying as to materiality to the
extent such counsel deems appropriate upon opinions of officers and other
representatives of the Company), no facts have come to the attention of such
counsel that cause it to believe that the Registration Statement and any
amendments and supplements thereto, at the time they became effective and as of
the Closing Date or the Option Closing Date, contined an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that the Prospectus or any further
amendment or supplement thereto, at the time it was mailed or otherwise
delivered to the Commission for filing pursuant to Rule 424(b) and as of the
Closing Date and the Option Closing Date, included an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that such counsel need not express any opinion with
respect to the cinancial statements and supporting schedules and other financial
data included in the Registration Statement and the Prospectus. Such counsel may
indicate that it has not undertaken any independent investigation to verify the
completeness or accuracy of the statements in the Registration Statement or the
Prospectus.
(c) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of counsel for each
of the Selling Shareholders, which counsel shall be reasonably acceptable to the
Representative(s), dated the Closing Date or the Option Closing Date, as the
case may be, addressed to the Underwriters, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Shareholder and are the valid and
binding agreements of such Selling Shareholder.
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(iii) The sale of the Shares to be sold by such Selling
Shareholder hereunder and the compliance by such Selling Shareholder with all of
the provisions of this Agreement, the Power of Attorney and the Custody
Agreement, and the consummation of the transactions herein and therein
contemplated, will not conflict with or result in a breach or violation
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<PAGE> 22
of any terms or provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which such Selling Shareholder is a party or
by which such Selling Shareholder is bound or to which any of the property or
assets of such Selling Shareholder is subject, nor will such action result in
any violation of any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over such Selling
Shareholder or the property of such Selling Shareholder.
(iv) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares to be
sold by such Selling Shareholder hereunder, except such consents, approvals,
authorizations or orders as have been validly obtained and are in full force and
effect, such as have been obtained under the Act, and such as may be required
under the state securities or blue sky laws in connection with the purchase and
distribution of such Shares by the Underwriters, as to which such counsel need
express no opinion.
(v) Such Selling Shareholder has full right, power and
authority to sell, assign, transfer and deliver the Shares to be sold by such
Selling Shareholder hereunder.
(vi) Upon delivery of the Shares being sold by such
Selling Shareholder and payment therefor, good and valid title to the Shares
being sold by such Selling Shareholder, free and clear of any claims, liens,
encumbrances, security interests or other adverse claims, will be transferred to
each of the several Underwriters who have purchased such Shares in good faith
and without notice of any such claim, lien, encumbrance, security interest or
other adverse claim within the meaning of the Uniform Commercial Code.
In rendering the opinions described above, counsel for each of the
Selling Shareholders may rely, as to matters of fact with respect to such
Selling Shareholder, upon the representations of such Selling Shareholder
contained in this Agreement, the Power of Attorney and the Custody Agreement.
(d) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, P.C., counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Shares, the Registration
Statement, the Prospectus, and other related matters as the Representatives may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters.
(e) The Representatives shall have received on each of the date
hereof, the Closing Date and the Option Closing Date, as the case may be, a
signed letter, dated as of the date hereof, the Closing Date or the Option
Closing Date, as the case may be, in form and substance reasonably satisfactory
to the Representatives, from KPMG Peat Marwick LLP, to the effect that they are
independent public accountants with respect to the Company and its subsidiaries
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<PAGE> 23
within the meaning of the Act and the related rules and regulations and
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(f) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or the Option Closing Date, as the case may be,
there shall not have been any change or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in your judgment, is material and adverse to the Company and
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at the Closing Date or the Option Closing
Date, as the case may be, on the terms and in the manner contemplated in the
Prospectus.
(g) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the chief executive officer and the chief financial officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Prospectus was filed with the Commission pursuant
to Rule 424(b) within the applicable period prescribed for such filing by the
Regulations and in accordance with Section 4 of this Agreement; no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for such purpose have been initiated or are, to his knowledge,
threatened by the Commission.
(ii) The representations and warranties of the Company set
forth in Section 1 of this Agreement are true and correct at and as of the
Closing Date or the Option Closing Date, as the case may be, and the Company has
performed all of its obligations under this Agreement to be performed at or
prior to the Closing Date or the Option Closing Date, as the case may be.
(h) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate of the Selling
Shareholders pursuant to which the Selling Shareholders certify that their
representations and warranties set forth in this Agreement are true and correct
at and as of the Closing Date or the Option Date, as the case may be, and that
they have performed all of their obligations under this Agreement to be
performed at or prior to the Closing Date or the Option Closing Date, as the
case may be.
(i) The Company and the Selling Shareholders shall have furnished
to the Representatives such further certificates and documents as the
Representatives may reasonably have requested.
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<PAGE> 24
(j) The Lock-Up Agreements shall have been delivered to the
Representatives prior to the date hereof and are, as of the Closing Date or the
Option Closing Date, as the case may be, in full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to Wilson
Sonsini Goodrich & Rosati, P.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be. In such event, the Company and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 6 and 8
hereof).
8. Indemnification.
(a) The Company and the Selling Shareholders jointly and
severally agree to indemnify and hold harmless each Underwriter, each officer
and director thereof, and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) to which such Underwriter or such persons may became subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus, including any amendments or supplements thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arising out of or based upon matters covered by clause (i) or (ii)
above, and will reimburse each Underwriter and each such controlling person for
any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission, made in the
Registration Statement, any Preliminary Prospectus or the Prospectus, including
any amendments or supplements thereto, in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein; provided further, that the
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<PAGE> 25
Company and the Selling Shareholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission, made in a Preliminary Prospectus, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of the Underwriters
to the person asserting such loss, claim, damage or liability, if required by
law so to have been delivered, at or prior to the written confirmation of the
sale of Shares to such person, and if the Prospectus (as amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability, unless the failure to so deliver the Prospectus (as amended
or supplemented) is the result of noncompliance by the Company with the first
sentence of paragraph 5(d) of this Agreement; provided, further, that the
Company shall not be liable in the case of any matter covered by clause (iii)
above to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such losses, claims, damages or liabilities resulted
directly from any such acts or failures to act undertaken or omitted to be taken
by such Underwriter through its gross negligence or willful misconduct; and,
provided, further, that in no event shall any Selling Shareholder be liable for
an amount in excess of the net proceeds received by such Selling Shareholder
from the sale of the Shares.
(b) Each Underwriter agrees severally and not jointly to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, each Selling Shareholder
and each person, if any, who controls the Company or any Selling Shareholder
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, Selling
Shareholder or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director, officer,
Selling Shareholder or controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that each Underwriter will be liable in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity or contribution may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
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<PAGE> 26
indemnification provided for in Section 8(a), or (b) or contribution provided
for in Section 8(d) shall be available with respect to a proceeding to any party
who shall fail to give notice of such proceeding as provided in this Section
8(c) if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party otherwise than on account of the provisions of Section
8(a), (b), or (c). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay promptly as incurred the reasonable fee and expenses of the counsel retained
by the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party. It is understood that
the indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm at any time for all such indemnified parties. Such
firm shall be designated in writing by the Representatives and shall be
reasonably satisfactory to the Company in the case of parties indemnified
pursuant to Section 8(a) and shall be designated in writing by the Company and
shall be reasonably satisfactory to the Representatives in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a), or (b) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one
-26-
<PAGE> 27
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bears to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Shareholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereto) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriters, no Selling
Shareholder shall be required to contribute any amount in excess of the proceeds
received by such Selling Shareholder, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Shareholders
under this Section 8 shall be in addition to any liability which the Company and
the Selling Shareholders may otherwise have, and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the Underwriters may otherwise have.
9. Default by Underwriters. If on the Closing Date or the Option Closing
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the Company
or a Selling Shareholder), you, as Representatives of the Underwriters, shall
use your best efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon, and upon the terms set forth
herein, of the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If the aggregate
number of Shares that the defaulting Underwriter or Undewriters agreed to
purchase shall not be purchased in accordance with the preceding sentence, the
Company shall have the right,
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<PAGE> 28
within 36 hours next succeding the 36-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you for
purchase of such remaining Shares on the terms herein set forth. If during such
two 36-hour periods you, as Representatives, and the Company shall not have
procured such other Underwriters, or any others, to purchase the Firm Shares or
Option Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of Shares with
respect to which such default shall occur does not exceed 10% of the Firm Shares
or Option Shares, as the case may be, covered hereby, the other Underwriters
shall be obligated, severally, in proportion to the respective numbers of Firm
Shares or Option Shares, as the case may be, which they are obligated to
purchase hereunder, to purchase the Firm Shares or Option Shares, as the case
may be, which such defaulting Underwriter or Underwriters failed to purchase, or
(b) if the aggregate number of shares of Firm Shares or Option Shares, as the
case may be, with respect to which such default shall occur exceeds 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the Company
and the Selling Shareholders or you as the Representatives of the Underwriters
will have the right, by written notice given within the next 36-hour period to
the parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or of the Company and the Selling
Shareholders except for expenses to be borne by the Company, the Selling
Shareholders and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof. In the event of a
default by any Underwriter or Underwriters, as set forth in this Section 9 (and
assuming that this Agreement is not terminated pursuant to the immediately
preceding sentences), the Closing Date or Option Closing Date, as the case may
be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to Dain Rauscher Wessels,
Attention: _______________, with copies to _______________; if to the Company or
Selling Shareholders, to WebTrends Corporation, 851 SW Sixth Ave., Suite 1200,
Portland, OR 97204, fax: (503) 224-5658, Attn: Elijahu Shapira, with copies to
Perkins Coie, LLP, 1211 SW Fifth Avenue, Suite 1500, Portland, OR 97204, Attn:
Roy W. Tucker.
11. Termination. This Agreement may be terminated by you by notice to
the Company and the Selling Shareholders as follows:
(a) at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
subsidiaries taken as a whole or the business affairs, management, financial
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<PAGE> 29
position, shareholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency after the date hereof or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, or a halt
or suspension of trading in securities generally which are quoted on The Nasdaq
National Market System, or (iv) declaration of a banking moratorium by either
federal or New York State authorities; or
(b) as provided in Sections 7 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company,
as to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (a) above or as provided in Sections 7 and 9 of this
Agreement.
12. Written Information. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2, Section 3 and Section 8
hereof), the Company and the Selling Shareholders understand and agree with each
of the Underwriters that the following constitutes the only written information
furnished to the Company by or through the Representatives specifically for use
in preparation of the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto: (i) the per share "Price to
Public" and per share "Underwriting Discounts and Commissions" set forth on the
cover page of the Prospectus, and (ii) the information set forth under the
caption "Underwriting" in the Preliminary Prospectus and the Prospectus.
13. Successors. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company, the Selling
Shareholders and their respective successors, executors, administrators, heirs
and assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares merely because
of such purchase.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers or the Selling Shareholders and (c)
delivery of and payment for the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or
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<PAGE> 30
unenforceable under any applicable law or rule in any jurisdiction, such
provision will be ineffective only to the extent of such invalidity, illegality
or unenforceability in such jurisdiction or any provision hereof in any other
jurisdiction.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Minnesota.
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<PAGE> 31
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Very truly yours,
WEBTRENDS CORPORATION
By:
----------------------------------------
Elijahu Shapira
Chief Executive Officer
SELLING SHAREHOLDERS LISTED ON
SCHEDULE B
By:
----------------------------------------
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
SoundView Technology Group, Inc.
As Representatives of the several Underwriters
By Dain Rauscher Wessels
By:
------------------------------------------------
Its:
---------------------------------------
<PAGE> 32
SCHEDULE A
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM MAXIMUM NUMBER
SHARES TO BE PURCHASED OF OPTION SHARES
<S> <C> <C>
Dain Rauscher Wessels.......................
SoundView Technology Group, Inc.
[Names of Underwriters by Grouping]
Total....................................... 3,500,000 525,000
</TABLE>
<PAGE> 33
SCHEDULE B
<TABLE>
<CAPTION>
SELLER NUMBER OF MAXIMUM NUMBER
FIRM SHARES OF OPTION SHARES
<S> <C> <C>
WebTrends Corporation....................... 3,000,000 0
Selling Shareholders:
Elijahu Shapira .................... 250,000 262,500
W. Glen Boyd ....................... 250,000 262,500
--------- -------
Total....................................... 3,500,000 525,000
</TABLE>
<PAGE> 1
ROY W. TUCKER
(503) 727-2044
[email protected]
February 15, 1999
WebTrends Corporation
Suite 1200
851 S.W. Sixth Avenue
Portland, OR 97204
Gentlemen:
We have acted as counsel to WebTrends Corporation (the "Company") in
connection with the preparation and filing of a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), covering up to 4,025,000 shares (the "Shares") of the
Company's common stock, no par value per share (the "Common Stock").
We have examined the Registration Statement and such documents and
records of the Company and other documents as we have deemed necessary for the
purpose of this opinion. Based upon the foregoing, we are of the opinion that
upon the happening of the following events:
(a) the filing and effectiveness of the Registration Statement and
any amendments thereto,
(b) due execution by the Company and registration by its registrar
of the Shares,
(c) the offering and sale of the Shares as contemplated by the
Registration Statement, and
(d) receipt by the Company of the consideration required for the
Shares to be sold by the Company as contemplated by the
Registration Statement,
<PAGE> 2
February 15, 1999
Page 2
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the heading "Legal Matters." In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
PERKINS COIE
RWT:cf
<PAGE> 1
EXHIBIT 10.2
WEBTRENDS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the WebTrends Corporation 1999 Employee Stock Purchase
Plan (the "Plan") are (a) to assist employees of WebTrends Corporation, an
Oregon corporation (the "Company"), and its designated subsidiaries in acquiring
a stock ownership interest in the Company pursuant to a plan that is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended and (b) to encourage employees to remain in the
employ of the Company and its subsidiaries.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Company's Compensation Committee.
"COMPANY" means WebTrends Corporation, an Oregon corporation.
"DESIGNATED SUBSIDIARY" has the meaning set forth under the definition
of "Eligible Employee" in this Section 2.
"ELIGIBLE COMPENSATION" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.
"ELIGIBLE EMPLOYEE" means any employee of the Company or any domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (each a "Designated Subsidiary"), who is in the employ of
the Company (or any Designated Subsidiary) on one or more Offering Dates and who
meets the following criteria:
<PAGE> 2
(a) the employee does not, immediately after the option is
granted, own stock (as defined by the Code) possessing 5%
or more of the total combined voting power or value of all
classes of stock of the Company or of a Parent Corporation
or Subsidiary Corporation of the Company;
(b) the employee's customary employment is for more than 20
hours per week; provided, however, that the Plan
Administrator may decrease this minimum requirement for
future Offering Periods; and
If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"ENROLLMENT PERIOD" has the meaning set forth in Section 7.1.
"ESPP BROKER" has the meaning set forth in Section 10.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"NEW PURCHASE DATE" has the meaning set forth in Sections 10.2 and 10.3.
"OFFERING" has the meaning set forth in Section 5.1.
"OFFERING DATE" means the first day of an Offering.
"OFFERING PERIOD" has the meaning set forth in Section 5.1.
"OPTION" means an option granted under the Plan to an Eligible Employee
to purchase shares of Stock.
"PARENT CORPORATION" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the Company,
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
-2-
<PAGE> 3
"PARTICIPANT" means any Eligible Employee who has elected to participate
in an Offering in accordance with the procedures set forth in Section 7.1 and
who has not withdrawn from the Plan or whose participation in the Plan is not
terminated.
"PLAN" means the WebTrends Corporation 1999 Employee Stock Purchase
Plan.
"PURCHASE DATE" means the last day of each Purchase Period.
"PURCHASE PERIOD" has the meaning set forth in Section 5.2.
"PURCHASE PRICE" has the meaning set forth in Section 6.
"STOCK" means the common stock of the Company.
"SUBSCRIPTION" has the meaning set forth in Section 7.1.
"SUBSIDIARY CORPORATION" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company, if, at the time
of the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or the Committee or, if and
to the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
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<PAGE> 4
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, unless reserved to the Board or the
Committee, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's other officers or employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 10, the
maximum number of shares of Stock which shall be available for issuance under
the Plan shall be 350,000 shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2000 equal to the lesser of
(a) 16,250 shares, (b) 0.125% of the adjusted average common shares outstanding
of the Company used to calculate fully diluted earnings per share as reported in
the Annual Report to shareholders for the preceding year, or (c) a lesser amount
determined by the Board; provided, however, that any shares from any increases
in previous years that are not actually issued shall be added to the aggregate
number of shares available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares or shares now held or
subsequently acquired by the Company as treasury shares.
SECTION 5. OFFERING DATES
5.1 OFFERING PERIODS
(a) Except as otherwise set forth below, the Plan shall be implemented
by a series of Offerings (each, an "Offering"). Offerings shall commence on
January 1 and July 1 of each year and end on the next June 30 and December 31,
respectively, occurring thereafter (each, an "Offering Period"); provided,
however, that the first Offering Period shall begin on the day (the "IPO Date")
on which shares of the Company's Stock are first offered to the public in an
underwritten initial public offering of such Stock pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission (such day being the first trading day for the Stock on the Nasdaq
National Market, the New York Stock Exchange or other applicable trading
market), and shall end on June 30, 1999.
(b) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more Offerings and (ii) different commencing and
ending dates for such Offerings; provided, however, that an Offering Period may
not exceed five years; and provided, further, that if the Purchase Price may be
less than
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85% of the fair market value of the Stock on the Purchase Date, the Offering
Period may not exceed 27 months.
(c) In the event the first or the last day of an Offering Period is not
a regular business day, then the first day of the Offering Period shall be
deemed to be the next regular business day and the last day of the Offering
Period shall be deemed to be the last preceding regular business day. An
employee who becomes eligible to participate in the Plan after an Offering
Period has commenced shall not be eligible to participate in such Offering but
may participate in any subsequent Offering, provided that such employee is still
an Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
5.2 PURCHASE PERIODS
Each Offering Period shall consist of one or more consecutive purchase
periods (each, a "Purchase Period"). The last day of each Purchase Period shall
be the Purchase Date for such Purchase Period. Except as otherwise set forth
below, each Purchase Period shall commence on January 1 and July 1 of each year
and end on the next June 30 and December 31, respectively, occurring thereafter;
provided, however, that the Purchase Period for the first Offering shall
commence on the IPO Date and end on June 30, 1999. Notwithstanding the
foregoing, the Board may establish (a) a different term for one or more Purchase
Periods and (b) different commencing and ending dates for any such Purchase
Period. In the event the first or last day of a Purchase Period is not a regular
business day, then the first day of the Purchase Period shall be deemed to be
the next regular business day and the last day of the Purchase Period shall be
deemed to be the last preceding regular business day.
5.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL
Notwithstanding any other provision of the Plan to the contrary, an
Option granted pursuant to the Plan shall be subject to (a) obtaining all
necessary governmental approvals and qualifications of the Plan and the issuance
of Options and sale of Stock pursuant to the Plan and (b) obtaining stockholder
approval of the Plan.
SECTION 6. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be acquired
in an Offering pursuant to the exercise of all or any portion of an Option
granted under the Plan (the "Offering Exercise Price") shall be 85% of the
lesser of (a) the fair market value of the Stock on the Offering Date of such
Offering and (b) the fair
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market value of the Stock on the Purchase Date; provided, however, that the
Purchase Price for the first Offering Period shall be the lesser of (a) 100% of
the initial public offering price per share of Stock, before underwriters'
discounts or concessions, set forth in that certain Underwriting Agreement
between the Company and the representatives of the underwriters when executed in
connection with the Company's initial public offering of the Stock and (b) 85%
of the fair market value of the Stock on the Purchase Date. The fair market
value of the Stock on the Offering Date or on the Purchase Date shall be the
closing price for the Stock as reported for such day by the Nasdaq National
Market, the New York Stock Exchange or other trading market on which the
Company's Stock may then be traded (the "Exchange"). If no sales of the Stock
were made on the Exchange on such day, fair market value shall mean the closing
price for the Stock as reported for the next preceding day on which sales of the
Stock were made on the Exchange. If the Stock is not listed on an Exchange, the
Board shall designate an alternative method of determining the fair market value
of the Stock.
SECTION 7. PARTICIPATION IN THE PLAN
7.1 INITIAL PARTICIPATION
An Eligible Employee shall become a Participant on the first Offering
Date after satisfying the eligibility requirements and delivering to the Plan
Administrator during the enrollment period established by the Plan Administrator
(the "Enrollment Period") a subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in the
Plan;
(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each
Purchase Period.
An Eligible Employee who does not deliver a Subscription as provided
above during the Enrollment Period shall not participate in the Plan for that
Offering Period or for any subsequent Offering Period unless such Eligible
Employee subsequently enrolls in the Plan by filing a Subscription with the
Company during the Enrollment Period for such subsequent Offering Period. The
Company may, from time to time, change the Enrollment Period for any future
Offering as deemed advisable by the Plan Administrator, in its sole discretion,
for the proper administration of the Plan.
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7.2 CONTINUED PARTICIPATION
A Participant shall automatically participate in the next Offering
Period until such time as such Participant withdraws from the Plan pursuant to
Section 12.1 or 12.2 or terminates employment as provided in Section 13.
SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES
8.1 NUMBER OF SHARES PURCHASED
The maximum number of shares of stock that may be offered to a
Participant on any Offering Date shall be equal to $25,000 divided by the fair
market value of one share of Stock of the Company on the applicable Offering
Date. Further, no Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent Corporation
or a Subsidiary Corporation) with a fair market value exceeding $25,000,
determined as of the Offering Date for each Offering Period (or such other limit
as may be imposed by the Code), in any calendar year in which a Participant
participates in the Plan (or other employee stock purchase plan described in
this Section 8.1).
8.2 PRO RATA ALLOCATION
In the event the number of shares of Stock that might be purchased by
all Participants in the Plan exceeds the number of shares of Stock available in
the Plan, the Plan Administrator shall make a pro rata allocation of the
remaining shares of Stock in as uniform a manner as shall be practicable and as
the Plan Administrator shall determine to be equitable. Fractional shares may
not be issued under the Plan unless the Plan Administrator determines otherwise
for future Offering Periods.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 GENERAL RULES
Subject to Section 9.12, Stock that is acquired pursuant to the exercise
of all or any portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation. Except as set forth in
this Section 9, the amount of compensation to be withheld from a Participant's
Eligible Compensation during each pay period shall be determined by the
Participant's Subscription.
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9.2 CHANGE NOTICES
During an Offering Period, a Participant may elect to decrease, but not
increase, the amount withheld from his or her compensation by filing an amended
Subscription with the Company on or before the change notice date. The change
notice date shall initially be the seventh day prior to the end of the first pay
period for which such election is to be effective; provided, however, that the
Plan Administrator may change such change notice date from time to time. Unless
otherwise determined by the Plan Administrator for a future Offering, a
Participant may elect to increase or decrease the amount to be withheld from his
or her compensation for future Offerings; provided, however, that notice of such
election must be delivered to the Plan Administrator in such form and in
accordance with such terms as the Plan Administrator may establish for an
Offering.
9.3 PERCENT WITHHELD
The amount of payroll withholding for each Participant for purchases
pursuant to the Plan during any pay period shall be at least 1% but shall not
exceed 15% of the Participant's Eligible Compensation for such pay period.
Amounts shall be withheld in whole percentages only.
9.4 PAYROLL DEDUCTIONS
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering Period
unless sooner altered or terminated as provided in the Plan.
9.5 MEMORANDUM ACCOUNTS
Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account but shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
9.6 NO INTEREST
No interest shall be paid on payroll deductions received or held by the
Company.
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<PAGE> 9
9.7 ACQUISITION OF STOCK
On each Purchase Date of an Offering Period, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's Option, the
number of shares of Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Stock purchased
by the Participant shall not exceed the number of whole shares of Stock so
determined, unless the Plan Administrator has determined for any future Offering
that fractional shares may be issued under the Plan; and provided, further, that
the number of shares of Stock purchased by the Participant shall not exceed the
number of shares for which Options have been granted to the Participant pursuant
to Section 8.1.
9.8 REFUND OF EXCESS AMOUNTS
Any cash balance remaining in the Participant's account at the
termination of each Purchase Period shall be refunded to the Participant as soon
as practical after the Purchase Date without the payment of any interest;
provided, however, that if the Participant participates in the next Purchase
Period, any cash balance remaining in the Participant's account shall be applied
to the purchase of Stock in the new Purchase Period, provided such purchase
complies with Section 8.1.
9.9 WITHHOLDING OBLIGATIONS
At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Stock. The
Company may withhold from the Participant's compensation the amount necessary to
meet such withholding obligations.
9.10 TERMINATION OF PARTICIPATION
No Stock shall be purchased on behalf of a Participant on a Purchase
Date if his or her participation in the Offering or the Plan has terminated on
or before such Purchase Date.
9.11 PROCEDURAL MATTERS
The Company may, from time to time, establish (a) limitations on the
frequency and/or number of any permitted changes in the amount withheld during
an Offering, as set forth in Section 9.2, (b) an exchange ratio applicable to
amounts
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withheld in a currency other than U.S. dollars, (c) payroll withholding in
excess of the amount designated by a Participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections and (d) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion that are consistent with the Plan
and in accordance with the requirements of Code Section 423.
9.12 LEAVES OF ABSENCE
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Plan Administrator on the Participant's normal paydays equal to
the amount of his or her payroll deduction under the Plan had the Participant
not taken a leave of absence. Currently, the Treasury Regulations provide that a
Participant may continue participation in the Plan only during the first 90 days
of a leave of absence unless the Participant's reemployment rights are
guaranteed by statute or contract.
SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 ESPP BROKER
If the Plan Administrator designates or approves a stock brokerage or
other financial services firm (the "ESPP Broker") to hold shares purchased under
the Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Stock purchased
by each Participant shall be deposited into an account established in the
Participant's name with the ESPP Broker. Each Participant will be the beneficial
owner of the Stock purchased under the Plan and will have all rights of
beneficial ownership in such Stock. A Participant shall be free to undertake a
disposition of the shares of Stock in his or her account at any time, but, in
the absence of such a disposition, the shares of Stock must remain in the
Participant's account at the ESPP Broker until the holding period set forth in
Code Section 423 has been satisfied. With respect to shares of Stock for which
the holding period set forth above has been satisfied, the Participant may move
those shares of Stock to another brokerage account of the Participant's choosing
or request that a stock certificate be issued and delivered to him or her.
Dividends paid in the form of shares of Stock with respect to Stock in a
Participant's account shall be credited to such account. A Participant who is
not subject to payment of U.S. income taxes may move his or her shares of Stock
to another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423 holding period.
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10.2 NOTICE OF DISPOSITION
By entering the Plan, each Participant agrees to promptly give the
Company notice of any Stock disposed of within the later of one year from the
Purchase Date and two years from the Offering Date for such Stock, showing the
number of such shares disposed of and the Purchase Date and Offering Date for
such Stock. This notice shall not be required if and so long as the Company has
a designated ESPP Broker.
SECTION 11. MARKET STANDOFF
In connection with the underwritten initial public offering by the
Company of its Stock, neither the Participant nor any beneficiary receiving
shares of Stock pursuant to Section 14.2 hereof shall sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose of or transfer for value or otherwise agree to engage in any
of the foregoing transactions with respect to any Stock issued under the Plan
for a period of 180 days after the IPO Date.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's Stock effected as a class without the Company's receipt of
consideration, any new, substituted or additional securities distributed with
respect to the purchased Stock shall be immediately subject to the provisions of
this Section 11.
In order to enforce the limitations of this Section 11, the Company may
issue stop-transfer instructions to the ESPP Broker and/or the Company's
transfer agent until the end of the period ending 180 days after the IPO Date.
SECTION 12. VOLUNTARY WITHDRAWAL
12.1 WITHDRAWAL FROM AN OFFERING
A Participant may withdraw from an Offering by signing and delivering to
the Company's Plan Administrator a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such withdrawal
is to be effective or by any other date specified by the Plan Administrator for
any future Offering. If a Participant withdraws after the Purchase Date for a
Purchase Period of an Offering, the withdrawal shall not affect Stock acquired
by the Participant in any earlier Purchase Periods. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. A Participant is prohibited from again
participating in the same Offering at any time upon
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withdrawal from such Offering. The Company may, from time to time, impose a
requirement that the notice of withdrawal be on file with the Plan Administrator
for a reasonable period prior to the effectiveness of the Participant's
withdrawal.
12.2 WITHDRAWAL FROM THE PLAN
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Plan Administrator. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such withdrawal is to
be effective or by any other date specified by the Plan Administrator for any
future Offering. In the event a Participant voluntarily elects to withdraw from
the Plan, the Participant may not resume participation in the Plan during the
same Offering Period, but may participate in any subsequent Offering under the
Plan by again satisfying the definition of Eligible Employee. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Plan Administrator for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.3 RETURN OF PAYROLL DEDUCTIONS
Upon withdrawal from an Offering pursuant to Section 12.1 or from the
Plan pursuant to Section 12.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
SECTION 13. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 14.2, and all of
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 13.
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SECTION 14. RESTRICTIONS ON ASSIGNMENT
14.1 TRANSFERABILITY
An Option granted under the Plan shall not be transferable and such
Option shall be exercisable during the Participant's lifetime only by the
Participant. The Company will not recognize, and shall be under no duty to
recognize, any assignment or purported assignment by a Participant of the
Participant's interest in the Plan, of his or her Option or of any rights under
his or her Option.
14.2 BENEFICIARY DESIGNATION
The Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event the Participant dies after the
Purchase Date for an Offering but prior to delivery to such Participant of such
shares and cash. In addition, the Plan Administrator may permit a Participant to
designate a beneficiary who is to receive any cash from the Participant's
account under the Plan in the event that the Participant dies before the
Purchase Date for an Offering. Such designation may be changed by the
Participant at any time by written notice to the Plan Administrator.
SECTION 15. NO RIGHTS AS STOCKHOLDER UNTIL
SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant
shall not be deemed to be a stockholder of the Company, and he or she shall not
have any of the rights or privileges of a stockholder. Subject to the
three-month holding period requirement set forth in Section 10.1, a Participant
shall have the rights and privileges of a stockholder of the Company when, but
not until, a certificate or its equivalent has been issued to the Participant
for the shares following exercise of the Participant's Option.
SECTION 16. LIMITATIONS ON SALE OF STOCK
PURCHASED UNDER THE PLAN
The Plan is intended to provide Stock for investment and not for resale.
The Company does not, however, intend to restrict or influence any Participant
in the conduct of his or her own affairs. Subject to the three-month holding
period requirement set forth in of Section 10.1, a Participant, therefore, may
sell Stock purchased under the Plan at any time he or she chooses, subject to
compliance with
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any applicable federal and state securities laws. A Participant assumes the risk
of any market fluctuations in the price of the Stock.
SECTION 17. AMENDMENT OF THE PLAN
The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that, to the extent required for compliance with
Code Section 423 or any applicable law or regulation, stockholder approval will
be required for any amendment that will (a) increase the total number of shares
as to which Options may be granted under the Plan, (b) modify the class of
employees eligible to receive Options, or (c) otherwise require stockholder
approval under any applicable law or regulation.
SECTION 18. TERMINATION OF THE PLAN
The Plan shall continue in effect for 10 years after the date of its
adoption by the Board. Notwithstanding the foregoing, the Board may suspend or
terminate the Plan at any time. During any period of suspension or upon
termination of the Plan, no Options shall be granted; provided, however, that
suspension or termination of the Plan shall have no effect on Options granted
prior thereto.
SECTION 19. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary Corporation or to affect the right of the
Company or a Parent or Subsidiary Corporation to terminate the employment of any
person (including any Eligible Employee or Participant) at any time with or
without cause.
SECTION 20. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary
Corporation. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, a Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
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SECTION 21. ADJUSTMENTS
21.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Stock, then (subject to any required action by the
Company's stockholders), the Board or the Committee, in its sole discretion,
shall make such equitable adjustments as it shall deem appropriate in the
circumstances in (i) the maximum number and kind of shares of Stock subject to
the Plan as set forth in Section 4 and (ii) the number and kind of securities
that are subject to any outstanding Option and the per share price of such
securities. The determination by the Board or the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution, liquidation, merger or asset sale
of the Company shall not be governed by this Section 21.1 but shall be governed
by Sections 21.2 and 21.3, respectively.
21.2 DISSOLUTION OR LIQUIDATION OF THE COMPANY
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period then in progress shall be shortened by setting a new
Purchase Date (the "New Purchase Date"), and shall terminate immediately prior
to the consummation of such proposed dissolution or liquidation, unless provided
otherwise by the Board. The New Purchase Date shall be a specified date before
the date of the Company's proposed dissolution or liquidation. The Board shall
notify each Participant in writing, at least 10 business days prior to the New
Purchase Date, that the Purchase Date for the Participant's Option has been
changed to the New Purchase Date and that the Participant's Option shall be
exercised automatically on the New Purchase Date, unless prior to such date the
Participant has withdrawn from the Offering Period or the Plan as provided in
Section 12 hereof.
21.3 MERGER OR ASSET SALE OF THE COMPANY
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each outstanding Option shall be assumed or an equivalent option
substituted by the
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successor corporation or a parent or subsidiary corporation of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Offering Period then in progress shall be
shortened by setting a new Purchase Date (the "New Purchase Date"). The New
Purchase Date shall be a specified date before the date of the Company's
proposed sale or merger. The Board shall notify each Participant in writing, at
least 10 business days prior to the New Purchase Date, that the Purchase Date
for the Participant's Option has been changed to the New Purchase Date and that
the Participant's Option shall be exercised automatically on the New Purchase
Date, unless prior to such date the Participant has withdrawn from the Offering
Period or the Plan as provided in Section 12 hereof.
21.4 LIMITATIONS
The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
SECTION 22. REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Stock. The Company may
issue certificates for shares with such legends and subject to such restrictions
on transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
SECTION 23. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's stockholders.
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EXPORT AGREEMENT
This agreement entered by and between Network Trade Corporation located
in Portland Maine, hereinafter called EXPORT MANAGEMENT COMPANY (EMC) and E.G.
SOFTWARE INC. located in PORTLAND OREGON, hereinafter called SUPPLIER.
WITNESSETH: WHEREAS, the EMC will provide best effort to identify
foreign companies, hereinafter called DISTRIBUTOR (to include resellers, VARS,
representatives and/or distributors) to resell the products of the supplier in
the territories of the world hereinafter set forth in Appendix A and the
supplier desires to sell their products to foreign company DISTRIBUTORS. NOW,
THEREFORE, in consideration of the above and each and all of the terms and
provisions hereinafter contained, it is agreed as follows:
1. EMC shall have the non-exclusive right to represent products of the
supplier in the territory as further defined in Appendix A. Supplier grants EMC
authority to solicit foreign company distributors to distribute and sell the
supplier's products in the foreign territory. The Supplier may at any time
redefine the territory or the exclusions stated in Appendix A, however for
foreign company distributors listed at the time of such redefinition Supplier
remains bound to this agreement.
2. EMC will notify Supplier of seriously interested and qualified
foreign company distributors in writing by periodic additions to Appendix A. EMC
will in good faith and in the Supplier's best interests, encourage a foreign
company distributor identified on Appendix A to enter into a separate resale
agreement directly with the Supplier.
3. EMC will forward via post to only suitable interested foreign
distributors, as identified in Appendix A, a Supplier supplied information
packet. Supplier agrees to reimburse EMC for postage of mailing supplier's
packet to interested foreign country distributors identified on Appendix A at
standard USA international postal rates.
4. Supplier has exclusive right to determine terms and conditions for a
separate agreement between the supplier and the foreign company distributor(s).
The EMC will be party to the separate agreement, whether verbal or written,
which will not violate the terms of this agreement. The supplier has no
obligation to enter into any agreement with any party defined in Appendix A.
<PAGE> 2
5. Supplier agrees that they are to receive all sales orders and
payments from foreign company distributors, as set forth in Appendix A, from the
EMC and will direct those foreign company distributors to send orders and
payments to the EMC.
6. EMC agrees to forward to supplier all payments due, less fees,
within three business days of receipt from foreign company distributor. It is
understood that supplier is not required to permit shipment before receiving
such payment.
7. Fees due to the EMC from the supplier will be 10% of the sales
amount paid, not including shipping expenses and EMC will be the exporter and
responsible for complete dock to dock shipment, preparation of all documentation
relating to export shipments, including consular papers, customs declaration,
ocean bills of lading and airway bills of lading, invoices, and so forth.
Supplier agrees that product size, weight, and availability information will be
supplied to EMC in a timely manner.
8. Supplier agrees to indemnify and hold EMC harmless against any
damages incurred or suffered by reason of any infringement or alleged
infringement by supplier of patent or trademark rights of others or brought
about by any third-party suits for product malfunction, or other liability
related to the performance by the supplier or the supplier's products.
9. This agreement shall remain in effect until such time that the
supplier or EMC may give notice in writing via certified mail of cancellation.
The expiration interval for parties listed in Appendix A after cancellation is
36 months.
10. This agreement shall be binding on all successors to the principals
named herein. This agreement shall supersede all prior agreements, may not be
modified except in writing, and shall be construed under the laws of the State
of the supplier. In the event of any dispute hereunder, both parties agree to
arbitration in the State of the supplier under the rules and auspices of the
American Arbitration Association.
IN WITNESS WHEREOF, the parties hereto have set their hands:
/s/ /s/
------------------------------ --------------------------------
Name: ELI SHAPIRA Name: JAMES BAILIE
Title: CHIEF TECHNICAL OFFICER Title: GENERAL MANAGER
Date: 4/25/95 Date: April 3, 1995
Address: 319 SW Washington Address: Network Trade Corp.
Suite 706 Suite 203
Portland, OR 97204 100 Commercial Street
Portland, ME 04101
<PAGE> 3
APPENDIX A
DEFINITION OF FOREIGN TERRITORY, EXCLUSIONS, AND FOREIGN COMPANY DISTRIBUTORS
This appendix is subject to the terms as stated in the agreement
between Network Trade corporation and E.G. SOFTWARE INC.
1. Foreign Company Distributor is defined to include any and all
subsidiaries, partners, employees, and significant investors regardless of name
changes, diversifications, or reorganizations.
2. Additions or Denials Process: EMC will routinely add foreign company
distributors that indicate serious interest and intent for the supplier's
products. Such additions require that this Appendix A be modified and sent to
the supplier via mail. A denial of any addition must be sent by supplier by
certified US mail within 10 days. If no denial is sent within the 10 days then
the modification is accepted by both parties.
3. This Appendix only concerns the identity of foreign territories,
exclusions, or foreign company distributors, it can not change the terms and
conditions as specified in the agreement.
4. Description of Territories and Exclusions by Supplier: Until further
written notice, EMC will limit activities as follows: NO EXCLUSIONS
5. Identity of Foreign Distributors by EMC:
(pending contract completion)
Submitted By: /s/ Date: April 3, 1995
---------------------- -----------------------
JAMES BAILIE
GENERAL MANAGER
NETWORK TRADE CORP.
page 1 of 1
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INDEPENDENT AUDITORS' REPORT OF KPMG PEAT MARWICK LLP, DATED AS OF JANUARY 11,
1999, AND IS QUALIFIED IN ITS ENTITY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-START> JAN-01-1998
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<CASH> 1,098,847
<SECURITIES> 0
<RECEIVABLES> 1,017,577
<ALLOWANCES> (40,000)
<INVENTORY> 62,115
<CURRENT-ASSETS> 2,741,963
<PP&E> 931,468
<DEPRECIATION> (333,061)
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<CURRENT-LIABILITIES> 2,520,491
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0
0
<COMMON> 580,387
<OTHER-SE> 261,508
<TOTAL-LIABILITY-AND-EQUITY> 3,362,386
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<CGS> 632,925
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<OTHER-EXPENSES> 7,153,620
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<EPS-PRIMARY> .03
<EPS-DILUTED> .02
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INDEPENDENT AUDITORS' REPORT OF KPMG PEAT MARWICK LLP, DATED AS OF NOVEMBER 25,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 806,916
<SECURITIES> 0
<RECEIVABLES> 546,641
<ALLOWANCES> (20,000)
<INVENTORY> 89,135
<CURRENT-ASSETS> 1,555,191
<PP&E> 452,610
<DEPRECIATION> (126,644)
<TOTAL-ASSETS> 1,886,189
<CURRENT-LIABILITIES> 1,295,414
<BONDS> 0
0
0
<COMMON> 260,000
<OTHER-SE> 324,275
<TOTAL-LIABILITY-AND-EQUITY> 1,886,189
<SALES> 3,836,657
<TOTAL-REVENUES> 4,054,890
<CGS> 292,268
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<OTHER-EXPENSES> 3,335,160
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 437,873
<INCOME-TAX> 150,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 287,373
<EPS-PRIMARY> .04
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