<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
File No. 333-73263
PROSPECTUS
3,636,000 SHARES
ONE SOURCE LOGO
COMMON STOCK
OneSource Information Services, Inc. is offering 2,500,000 shares of its
common stock and the selling stockholders are offering 1,136,000 shares of
OneSource's common stock owned by them. We will not receive any of the proceeds
from the selling stockholders' sale of their shares.
This is our initial public offering and no public market currently exists
for our shares. The initial public offering price will be $12.00 per share. The
common stock has been approved for quotation on the Nasdaq National Market under
the symbol "ONES."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. FOR MORE INFORMATION, SEE
"RISK FACTORS" COMMENCING ON PAGE 7.
---------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PER SHARE TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Public Offering Price................................ $12.00 $43,632,000
Underwriting Discount................................ $ 0.84 $ 3,054,240
Proceeds to OneSource Information Services, Inc...... $11.16 $27,900,000
Proceeds to Selling Stockholders..................... $11.16 $12,677,760
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to an additional 545,400 shares at
the public offering price, less the underwriting discount, from the selling
stockholders within 30 days from the date of this prospectus to cover
over-allotments.
WILLIAM BLAIR & COMPANY
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
The date of this prospectus is May 19, 1999
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[The inside front cover depicts four computer screen shots of the OneSource
Business Browser. The heading on the page is "Ready-To-Use Business
Information." The top three computer screen shots depict the Global Business
Browser, the European Business Browser, and the UK Business Browser. The fourth
computer screen shot depicts Market Forecasts and contains a chart graphic.
There are four ellipses on the page that briefly describe the potential uses of
the business information contained in the Business Browser products, including:
"Profile a Company"; "Prospect for New Customers"; "Track Competitors"; and
"Research an Industry". The OneSource logo is in the lower right hand corner of
the page.]
[FOUR COLOR ART WORK]
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully.
THE COMPANY
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry and market
intelligence. Our Business Browser product line integrates comprehensive and
up-to-date business and financial information on over one million public and
private companies from more than 25 information providers drawing upon over
2,500 sources of content. These sources include both textual information, such
as news, trade press, SEC filings, executive biographies and analyst reports,
and numeric information, such as company financial results, stock quotes and
industry statistics. Our customers access this information over the Internet
using standard Web browsers at a fixed annual subscription price.
According to Simba Information Inc., the market for all Web-based and
on-line business information services was nearly $24.8 billion in 1997 and is
projected to grow to almost $39.8 billion in 2002. This reflects a compound
annual growth rate of 9.9%. Simba also reported that the primary market segment
in which OneSource participates--Web-based and on-line financial news, current
awareness and research services--was $5.4 billion in 1997 and is projected to
grow to $9.8 billion in 2002. This reflects a compound annual growth rate of
12.6%. Recent industry growth has been driven by corporations and other
enterprises recognizing that productivity and competitiveness depend on
extensive knowledge of external information, including information about
industries, customers, competitors, prospects, business trends, breaking news
and market data.
OneSource focuses on the functional uses of the business and financial
information it delivers. The Business Browser product line has been designed for
use not only by traditional users of business information, but also throughout
an organization, including sales, marketing, finance and management
professionals. We apply our knowledge of how business professionals use
information to transform raw, disparate data into meaningful, actionable
information. We focus on integrating and presenting information so that
interpretation, manipulation and analysis can be performed more easily by the
end user. Because our products are based on standard Web technology, our
customers require minimal installation and systems support, and users, after
minimal training, have full access to the products at any time from anywhere via
the Internet.
Our products are designed to address information needs of leading
professional and financial services firms, technology companies and other large
organizations. Representative customers include American Express, Bain &
Company, BankAmerica, Boeing, British Telecom, Deloitte & Touche, Ernst & Young,
Harvard Business School, KPMG Peat Marwick, MCI/WorldCom, Merrill Lynch, Oracle
and SAP.
OneSource's fixed annual pricing strategy is designed to be particularly
attractive to large organizations. The annual subscription price for the
Business Browser product line declines on a per-user basis as the total number
of users increases. The fixed-price model encourages professionals to use the
products as needed without concern with additional, usage-based charges, and a
declining marginal price per user encourages customers to distribute the
products widely throughout their organizations.
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At March 31, 1999, 460 organizations subscribed to our Web-based Business
Browser product line, up from 279 at March 31, 1998. On average, our customers
for Web-based products at March 31, 1999 had an annualized contract value of
$61,604 per customer, compared to $42,489 per customer at March 31, 1998. The
annualized value of Business Browser customer contracts was $25.9 million at
December 31, 1998, having grown from $9.0 million at the end of 1997. Of this
$25.9 million, $14.2 million was attributable to those customers that were under
contract at both December 31, 1997 and 1998. The renewal rate of the Business
Browser product line for 1998 was 90% calculated on a dollar basis. Annualized
contract value is a metric we use to measure the value of existing customer
contracts. We compute it by taking the monthly invoiced fees on all outstanding
customer contracts and annualizing that amount by multiplying it by twelve,
without regard to the remaining term of any contract. This allows us to measure
our "book of business" in a way that permits us to compare one quarterly or
annual period to another. For more information regarding annualized contract
value, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Annualized Contract Value."
Our goal is to become a leading Web-based provider of business and
financial information to professionals worldwide. Our strategy to accomplish
this objective includes:
- focusing on the information needs of professionals in large
organizations
- expanding our customer base through our sales and marketing efforts
- leveraging our existing customer base by expanding the number of users
per customer and upgrading those customers to new or enhanced products
- continually expanding the content and functionality of our products
and designing additional products
- selectively seeking possible strategic acquisitions and alliances
THE OFFERING
<TABLE>
<S> <C>
Shares offered by OneSource.............. 2,500,000
Shares offered by the selling
stockholders........................... 1,136,000
Shares outstanding immediately after the
offering............................... 9,926,500
Shares reserved for issuance with respect
to outstanding options and warrants.... 4,393,005
Use of proceeds.......................... Repayment of outstanding debt, payments
to terminate management fee arrangements
and general corporate purposes, including
working capital and possibly to acquire
or invest in complementary businesses,
products or technologies
Nasdaq National Market symbol............ ONES
</TABLE>
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, SHARE AND NUMBER OF CUSTOMERS DATA)
The summary financial data set forth below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Pro Forma As Adjusted column included in Balance Sheet Data adjusts the numbers
in the Actual column to give effect to:
- the reclassification of the Class P common stock as described in
"Reclassification"
- the sale of 2,500,000 shares of common stock by OneSource in this
offering at the initial public offering price of $12.00 per share after
deducting the underwriting discount and estimated offering expenses as if
the sale had been completed on March 31, 1999
- the use of the estimated net proceeds to OneSource as described in "Use
of Proceeds"
- the issuance of 15,696 shares pursuant to the partial exercise of a
warrant by a selling stockholder as described in "Capitalization"
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Web-based product revenues........ $ 15 $ 3,312 $ 16,058 $ 2,628 $ 6,903
CD Rom product revenues(1)........ 30,419 27,072 14,370 5,322 1,240
------- ------- ----------- ------- -----------
Total revenues.................. 30,434 30,384 30,428 7,950 8,143
======= ======= =========== ======= ===========
Gross profit...................... 17,895 17,539 16,773 4,684 4,686
Operating expenses................ 19,488 18,943 21,737 5,315 5,505
------- ------- ----------- ------- -----------
Loss from operations.............. (1,593) (1,404) (4,964) (631) (819)
Interest income (expense), net.... (733) (930) (595) (244) (93)
Gain on sale of product line...... -- 501 12,797 -- --
Other income...................... 393 -- -- -- 500
------- ------- ----------- ------- -----------
Income (loss) before income
taxes........................... (1,933) (1,833) 7,238 (875) (412)
======= ======= =========== ======= ===========
Net income (loss)................. $(1,933) $(1,833) $ 6,988 $ (875) $ (412)
======= ======= =========== ======= ===========
Unaudited pro forma earnings per
share:(2)
Basic........................... $ 0.92 $ (0.05)
Diluted......................... $ 0.66 $ (0.05)
Weighted average common shares
outstanding:
Basic........................ 7,620,172 7,681,051
Diluted...................... 10,542,489 7,681,051
</TABLE>
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<TABLE>
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MARCH 31, 1999
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,739 $23,239
Working capital (deficit)................................... (3,001) 13,281
Total assets................................................ 20,723 36,874
Total debt (including capital lease obligations)............ 6,850 580
Deferred revenues........................................... 15,293 15,293
Total stockholders' equity (deficit)........................ (6,655) 15,897
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA FOR WEB-BASED PRODUCTS:
Annualized contract value(3)............. $ 412 $ 8,973 $25,920 $11,854 $28,338
Number of customers...................... 11 233 445 279 460
Average annualized contract value per
customer............................... $ 37.4 $ 38.5 $ 58.2 $ 42.5 $ 61.6
</TABLE>
- ------------
(1) In 1997 and 1998, OneSource divested two CD Rom product lines. Revenues
attributable to these divested product lines, which are included in the
statement of operations data through the divestiture date, were $6,415,000,
$6,630,000, $2,612,000 and $1,554,000 in the years ended December 31, 1996,
1997 and 1998 and for the three months ended March 31, 1998, respectively.
(2) Unaudited pro forma basic and diluted earnings per share of common stock for
the year ended December 31, 1998 and for the three months ended March 31,
1999 have been calculated based on net income attributable to all classes of
common stock and assuming the reclassification had occurred at January 1,
1998 and January 1, 1999, respectively.
(3) Annualized contract value represents the invoiced fees for one month for all
customer contracts for Web-based products in effect at the measurement date,
multiplied by 12, without regard to the actual remaining duration of such
contracts. For more information regarding annualized contract value, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Annualized Contract Value."
-------------------------------
OneSource was incorporated in Delaware on July 21, 1993 under the name
Datext Holding Corporation. Our principal executive offices are located at 150
CambridgePark Drive, Cambridge, MA 02140, and our telephone number is (617)
441-7000.
---------------------------
OneSource(TM), Business Browser(TM), OneSource Business Browser(TM),
Business Browser AppLink(TM), AppLink(TM), and the OneSource logo are our
trademarks. Other trademarks and tradenames in this prospectus are the property
of their respective owners.
---------------------------
Unless the context otherwise requires, any reference to "OneSource" in this
prospectus means OneSource Information Services, Inc. and its subsidiary. Unless
otherwise indicated, all information contained in this prospectus:
- reflects the merger on February 26, 1999 of OneSource Information
Services, Inc. into its parent, OneSource Holding Corporation, and the
name change of OneSource Holding Corporation to OneSource Information
Services, Inc.
- reflects a 2.035 for one stock split effected before the completion of
this offering
- reflects the reclassification of the Class P common stock which will
occur immediately prior to the completion of this offering
- assumes no exercise of the underwriters' over-allotment option
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RISK FACTORS
You should consider carefully the risks described below before you decide
to buy our common stock. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties that we do not presently
know about or that we currently believe are immaterial may also adversely impact
our business operations.
If any of the following risks actually occur, our business, financial
condition or results of operations would likely suffer. In this case, the
trading price of our common stock could fall, and you may lose all or part of
the money you paid to buy our common stock.
This prospectus also contains forward-looking statements that involve
substantial risks and uncertainties. Our actual results, performance or
achievements could differ significantly from those expressed in or implied by
these forward-looking statements as a result of several factors, including the
risks we face, as more fully described below in this section and elsewhere in
this prospectus.
WE HAVE A LIMITED OPERATING
HISTORY WITH BUSINESS
BROWSER ON WHICH TO
EVALUATE
OUR PROSPECTS We began operations as an independent company in
1993. We began to migrate our business to the Web
from CD Rom-based products in early 1996, and
launched the Web-based Business Browser product
line in December 1996. Our prospects must be
considered in light of the risks, expenses and
difficulties frequently encountered by companies
transitioning to a new product line, particularly
companies in the new and rapidly evolving market
for Internet and Web-based business information
products.
OUR BUSINESS BROWSER
PRODUCTS HAVE NOT BEEN
PROFITABLE AND MAY NOT
BECOME PROFITABLE IN THE
FUTURE We incurred losses from operations of
approximately $1.6 million in 1996, $1.4 million
in 1997, $5.0 million in 1998 and $0.8 million in
the three months ended March 31, 1999. In
addition, we have not reached the critical mass
of users of Web-based products which we believe
is necessary to leverage effectively our royalty
payments and infrastructure expenses and become
profitable. As of March 31, 1999, we had an
accumulated deficit of $10.9 million.
WE RELY ON OUR BUSINESS
BROWSER PRODUCT LINE, AND
WE
WILL NOT SUCCEED UNLESS
DEMAND FOR OUR BUSINESS
BROWSER PRODUCTS CONTINUES
TO GROW Subscription revenues from our Business Browser
product line accounted for 53% of total revenues
in 1998 and 11% in 1997. These subscription
revenues accounted for 83% of our total
annualized contract value at the end of 1998 and
29% at the end of 1997. We are currently phasing
out CD Rom products that are not part of the
Business Browser product line. As a result, our
future financial condition will depend heavily on
the success or failure of our Business Browser
product line. Business Browser products were
introduced in December 1996 and it is difficult
to predict demand and market acceptance for these
products in the new and rapidly evolving
Web-based business information services market.
If the demand for Business Browser products does
not grow, whether due to competition, lack of
market acceptance, failure of Internet or
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Web use to grow in general, technological change
or other factors, our business would suffer
significantly.
ANNUALIZED CONTRACT VALUE
MAY NOT BE AN ACCURATE
INDICATION OF OUR
PERFORMANCE We use "annualized contract value" as a
measurement for normalized period-to-period
comparisons to indicate business volume and
growth. Our presentation and calculation of
annualized contract value may not be comparable
to similarly titled measures used by other
companies. It is not an absolute indicator and we
cannot guarantee that any annualized contract
value will be ultimately realized as revenues.
COMPETITION IN OUR INDUSTRY
IS INTENSE AND MANY OF OUR
COMPETITORS HAVE GREATER
RESOURCES THAN WE DO; THIS
COMPETITION MAY ADVERSELY
AFFECT OUR FINANCIAL
RESULTS The business information services industry is
intensely competitive. We face direct or indirect
competition from the following types of
companies:
- large, well-established business and financial
information providers such as Dow Jones,
Dialog, Lexis-Nexis, Pearson, Reuters, Thomson,
Primark and McGraw-Hill
- on-line information services or Websites
targeted to specific markets or applications,
such as NewsEdge, Factset and Bloomberg
- providers of sales, marketing and credit
information such as Dun & Bradstreet
- Web retrieval, Web "portal" companies and other
free or low-cost mass market on-line services
such as Excite, Infoseek, Lycos, Yahoo! and
AOL/Netscape
- free or low-cost specialized business and
financial information Websites such as
Hoovers.com, Marketwatch.com, Multex.com and
TheStreet.com
Based on reported operating results, industry
reports and other publicly available information,
we believe that many of our existing competitors,
as well as a number of prospective competitors,
have longer operating histories, greater name
recognition, larger customer bases and
significantly greater financial, technical and
marketing resources than we do. As a result, they
may be able to respond more quickly to new or
emerging technologies and changes in user
requirements, or to devote greater resources to
the development, promotion and sale of their
products than we can. These competitors may be
able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies
and make more attractive offers to potential
employees, customers and information providers.
Our competitors also may develop products that
are equal or superior to our products or that
achieve greater market acceptance than our
products.
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FREE INFORMATION MAY LESSEN
THE DEMAND FOR BUSINESS
BROWSER Some of our competitors offer financial and
business information free of charge with the goal
of achieving high enough usage to facilitate the
sale of substantial amounts of advertising. To
the extent these types of competitors offer
products free of charge that are similar to ours,
it would have a material adverse impact on our
business, financial condition and results of
operations. In addition, extensive free
information is available in the public domain.
Sources of this information include government
agencies, libraries and sources on the Internet.
INCREASED COMPETITION COULD
RESULT IN PRICE REDUCTIONS,
REDUCED GROSS MARGINS AND
LOSS OF MARKET SHARE There are relatively low barriers to entry to the
Web-based information market and we may face
additional competition from new entrants. We also
expect that competition may increase as a result
of industry consolidation. It is possible that
new competitors may emerge and rapidly acquire
significant market share. Increased competition
is likely to result in price reductions, reduced
gross margins and loss of market share. Any of
these would have a material adverse effect on our
business, financial condition and results of
operations.
IF OUR INFORMATION
PROVIDERS
STOPPED DOING BUSINESS WITH
US, WE COULD NOT CONTINUE
TO
SELL BUSINESS BROWSER We do not own or create the original content
distributed through our products. We depend
entirely on information providers to supply
information and data feeds to us on a timely
basis. Our products could experience
interruptions due to any failure or delay in the
transmission or receipt of this information.
Many of our information providers compete with
one another and, in some cases, with us, for
users. We do not have exclusive distribution
arrangements with any of our information
providers. Accordingly, all of our information
providers can distribute their content themselves
directly or through our competitors. Business
decisions made by our information providers could
adversely affect the availability or pricing of
their information to us.
Our arrangements with our information providers
generally extend for one-year periods, which
automatically renew unless terminated by notice
given at least three months prior to the end of
the term. In the event of a breach by us, the
contracts can be terminated on relatively short
notice. An information provider may be difficult
to replace and the loss of one or more
significant information providers could decrease
the quality, quantity or mix of the information
distributed through our products. This could make
our products less competitive. If information
providers terminate their relationships with us,
our business and delivery of our products may be
disrupted.
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This could result in a loss of customers or
requests for refunds.
OUR PRIMARY COSTS ARE
ROYALTY PAYMENTS TO
INFORMATION PROVIDERS Any increase in the royalty rates we negotiate
with our information providers could have an
adverse effect on our gross profits, financial
condition and results of operations.
IF OUR WEBSITE SERVICE IS
DISRUPTED, OUR CUSTOMERS
COULD LOSE ACCESS TO
BUSINESS
BROWSER AND OUR REPUTATION
COULD BE HARMED Our on-line site is located at a dedicated
hosting facility and we do not currently have a
shadow site fully equivalent to the live on-line
site. Any damage to the hosting facility or the
equipment there, such as damage by fire or power
loss, or loss of telecommunications could disrupt
the delivery of our products. In addition, our
users depend on Internet service providers,
on-line service providers and other Website
operators for access to our products. Each of
them has experienced significant outages in the
past, and could experience outages, delays and
other difficulties due to system failures
unrelated to our on-line architecture. These
types of occurrences could cause users to
perceive our products as not functioning properly
and therefore cause them to use other methods to
obtain their business and financial information.
The number of Business Browser users has
increased since its introduction in December 1996
and we are seeking to further increase our user
base. This has led to increased usage and
increased demands on our on-line architecture.
Any downtime or slow response times may damage
our reputation and make it more difficult to
attract new users.
OUR MARKET IS NEW AND
RAPIDLY EVOLVING; AS A
RESULT,
WE MAY NOT BE ABLE TO
ACCURATELY PREDICT AND
RESPOND TO MARKET
DEVELOPMENTS The market for Web-based distribution of
electronic business and financial information has
only recently begun to develop and it is rapidly
evolving. This makes it difficult to predict
demand and market acceptance for our products. We
cannot guarantee that the market for our products
will grow or that our products will become widely
accepted. If the market for our products does not
develop as quickly as we expect or if our
products are not accepted by customers, our
future financial results will be adversely
affected. A significant increase in the number of
customers and development of new product
offerings could also require the expenditure of
significant amounts of money, time and other
resources. This could strain our personnel and
financial resources.
OUR PERFORMANCE WILL DEPEND
ON THE CONTINUED GROWTH AND
COMMERCIAL ACCEPTANCE OF
THE INTERNET Our business would be adversely affected if the
number of professionals using the Web does not
continue to grow. This growth may be inhibited by
a number of factors, such as:
- inadequate network infrastructure
- inconsistent quality of service
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- lack of cost-effective, high-speed service
- security concerns
Even if Web use grows, the Internet
infrastructure may not be able to support
adequately future growth and its reliability and
quality of service may suffer. In addition,
numerous Websites have experienced service
interruptions due to outages and other delays
occurring internally and throughout the Internet
network infrastructure. If these outages or
delays occur frequently in the future, Web usage,
as well as usage of our products, could grow more
slowly or decline.
GOVERNMENT REGULATION AND
LEGAL UNCERTAINTIES
RELATING
TO THE WEB COULD HURT OUR
BUSINESS Currently, there are few laws or regulations that
specifically regulate communications or commerce
on the Web. However, laws and regulations may be
adopted that address issues such as user privacy,
pricing and the characteristics and quality of
products and services. For example, the
Telecommunications Act sought to prohibit the
transmission of certain types of information and
content over the Web. In addition, several
telecommunications companies have petitioned the
Federal Communications Commission to regulate
Internet and on-line service providers in a
manner similar to long distance telephone
carriers and to impose access fees on such
providers. This could increase the cost of
transmitting data over the Internet. Moreover, it
may take years to determine the extent to which
existing laws relating to issues such as property
ownership, libel and personal privacy apply to
the Web. Finally, state tax laws and regulations
relating to the provision of products and
services over the Internet are still developing.
If individual states impose taxes on products and
services provided over the Web, the cost of our
products may increase and we may not be able to
increase the price we charge for our products to
cover these costs. Any new laws or regulations or
new interpretations of existing laws and
regulations relating to the Web could adversely
affect our business.
OUR SUCCESS DEPENDS ON OUR
ABILITY TO PROTECT OUR
PROPRIETARY TECHNOLOGY We believe that our success depends, in large
part, on protecting our intellectual property in
the United States and in foreign countries. Other
than our trademarks, most of our intellectual
property consists of proprietary or confidential
information that is not subject to patent or
similar protection. Competitors may independently
develop similar or superior products, software or
business models.
We cannot guarantee that we will be able to
protect our intellectual property. There is no
way to assure that unauthorized third parties
will not try to copy our products or business
model or use our confidential information to
develop
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competing products. Legal standards relating to
the validity, enforceability and scope of
protection of proprietary rights in
Internet-related businesses are uncertain and
still evolving. As a result, we cannot predict
the future viability or value of our proprietary
rights and those of other companies within the
industry. We also cannot guarantee that our
business activities and products will not
infringe upon the proprietary rights of others,
or that other parties will not assert
infringement claims against us. Any infringement
claims and any resulting litigation, should it
occur, could subject us to significant liability
for damages and could result in invalidation of
our proprietary rights. Even if we eventually won
any resulting litigation, it could be
time-consuming and expensive to defend, and could
result in the diversion of our management's time
and attention.
WE COULD BE SUBJECT TO
LEGAL
LIABILITY FOR DISTRIBUTING
INFORMATION ON OUR WEBSITE We may be subjected to claims based on negligence
or other theories relating to the information we
distribute. Similarly, we may be subjected to
claims for defamation or copyright or trademark
infringement relating to the information we
provide in our products. These types of claims
have been brought, sometimes successfully,
against on-line services as well as print
publications in the past. We also could be
subjected to claims based upon the content that
is accessible from our products through links to
other Websites. These types of claims could be
time-consuming and expensive to defend, and could
result in the diversion of our management's time
and attention. In addition, if our products
provide faulty or inaccurate information, or fail
to provide all the information a user expects, we
could be subject to legal liability. Our
insurance and contractual provisions with users
and information providers may not protect us
against these types of claims.
IF OUR SOFTWARE IS
DEFECTIVE,
IT MIGHT BE COSTLY TO
CORRECT;
WE COULD GET SUED AND OUR
REPUTATION COULD BE HARMED Complex software like the software we develop for
our products may contain errors or defects,
especially when first implemented, that may be
very costly to correct. Defects or errors also
could result in downtime and our business could
suffer significantly from potential adverse
customer reaction, negative publicity and harm to
our reputation.
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WE MAY EXPERIENCE
SIGNIFICANT FLUCTUATIONS IN
OUR QUARTERLY RESULTS,
WHICH
MAKES IT DIFFICULT FOR
INVESTORS TO MAKE RELIABLE
PERIOD-TO-PERIOD
COMPARISONS AND CONTRIBUTES
TO VOLATILITY IN THE MARKET
PRICE FOR OUR COMMON STOCK Our quarterly revenues, gross profits and results
of operations have fluctuated significantly in
the past and we expect them to continue to
fluctuate significantly in the future. In
addition, we believe that an important measure of
our business is the annualized contract value at
the end of each period, which also may fluctuate.
Causes of such fluctuations have included and may
include, among other factors:
- changes in demand for our products
- the dollar value and timing of both new and
renewal subscriptions
- competition (particularly price competition)
- increases in selling and marketing expenses, as
well as other operating expenses
- technical difficulties or system downtime
affecting our products on the Web generally
- economic conditions specific to the Web, as
well as general economic conditions
- consolidation of our customers
In addition, a substantial portion of our
expenses, including most product development and
selling and marketing expenses, must be incurred
in advance of revenue generation. If our
projected revenue does not meet our expectations,
then we are likely to experience an even larger
shortfall in our operating profit (loss) relative
to our expectations.
Any one or more of these factors could affect our
business, financial condition and results of
operations, and this makes the prediction of
results of operations on a quarterly basis
unreliable. As a result, we believe that
period-to-period comparisons of our historical
results of operations and annualized contract
values are not necessarily meaningful and that
you should not rely on them as an indication for
future performance. Also, due to these and other
factors, it is possible that our quarterly
results of operations (including the annualized
contract value) may be below the expectations of
public market analysts and investors. If this
happens, the price of our common stock would
likely decrease.
WE WOULD HAVE DIFFICULTY
REPLACING KEY PERSONNEL
WHOSE SERVICES ARE
IMPORTANT
TO OUR SUCCESS Our future success depends on the continued
services of a number of key employees, including
Daniel J. Schimmel, our President and Chief
Executive Officer, James A. Becker, our Vice
President, Global Strategic Web Applications
Team, Philip J. Garlick, our Vice President,
Global Enterprise Sales and Marketing, Mark C.
VanDine, our Vice President, Engineering and Roy
D. Landon, our Vice President, Finance
13
<PAGE> 14
and Administration. We also depend on a limited
number of engineers to monitor the performance
and availability of our complex network and to
perform the necessary updates and repairs. We do
not have employment contracts with our key
personnel. If any of our key employees leave, the
loss of their technological knowledge and
industry expertise would seriously impede the
development of new products and services and our
ability to manage our business. The loss of one
or a group of our key employees could adversely
affect our future financial results.
THERE IS INTENSE
COMPETITION
FOR QUALIFIED PERSONNEL
NECESSARY TO THE SUCCESS OF
OUR BUSINESS Our future performance also depends upon our
ability to attract and retain highly-qualified
technical, sales and managerial personnel.
Qualified personnel are in great demand
throughout the software and Internet industries
and there is intense competition for such
personnel. In addition, competition for qualified
personnel may lead to increased costs for
personnel. If we do not succeed in retaining our
personnel or in attracting new employees, our
business could suffer significantly.
WE ARE SUBJECT TO RISKS OF
OPERATING INTERNATIONALLY Revenue from customers located outside North
America accounted for 23% in 1998, 20% in 1997
and 17% in 1996 of our total revenue for those
years. Over time, we expect revenue from
international operations, principally in Europe,
to increase as a percentage of our total revenue.
As a result, we may be exposed to a number of
risks customary for international operations,
including:
- difficulties relating to managing an
international sales force
- the burdens of complying with a wide variety of
foreign laws
- the uncertainty of laws and enforcement in
certain countries relating to the protection of
intellectual property
- multiple and possibly overlapping tax
structures
- economic or political changes in international
markets
- currency and exchange rate fluctuations
- adverse tax consequences of returning any
earnings of our foreign operations back to the
United States
To date, we have not used risk management
techniques or "hedged" the risks associated with
fluctuations in foreign exchange rates.
WE ARE SUBJECT TO RISKS
ASSOCIATED WITH YEAR 2000
PROBLEMS Many existing computer systems and software
products do not properly recognize dates after
December 31, 1999. This "Year 2000" problem could
result in miscalculations, data corruption,
system failures or disruptions of operations. We
are subject to potential Year 2000 problems
affecting telecommunication
14
<PAGE> 15
services, customers, our products, our internal
systems and the systems of our hosting facility
and our information providers, any of which could
have a material adverse effect on our business,
financial condition and results of operations. We
also have identified third-party software as
non-compliant, and several internal systems need
to be addressed as part of our relocation in June
1999. For more information, see "Management's
Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Readiness
Disclosure Statement." Furthermore, as we
approach the Year 2000, customers may be forced
to devote greater resources to comply with Year
2000 requirements and as a result purchase fewer
products from us, which would have an adverse
effect on our net revenues.
OUR EXISTING OFFICERS AND
DIRECTORS, RATHER THAN
OUTSIDE
STOCKHOLDERS, WILL CONTINUE
TO CONTROL ONESOURCE Following this offering, our officers and
directors, together with their affiliated
entities, will beneficially own approximately 67%
of our outstanding shares of common stock. As a
result, these stockholders acting together will
be able to take any of the following actions
without the approval of our public stockholders:
- elect our directors
- amend our charter or approve a merger, sale of
assets or other major corporate transaction
- defeat any non-negotiated takeover attempt that
may be beneficial to our public stockholders
- otherwise control the outcome of all matters
submitted for a stockholder vote
THE OFFERING WILL BENEFIT
WILLIAM BLAIR & COMPANY,
L.L.C., ONE OF THE
UNDERWRITERS William Blair Venture Partners III Limited
Partnership, one of the selling stockholders and
an affiliate of William Blair, will receive
approximately $8.8 million or 20% of the gross
proceeds of this offering with respect to the
sale of common stock offered by this prospectus.
In addition, William Blair Venture Partners owns
329,669 shares of Class P common stock and will
participate in the reclassification. We have also
agreed to pay William Blair Venture Partners a
$0.5 million fee upon the closing of this
offering to terminate an oral management
agreement between us. Accordingly, this offering
will provide significant benefits to William
Blair Venture Partners. For more information, see
"Certain Transactions."
THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES
DEALERS REQUIRE THE USE OF
A
QUALIFIED INDEPENDENT
UNDERWRITER IN THIS
OFFERING The rules of the NASD provide that no NASD member
may participate in a public offering of an
affiliated issuer's securities unless a qualified
independent underwriter has been engaged on the
terms provided in the rules. William Blair
Venture Partners, one of the selling
stockholders, is an affiliate
15
<PAGE> 16
of William Blair and, therefore, William Blair
may be defined as an affiliate of ours. In
addition, Mr. Newmark, a principal of William
Blair, currently serves on our board of directors
as the representative of William Blair Venture
Partners. In view of our affiliation with William
Blair, U.S. Bancorp Piper Jaffray Inc. has agreed
to act as the qualified independent underwriter
in this offering. In its capacity as the
qualified independent underwriter, U.S. Bancorp
Piper Jaffray has participated in the preparation
of the prospectus and conducted due diligence as
part of such preparation. The initial public
offering price for the common stock can be no
higher than that recommended by U.S. Bancorp
Piper Jaffray acting as the qualified independent
underwriter.
THE OFFERING WILL BENEFIT
SELLING STOCKHOLDERS The selling stockholders will receive substantial
proceeds and other benefits in connection with
this offering. In addition, a selling stockholder
and an affiliate of another selling stockholder
will each receive a payment of $0.5 million out
of OneSource's net proceeds to terminate a
management fee arrangement. For more information,
see "Certain Transactions." The offering will
also establish a public market for the common
stock and provide significantly increased
liquidity to our existing stockholders and
optionholders.
THERE IS NO TRADING MARKET
FOR OUR COMMON STOCK; ITS
FUTURE MARKET VALUE IS
UNCERTAIN Before this offering, there was no public market
for our common stock. We and the underwriters
will determine the initial public offering price
of our common stock based on negotiations between
us concerning the proper valuation of our common
stock. Nevertheless, after this offering, you may
not be able to resell your shares at or above the
initial public offering price due to a number of
factors, including:
- actual or anticipated fluctuations in our
operating results or annualized contract values
- changes in expectations as to our future
financial performance
- changes in securities analysts' financial
estimates
- the operating and stock price performance of
our competitors and other comparable companies
In addition, the stock market in general, and the
stocks of Web-based businesses in particular,
have experienced extreme volatility that often
has been unrelated to the operating performance
of particular companies. These broad market and
industry fluctuations may adversely affect the
trading price of our common stock, regardless of
our actual operating performance. You should read
the "Underwriting" section for a more complete
discussion of the factors that the
16
<PAGE> 17
underwriters and we considered in determining the
initial public offering price.
OTHER SHARES MAY BE SOLD IN
THE FUTURE; THIS COULD
DEPRESS
THE MARKET PRICE FOR OUR
COMMON STOCK After this offering, we will have 9,926,500
shares of common stock outstanding and will have
reserved an additional 5,293,005 shares of common
stock for issuance pursuant to our stock option
and purchase plans and outstanding warrants. We
intend to register for resale the shares of
common stock reserved for issuance under our
stock option and stock purchase plans
approximately 90 days after the date of this
prospectus. The federal securities laws impose
restrictions on the ability of stockholders who
acquired their shares prior to the offering to
resell their shares. In addition, our officers
and directors have agreed not to sell their
shares for a period of 180 days after the date of
this prospectus.
If a large number of our shares of common stock
are sold following this offering, the price of
our common stock would likely decrease.
PURCHASERS OF OUR COMMON
STOCK IN THIS OFFERING WILL
INCUR IMMEDIATE AND
SUBSTANTIAL DILUTION The initial public offering price of our common
stock is substantially higher than the net
tangible book value per share of common stock
will be after the offering. The net tangible book
value per share of common stock is calculated by
subtracting total liabilities from total tangible
assets and dividing by the number of shares
outstanding. Purchasers of common stock offered
by OneSource will pay total consideration that
represents approximately 85% of all consideration
ever received by us for our stock but they will
own approximately 25% of our outstanding common
stock.
OUR ANTI-TAKEOVER
PROVISIONS
MAY HAVE ADVERSE EFFECTS Our restated certificate of incorporation and
amended and restated by-laws contain
anti-takeover provisions that could have the
effect of delaying or preventing changes in our
management, even if such changes would benefit
our public stockholders. For example, following
the closing of this offering, the board of
directors may issue up to one million shares of
preferred stock without any further vote or
action by the stockholders. The preferred stock
could have voting, liquidation, dividend and
other rights superior to those of the common
stock, and, therefore, any issuance of preferred
stock could adversely affect your rights as a
common stockholder. These factors could cause the
market price of the common stock to decrease.
17
<PAGE> 18
RECLASSIFICATION
Prior to the consummation of this offering, OneSource will reclassify all
of its outstanding shares of capital stock into a single class of common stock
and will authorize a single class of undesignated preferred stock. Each share of
Class P common stock will be reclassified into shares of common stock. Each
share of Class P common stock is entitled to a payment upon any distribution by
OneSource to holders of its capital stock in an amount equal to the original
cost of such share plus a preferential amount which accrues on a daily basis at
a rate of 12% per annum on such cost, compounded quarterly. As of March 31,
1999, the aggregate preference amount of the outstanding Class P common stock
was $3.3 million, based on an original cost per share of $4.91. In connection
with the reclassification, each outstanding share of Class P common stock will
be reclassified into one share of common stock plus an additional number of
shares of common stock determined by dividing the applicable preference amount
for such share by the value of a share of common stock based on the initial
public offering price in the offering. Based on the initial public offering
price of $12.00 per share and the aggregate preference amount at March 31, 1999,
an aggregate of 995,887 shares of common stock would be issued upon the
reclassification of all shares of Class P common stock and 278,768 shares of
common stock would be repurchased. Fractional shares otherwise issuable will be
rounded down to the nearest whole number. OneSource intends to repurchase all of
the shares of common stock issued with respect to the preference amount at the
initial public offering price prior to the completion of this offering.
18
<PAGE> 19
USE OF PROCEEDS
We estimate our net proceeds from the issuance and sale of the 2,500,000
shares of common stock being offered by OneSource to be approximately $27.1
million, at an initial public offering price of $12.00 per share, after
deducting the underwriting discount and estimated offering expenses. We will not
receive any proceeds from the sale of the common stock by the selling
stockholders.
The principal purposes of this offering are to:
- repay debt
- terminate current management fee arrangements
- obtain working capital
- establish a public market for our common stock and increase our
visibility in the marketplace
- facilitate future access to public capital markets
- provide liquidity to existing stockholders and optionholders
We intend to use approximately $6.8 million of the net proceeds to us to
repay principal and interest on a note issued by OneSource to Lotus Development
Corporation in connection with the purchase of OneSource's business from Lotus
in 1993. The note bears interest at the rate of 8% per year and is due September
8, 2000, unless accelerated upon the occurrence of any one of several events.
The completion of this offering would require OneSource to repay a significant
portion of the note if we do not repay it in full. We also intend to pay $0.5
million to each of William Blair Venture Partners III Limited Partnership and an
affiliate of Information Partners Capital Fund, L.P. to terminate management fee
arrangements. For more information, see "Certain Transactions."
We intend to use the remaining net proceeds for general corporate purposes,
including working capital, and we may also use a portion of the net proceeds to
acquire or invest in complementary businesses or products or to obtain the right
to use complementary technologies. While we discuss potential acquisitions and
investments from time to time, we currently have no commitments or agreements
for any such acquisitions or investments. Pending these uses, our remaining net
proceeds of the offering will be invested in short-term, interest-bearing,
investment-grade securities, certificates of deposit or direct or guaranteed
obligations of the United States.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future.
19
<PAGE> 20
CAPITALIZATION
The left-hand column in the following table sets forth OneSource's
capitalization as of March 31, 1999. The middle column gives pro forma effect to
the reclassification of OneSource's Class P common stock into common stock and
the filing of our restated certificate of incorporation, each prior to the
completion of this offering. The right-hand column sets forth OneSource's pro
forma capitalization as of March 31, 1999, as further adjusted to reflect all of
the following as if they occurred on March 31, 1999:
- the sale of 2,500,000 shares of common stock by OneSource in this
offering at the initial public offering price of $12.00 per share
- the use of approximately $6.8 million of the estimated net proceeds to
repay a note payable to Lotus
- the use of $1.0 million to pay a fee for terminating management fee
arrangements
- the exercise of an outstanding warrant to purchase 15,696 shares of
common stock at $0.06 per share by a selling stockholder
- the repurchase of common stock issued in respect of the preference amount
on the Class P common stock in the reclassification
You should read the data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Current portion of capital lease obligations.............. $ 401 $ 401 $ 401
======== ======== ========
Long-term debt and capital lease obligations.............. 6,449 6,449 179
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, no shares issued or outstanding, actual,
pro forma and pro forma as adjusted.................. -- -- --
Class P common stock, $0.01 par value; 1,250,000 shares
authorized, 717,119 shares issued and outstanding,
actual; no shares authorized, issued or outstanding,
pro forma and pro forma as adjusted.................. 3,524 -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized, 6,693,685, 7,689,572 and 9,926,500 shares
issued and outstanding, actual, pro forma and pro
forma as adjusted.................................... 67 77 99
Additional paid-in capital.............................. 1,176 4,690 28,473
Unearned compensation................................... (464) (464) (464)
Accumulated deficit..................................... (10,856) (10,856) (12,109)
Accumulated other comprehensive loss.................... (102) (102) (102)
-------- -------- --------
Total stockholders' equity (deficit)................. $ (6,655) $ (6,655) $ 15,897
-------- -------- --------
Total capitalization............................ $ 206 $ 206 $ 16,076
======== ======== ========
</TABLE>
The number of shares of common stock issued and outstanding, pro forma as
adjusted, excludes 4,393,005 shares of common stock issuable upon the exercise
of stock options and
20
<PAGE> 21
warrants outstanding at a weighted average exercise price of $1.95, and an
aggregate of 900,000 shares reserved for future stock option grants and
purchases under OneSource's equity compensation plans. For more information, see
"Management--Equity Plans" and Notes 7 and 8 to the Consolidated Financial
Statements.
DILUTION
Purchasers of our common stock in this offering will incur immediate and
substantial dilution because the initial public offering price of our common
stock is substantially higher than the pro forma net tangible book value per
share of common stock will be after this offering. The pro forma net tangible
book value deficit of OneSource as of March 31, 1999 was $(6.7) million, or
$(0.86) per share. Pro forma net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the number of
shares of common stock outstanding after giving effect to the reclassification
of Class P common stock into common stock. After giving effect to the sale of
the 2,500,000 shares of common stock offered by OneSource and the application of
the estimated net proceeds to OneSource, the pro forma net tangible book value
of OneSource as of March 31, 1999, would have been $15.9 million, or $1.60 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.46 per share to existing stockholders and an immediate "dilution" of
$10.40 per share to investors purchasing common stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price............................... $12.00
Pro forma net tangible book value deficit per share as of
March 31, 1999......................................... $(0.86)
Increase per share attributable to new investors.......... 2.46
------
Pro forma net tangible book value per share after this
offering.................................................. 1.60
------
Dilution per share to new investors......................... $10.40
======
</TABLE>
The following table summarizes the difference between the number of shares
of common stock purchased from OneSource, the total consideration paid to
OneSource, and the average price per share paid by existing stockholders and by
new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 7,426,500 74.8% $ 4,768,000 13.7% $ 0.64
New investors...................... 2,500,000 25.2 30,000,000 86.3 $12.00
---------- ----- ----------- -----
Total......................... 9,926,500 100.0% $34,768,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of the options or the warrants
outstanding to purchase an additional 4,393,005 shares of common stock at a
weighted average exercise price of $1.95 per share. To the extent these options
or warrants are exercised, there will be further dilution to new shareholders in
the net tangible book value of their shares. For more information, see
"Management--Equity Plans." In addition, the second table does not reflect the
sale of 1,136,000 shares by the selling stockholders in this offering. These
sales will reduce the shares held by existing shareholders to 63.4% of the total
shares of common stock to be outstanding after this offering, and will increase
the number of shares to be purchased by the new shareholders to 36.6% of the
total shares of common stock to be outstanding after this offering. For more
information, see "Principal and Selling Stockholders."
21
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with OneSource's Consolidated Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this prospectus. The consolidated statement
of operations data for the years ended December 31, 1996, 1997 and 1998, and the
consolidated balance sheet data as of December 31, 1997 and 1998, have been
derived from, and are qualified by reference to, OneSource's audited
Consolidated Financial Statements and Notes appearing elsewhere in this
prospectus. The consolidated statement of operations data for the years ended
December 31, 1994 and 1995, and the consolidated balance sheet data as of
December 31, 1994, 1995 and 1996, have been derived from OneSource's audited
Consolidated Financial Statements that do not appear in this prospectus.
Financial data as of March 31, 1998 and 1999, and for the three month periods
ended March 31, 1998 and 1999, are derived from unaudited Consolidated Financial
Statements appearing elsewhere in this prospectus, and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, that OneSource considers necessary for a fair presentation of its
financial position and results of operations for such periods. The historical
results are not necessarily indicative of the operating results to be expected
in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:(1)
Web-based product............ $ -- $ -- $ 15 $ 3,312 $ 16,058 $ 2,628 $ 6,903
CD Rom product............... 30,300 28,957 30,419 27,072 14,370 5,322 1,240
--------- --------- --------- --------- ---------- --------- ---------
Total revenues............... 30,300 28,957 30,434 30,384 30,428 7,950 8,143
--------- --------- --------- --------- ---------- --------- ---------
Cost of revenues:
Web-based product............ -- -- 295 2,401 7,863 1,287 2,970
CD Rom product............... 12,380 11,520 12,244 10,444 5,792 1,979 487
--------- --------- --------- --------- ---------- --------- ---------
Total cost of revenues....... 12,380 11,520 12,539 12,845 13,655 3,266 3,457
--------- --------- --------- --------- ---------- --------- ---------
Gross profit................... 17,920 17,437 17,895 17,539 16,773 4,684 4,686
--------- --------- --------- --------- ---------- --------- ---------
Operating expenses:
Selling and marketing........ 11,231 8,705 8,572 9,167 11,577 2,797 2,927
Platform and product
development................ 5,512 6,585 7,252 6,375 6,313 1,561 1,718
General and administrative... 6,516 5,163 3,664 3,401 3,847 957 860
--------- --------- --------- --------- ---------- --------- ---------
Total operating expenses..... 23,259 20,453 19,488 18,943 21,737 5,315 5,505
--------- --------- --------- --------- ---------- --------- ---------
Loss from operations........... (5,339) (3,016) (1,593) (1,404) (4,964) (631) (819)
Interest income (expense),
net.......................... (515) (633) (733) (930) (595) (244) (93)
Gain on sale of product line... -- -- -- 501 12,797 -- --
Other income................... -- -- 393 -- -- -- 500
--------- --------- --------- --------- ---------- --------- ---------
Income (loss) before income
taxes........................ (5,854) (3,649) (1,933) (1,833) 7,238 (875) (412)
Provision (benefit) for income
taxes........................ (473) -- -- -- 250 -- --
--------- --------- --------- --------- ---------- --------- ---------
Net income (loss).............. (5,381) (3,649) (1,933) (1,833) 6,988 (875) (412)
Less: income (loss)
attributable to Class P
common stock................. (122) 104 335 414 1,367 72 139
--------- --------- --------- --------- ---------- --------- ---------
Income (loss) attributable to
common stock................. $ (5,259) $ (3,753) $ (2,268) $ (2,247) $ 5,621 $ (947) $ (551)
========= ========= ========= ========= ========== ========= =========
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share:(2)
Class P common stock:
Basic and diluted earnings
(loss) per share......... $ (0.17) $ 0.14 $ 0.47 $ 0.58 $ 1.91 $ 0.10 $ $0.19
Weighted average Class P
common shares
outstanding.............. 724,257 723,239 718,966 717,948 717,541 717,948 717,119
Common stock:
Basic earnings (loss) per
share.................... $ (0.81) $ (0.57) $ (0.35) $ (0.34) $ 0.85 $ (0.14) $ (0.08)
Diluted earnings (loss) per
share.................... $ (0.81) $ (0.57) $ (0.35) $ (0.34) $ 0.59 $ (0.14) $ (0.08)
Weighted average common
shares outstanding:
Basic.................... 6,525,087 6,522,629 6,486,959 6,545,343 6,640,834 6,620,952 6,685,164
Diluted.................. 6,525,087 6,522,629 6,486,959 6,545,343 9,563,151 6,620,952 6,685,164
Unaudited pro forma earnings
per share:(3)
Basic...................... $ 0.92 $ (0.05)
Diluted.................... $ 0.66 $ (0.05)
Weighted average common
shares outstanding
Basic.................... 7,620,172 7,681,051
Diluted.................. 10,542,489 7,681,051
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- ------- ------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT NUMBER OF CUSTOMERS DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 1,378 $ 966 $ 535 $ 341 $ 8,665 $ 379 $ 6,739
Working capital
(deficit)............... (7,431) (7,499) (8,803) (9,792) (2,118) (10,105) (3,001)
Total assets.............. 19,396 16,567 16,934 16,644 27,646 14,401 20,723
Total debt (including
capital lease
obligations)............ 4,755 6,223 6,661 8,171 6,936 8,908 6,850
Deferred revenues......... 13,818 14,160 15,419 15,748 18,022 14,983 15,293
Total stockholders'
deficit................. (6,116) (9,757) (11,827) (13,613) (6,311) (14,503) (6,655)
OTHER DATA FOR WEB-BASED
PRODUCTS (UNAUDITED):
Annualized contract
value(4)................ $ -- $ -- $ 412 $ 8,973 $25,920 $11,854 $28,338
Number of customers....... -- -- 11 233 445 279 460
Average annualized
contract value per
customer................ $ -- $ -- $ 37.4 $ 38.5 $ 58.2 $ 42.5 $ 61.6
</TABLE>
- ------------
(1) In 1997 and 1998, OneSource divested two CD Rom product lines. Revenues
attributable to these divested product lines, which are included in the
statement of operations data through the divestiture date, were $5,713,000,
$6,002,000, $6,415,000, $6,630,000, $2,612,000 and $1,554,000 in the years
ended December 31, 1994, 1995, 1996, 1997 and 1998 and the three months
ended March 31, 1998, respectively.
(2) You should read Notes 2 and 5 to the Consolidated Financial Statements for
further description of the calculation of these items.
(3) Unaudited pro forma basic and diluted earnings per share of common stock for
the year ended December 31, 1998 and for the three months ended March 31,
1999 have been calculated based on net income attributable to all classes of
common stock and assuming the reclassification of OneSource's Class P common
stock prior to the
23
<PAGE> 24
completion of this offering as if it had occurred at January 1, 1998 and
January 1, 1999, respectively. In the reclassification, each share of Class
P common stock will be reclassified into one share of common stock plus an
additional number of shares of common stock determined by dividing the
preference amount for such share by the initial public offering price per
share.
(4) Annualized contract value represents the invoiced fees for one month for all
customer contracts for Web-based products in effect at the measurement date,
multiplied by 12, without regard to the actual remaining duration of such
contracts. For more information regarding annualized contract value, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Annualized Contract Value."
24
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry and market
intelligence. OneSource was formed as a division of Lotus in 1987 and became an
independent company when it was purchased in a management buy-out in 1993. Until
December 1996, our business was to provide business information to the financial
community using CD Rom technology as the primary method of distribution. The
introduction of Business Browser in December 1996 marked a fundamental shift in
our business as we began a transition away from our legacy CD Rom business and
toward Web-based products.
Revenues from Web-based products accounted for $16.1 million, or 53% of
total revenues, for the year ended December 31, 1998 up from $3.3 million, or
11% of total revenues, for the year ended December 31, 1997. In the same period,
CD Rom product revenues decreased to $14.4 million, or 47% of total revenues for
the year ended December 31, 1998 from $27.1 million, or 89% of total revenues,
for the year ended December 31, 1997. As of December 31, 1998, 445 organizations
subscribed to our Business Browser product line, and the annualized contract
value for these organizations was $25.9 million.
During this transition period, we utilized the cash flow from our CD Rom
business to fund a portion of the significant expenses incurred to build our
Web-based business. These expenses included the following:
- platform and product development expenses to develop and enhance our
Web-based products,
- selling and marketing expenses to hire and train a Web-based sales force
and to retrain a portion of our CD Rom-based sales force and
- general and administrative expenses to build the necessary infrastructure
to support our growing Web-based business.
The gross margins on our Web-based business have also been adversely
impacted by certain royalty expenses and other costs of revenues which were
disproportionately high compared to Web-based revenues which were growing from
low initial levels. We believe that our operating margins will improve as we
more effectively leverage our Web-based royalty and infrastructure expenses and
eliminate costs incurred to support our legacy CD Rom products.
In May 1998, we sold our CD-Insurance division to allow us to focus more
completely on our new Web-based product line. We recognized a gain of $12.8
million on this sale during 1998. In addition, in connection with the
disposition, we licensed certain of our CD Rom software to the acquiror in
exchange for $4.0 million of license fees. These license fees will be paid in
eight equal quarterly installments beginning January 1, 1999 and running through
December 31, 2000 and recognized ratably. These license fees are being
recognized as other income.
Our revenues for both CD Rom and Web-based products consist of monthly
subscription fees from customer contracts. Customer contracts span varying
periods of time but are generally for one year, are renewable for like periods,
and are payable in advance. Subscription fees
25
<PAGE> 26
generally are quoted to clients on an annual basis but are earned as revenues on
a monthly basis over the subscription period. Invoices are recorded as accounts
receivable until paid and as deferred revenues until earned. Deferred revenues
attributable to Web-based products increased 231% to $15.9 million as of
December 31, 1998 from $4.8 million as of December 31, 1997.
Cost of revenues consists primarily of royalties to information providers
and, to a lesser extent, employee salaries and benefits, facilities allocation
and related expenses, depreciation associated with computers for data processing
and on-line requirements and Web hosting expenses. We enter into contracts with
our information providers which are generally for a term of at least one year
and are automatically renewable if not canceled with advance notice. These
contracts may be terminated under certain circumstances. For more information,
see "Risk Factors--If our information providers stopped doing business with us,
we could not continue to sell Business Browser." Under these arrangements,
royalties are generally paid on a quarterly basis to information providers.
Royalties generally are calculated either as a flat percentage of our revenues
or as a per-user fee that declines as the number of authorized users of the
product increases. In limited cases, we pay a fixed fee per period.
Selling and marketing expense consists primarily of employee salaries and
benefits and sales commissions paid to our sales force, customer support
organization and marketing personnel, as well as facilities allocation and
related expenses, direct marketing promotional materials, trade show exhibitions
and advertising. Sales commissions are paid when customers are invoiced and are
recorded as deferred subscription costs, which are amortized ratably over the
term of the contract, typically 12 months, as the associated revenues are
recognized. All other selling and marketing costs are expensed as incurred.
Platform and product development expense consists primarily of employee
salaries and benefits, facilities allocation and related expenses, as well as
outside contractor expenses, relating to the development of our "platform" of
core software supporting our products and the development of new products based
upon that platform. Platform and product development expense includes expenses
relating to the editorial staff that implements our KeyID technology to
integrate disparate information sources into our Web-based products.
General and administrative expense consists primarily of employee salaries
and benefits, facilities allocation and related expenses associated with
OneSource's management, finance, human resources, management information systems
and administrative groups. In addition, we will incur non-recurring charges of
approximately $0.2 million in moving and related costs in June 1999 due to the
relocation of our headquarters from Cambridge to Concord, Massachusetts and
approximately $0.2 million of financial advisory fees. The quarterly management
fees of $25,000 paid to each of William Blair Venture Partners and an affiliate
of Information Partners Capital will cease in exchange for the payment of a $0.5
million termination fee to each of these parties upon completion of this
offering. For more information, see "Certain Transactions."
26
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by each line item in OneSource's consolidated
statement of operations. We can give no assurance that the indicated trends in
revenues or operating results will continue in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ------------
1996 1997 1998 1998 1999
----- ----- ----- ---- ----
(PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Web-based product............................... --% 11% 53% 33% 85%
CD Rom product.................................. 100 89 47 67 15
--- --- ---- --- ----
Total revenues............................... 100 100 100 100 100
--- --- ---- --- ----
Cost of revenues:
Web-based product............................... 1 8 26 16 36
CD Rom product.................................. 40 34 19 25 6
--- --- ---- --- ----
Total cost of revenues....................... 41 42 45 41 42
--- --- ---- --- ----
Gross profit...................................... 59 58 55 59 58
Operating expenses:
Selling and marketing........................... 28 30 38 35 36
Platform and product development................ 24 21 21 20 21
General and administrative...................... 12 11 12 12 11
--- --- ---- --- ----
Loss from operations.............................. (5) (4) (16) (8) (10)
Interest income (expense), net.................... (2) (3) (2) (3) (1)
Gain on sale of product line...................... -- 1 42 -- --
Other income...................................... 1 -- -- -- 6
--- --- ---- --- ----
Income (loss) before income taxes................. (6) (6) 24 (11) (5)
Provision for income taxes........................ -- -- 1 -- --
Net income (loss)................................. (6)% (6)% 23% (11)% (5)%
=== === ==== === ====
</TABLE>
COMPARISON OF RESULTS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
Revenues. Total revenues increased 2% to $8.1 million for the quarter
ended March 31, 1999 from $8.0 million for the quarter ended March 31, 1998.
During the first quarter of 1998, CD Rom product revenues included revenues
attributable to our CD-Insurance division, which was sold in May 1998. Revenues
from this product line were $1.5 million for the quarter ended March 31, 1998.
Excluding these revenues from total revenues for the quarter ended March 31,
1998, total revenues for the quarter ended March 31, 1999 increased by 25%.
Web-based product revenues increased 163% to $6.9 million for the quarter
ended March 31, 1999 from $2.6 million for the quarter ended March 31, 1998. The
increase was attributable to the addition of new customers, an increase in the
number of user seats purchased
27
<PAGE> 28
by existing customers and the sale of new products to existing customers. At the
same time, CD Rom product revenues decreased by 77% to $1.2 million in the first
quarter of 1999 from $5.3 million in the first quarter of 1998 as OneSource
continues to transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 6% to $3.5 million for
the quarter ended March 31, 1999 from $3.3 million for the quarter ended March
31, 1998. As a percentage of total revenues, total cost of revenues increased to
42% for the quarter ended March 31, 1999 from 41% for the quarter ended March
31, 1998. The increase in total cost of revenues was principally due to
increased royalty expense for our Web-based products. It was offset partially by
a decrease in our costs of revenues relating to the CD Rom product line.
Cost of Web-based product revenues increased 131% to $3.0 million for the
quarter ended March 31, 1999 from $1.3 million for the quarter ended March 31,
1998. As a percentage of Web-based product revenues, cost of Web-based product
revenues decreased to 43% for the quarter ended March 31, 1999 from 49% for the
quarter ended March 31, 1998, due to an increase in our customer base and
expansion of existing customers, which enabled OneSource to better leverage
royalty payments and infrastructure expenses.
Cost of CD Rom product revenues decreased 75% to $0.5 million for the
quarter ended March 31, 1999 from $2.0 million for the quarter ended March 31,
1998. This decrease was due to decreased revenues reflecting our shift away from
the CD Rom product line. As a percentage of CD Rom product revenues, costs of CD
Rom product revenues increased to 39% for the quarter ended March 31, 1999 from
37% for the quarter ended March 31, 1998.
Selling and Marketing Expense. Selling and marketing expense increased 5%
to $2.9 million for the quarter ended March 31, 1999 from $2.8 million for the
quarter ended March 31, 1998, principally due to increased expenses incurred to
hire new sales personnel and to train new and existing personnel in connection
with our Business Browser product line. Selling and marketing expense increased
as a percentage of total revenues to 36% for the quarter ended March 31, 1999
from 35% for the quarter ended March 31, 1998.
Platform and Product Development Expense. Platform and product development
expense increased 10% to $1.7 million for the quarter ended March 31, 1999 from
$1.6 million for the quarter ended March 31, 1998. Platform and product
development expense increased as a percentage of total revenues to 21% for the
quarter ended March 31, 1999 from 20% for the quarter ended March 31, 1998. The
increase was due principally to increased headcount to meet new product demands.
General and Administrative Expenses. General and administrative expense
decreased 10% to $0.9 million for the quarter ended March 31, 1999 from $1.0
million for the quarter ended March 31, 1998. This decrease was the result of
personnel relocation expenses included in the first quarter of 1998. General and
administrative expense decreased as a percentage of total revenues to 11% for
the quarter ended March 31, 1999 from 12% for the quarter ended March 31, 1998.
Interest Expense, Net. Interest expense, net of interest income, decreased
62% to $0.1 million for the quarter ended March 31, 1999 from $0.2 million for
the quarter ended March 31, 1998 due primarily to an increase in interest income
related to invested cash balances from the
28
<PAGE> 29
sale of the CD-Insurance division in May 1998 and the reduction of interest
expense related to working capital borrowings.
Other Income. Other income increased $0.5 million for the quarter ended
March 31, 1999 and was attributable to a software license agreement in
connection with the sale of our CD-Insurance division for support services
provided during the period.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Total revenues remained at approximately the same level of $30.4
million for each of the years ended December 31, 1998 and 1997. In May 1998,
OneSource sold its CD-Insurance division. Revenues from this product line were
$2.6 million for the year ended December 31, 1998 compared to $6.6 million for
the year ended December 31, 1997. Excluding these revenues from total revenues
for each period, total revenues for the year ended December 31, 1998 increased
by 17%.
Web-based product revenues increased by 385% to $16.1 million for the year
ended December 31, 1998 from $3.3 million for the year ended December 31, 1997.
The increase was attributable to new customers, an increase in the number of
user seats purchased by existing customers and the sale of new products to
existing customers. At the same time, CD Rom product revenues decreased by 47%
to $14.4 million in 1998 from $27.1 million in 1997 as OneSource continued its
transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 6% to $13.7 million for
the year ended December 31, 1998 from $12.8 million for the year ended December
31, 1997. As a percentage of total revenues, total cost of revenues increased to
45% in 1998 from 42% in 1997. The increase in total cost of revenues was
principally due to increased royalty expense for our Web-based products. It was
offset partially by a decrease in our costs of revenues relating to the CD Rom
product line.
Cost of Web-based product revenues increased 227% to $7.9 million for the
year ended December 31, 1998 from $2.4 million for the year ended December 31,
1997. As a percentage of Web-based product revenues, cost of Web-based product
revenues decreased to 49% in 1998 from 72% in 1997, due to an increase in our
customer base. Royalty expense increased as a result of growth in Business
Browser product line revenues and number of user seats sold.
Cost of CD Rom product revenues decreased 45% to $5.8 million for the year
ended December 31, 1998 from $10.4 million for the year ended December 31, 1997.
This decrease was due to decreased revenues reflecting our shift away from the
CD Rom product line. As a percentage of CD Rom product revenues, cost of CD Rom
product revenues increased to 40% in 1998 from 39% in 1997.
Selling and Marketing Expense. Selling and marketing expense increased 26%
to $11.6 million for the year ended December 31, 1998 from $9.2 million for the
year ended December 31, 1997 principally due to increased expenses incurred to
hire new sales personnel and to train new and existing personnel in connection
with our transition to our new Business Browser product line. Selling and
marketing expense increased as a percentage of total revenues to 38% in 1998
from 30% in 1997.
Platform and Product Development Expense. Platform and product development
expense decreased 1% to $6.3 million for the year ended December 31, 1998 from
$6.4 million for the
29
<PAGE> 30
year ended December 31, 1997, although as a percentage of total revenues it
remained constant at 21%. The decrease was due principally to the decrease in
salary expense resulting from the elimination of CD-Insurance product
development staff in May 1998 upon the sale of that division and the elimination
of several CD Rom product management positions. This decrease in salary expense
was offset by increased headcount in the Global Strategic Web Applications Team
to meet new product demands.
General and Administrative Expense. General and administrative expense
increased 13% to $3.8 million for the year ended December 31, 1998 from $3.4
million for the year ended December 31, 1997 principally due to increased
headcount in management information systems and human resources for
infrastructure required to accommodate the growth in our business. General and
administrative expense increased as a percentage of total revenues to 12% in
1998 from 11% in 1997.
Interest Expense, Net. Interest expense, net of interest income, decreased
36% to $0.6 million for the year ended December 31, 1998 from $0.9 million for
the year ended December 31, 1997 due to an increase in interest income related
to invested cash balances from the sale of the CD-Insurance product line in May
1998.
Gain on Sale of Product Line. As a result of the sale of the CD-Insurance
division, we recorded a gain of $12.8 million. This gain reflects cash proceeds
received of $11.0 million together with recognition of deferred revenues of $3.1
million and $0.6 million of deferred subscription costs due to the transfer of
related service obligations, net of transaction related expenses.
Income Taxes. The income tax provision for the year ended December 31,
1998 was $0.3 million and is directly related to the gain on the sale of the
CD-Insurance division. Although the gain on the sale created significant taxable
income for 1998, such gain was largely offset by utilizing our net operating
loss carryforwards.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues remained at approximately the same level of $30.4
million for each of the years ended December 31, 1997 and 1996. Web-based
product revenues increased to $3.3 million for the year ended December 31, 1997
from $15,000 for the year ended December 31, 1996 due to the addition of new
customers. At the same time, CD Rom product revenues decreased by 11% to $27.1
million in 1997 from $30.4 million in 1996 as we began our transition to
Web-based products.
Cost of Revenues. Total cost of revenues increased 2% to $12.8 million for
the year ended December 31, 1997 from $12.5 million for the year ended December
31, 1996. As a percentage of total revenues, total cost of revenues increased
marginally to 42% in 1997 from 41% in 1996. This increase in total cost of
revenues was due principally to increased royalty expense for our Web-based
products. It was partially offset by a decrease in our costs of revenues
relating to the CD Rom product line.
Cost of Web-based product revenues increased to $2.4 million for the year
ended December 31, 1997 from $0.3 million for the year ended December 31, 1996
due to a substantial increase in Web-based customers and related royalty
expenses. Cost of CD Rom product revenues decreased 15% to $10.4 million for the
year ended December 31, 1997 from $12.2
30
<PAGE> 31
million for the year ended December 31, 1996. This decrease reflected our shift
away from the CD Rom product line. As a percentage of CD Rom product revenues,
cost of CD Rom product revenues decreased to 39% in 1997 from 40% in 1996.
Selling and Marketing Expense. Selling and marketing expense increased 7%
to $9.2 million for the year ended December 31, 1997 from $8.6 million for the
year ended December 31, 1996 principally due to increased headcount and related
expenses. Total selling and marketing expense increased as a percentage of total
revenues to 30% in 1997 from 28% in 1996.
Platform and Product Development Expense. Platform and product development
expense decreased 12% to $6.4 million for the year ended December 31, 1997 from
$7.3 million for the year ended December 31, 1996 principally due to the
decrease in headcount and related expenses, as well as lower contractor expense.
The reduction in headcount was exclusively in the platform development
organization as we ceased all development efforts related to the CD Rom platform
in 1997 and shifted all resources to Web-based platform and product development.
Platform and product development expense decreased as a percentage of total
revenues to 21% in 1997 from 24% in 1996.
General and Administrative Expense. General and administrative expense
decreased 7% to $3.4 million for the year ended December 31, 1997 from $3.7
million for the year ended December 31, 1996 principally due to the decrease in
amortization expense of intangibles. The amortization of $9.9 million of
intangibles, originally recorded in 1993 at the time of the management buy-out
of OneSource from Lotus, ended in 1997 with expense of $25,000 compared to $0.7
million in 1996. Increased salary and related expense, resulting from increased
headcount for infrastructure required to meet demands in management information
systems, contracting and UK finance management, partially offset the decrease in
amortization. General and administrative expense decreased as a percentage of
total revenues to 11% in 1997 from 12% in 1996.
Interest Expense, Net. Interest expense, net of interest income, increased
27% to $0.9 million for the year ended December 31, 1997 from $0.7 million for
the year ended December 31, 1996 due to increased borrowings for working capital
requirements in 1997.
Gain on Sale of Product Line. In June 1997, we sold our CD-Banking product
line for $0.7 million. As a result of the sale, we recorded a gain of $0.5
million which is net of transaction related expenses.
31
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS AND OTHER DATA
The following tables set forth a summary of OneSource's unaudited quarterly
operating results for each of the eight quarters in the two-year period ended
March 31, 1999. This information has been derived from unaudited interim
consolidated financial statements that, in the opinion of management, have been
prepared on a basis consistent with the Consolidated Financial Statements
appearing elsewhere in this prospectus and include all adjustments, consisting
of only normal recurring adjustments, necessary for a fair statement of such
information when read in conjunction with OneSource's Consolidated Financial
Statements and Notes thereto. Our operating results and other data for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
1997 1998 1999
------------------------------- ------------------------------------------ --------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (UNAUDITED):
Revenues:
Web-based product................ $ 369 $ 979 $1,792 $ 2,628 $ 3,419 $ 4,479 $ 5,532 $ 6,903
CD Rom product................... 7,383 6,309 6,032 5,322 4,273 2,725 2,050 1,240
------ ------ ------ ------- ------- ------- ------- -------
Total revenues..................... 7,752 7,288 7,824 7,950 7,692 7,204 7,582 8,143
------ ------ ------ ------- ------- ------- ------- -------
Cost of revenues:
Web-based product................ 451 718 892 1,287 1,872 2,070 2,634 2,970
CD Rom product................... 2,747 2,523 2,405 1,979 1,643 1,159 1,011 487
------ ------ ------ ------- ------- ------- ------- -------
Total cost of revenues............. 3,198 3,241 3,297 3,266 3,515 3,229 3,645 3,457
------ ------ ------ ------- ------- ------- ------- -------
Gross profit....................... 4,554 4,047 4,527 4,684 4,177 3,975 3,937 4,686
------ ------ ------ ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing............ 2,195 2,346 2,458 2,797 2,904 2,861 3,015 2,927
Platform and product
development.................... 1,745 1,608 1,478 1,561 1,528 1,638 1,586 1,718
General and administrative....... 749 686 1,037 957 1,051 897 942 860
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses....... 4,689 4,640 4,973 5,315 5,483 5,396 5,543 5,505
------ ------ ------ ------- ------- ------- ------- -------
Loss from operations............... $ (135) $ (593) $ (446) $ (631) $(1,306) $(1,421) $(1,606) $ (819)
====== ====== ====== ======= ======= ======= ======= =======
(PERCENTAGE OF TOTAL REVENUES)
Revenues:
Web-based product................ 5% 13% 23% 33% 44% 62% 73% 85%
CD Rom product................... 95 87 77 67 56 38 27 15
------ ------ ------ ------- ------- ------- ------- -------
Total revenues..................... 100 100 100 100 100 100 100 100
------ ------ ------ ------- ------- ------- ------- -------
Cost of revenues:
Web-based product................ 6 10 11 16 24 29 35 36
CD Rom product................... 35 35 31 25 22 16 13 6
------ ------ ------ ------- ------- ------- ------- -------
Total cost of revenues............. 41 45 42 41 46 45 48 42
------ ------ ------ ------- ------- ------- ------- -------
Gross profit....................... 59 55 58 59 54 55 52 58
------ ------ ------ ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing............ 28 32 32 35 38 40 40 36
Platform and product
development.................... 23 22 19 20 20 23 21 21
General and administrative....... 10 9 13 12 13 12 12 11
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses....... 61 63 64 67 71 75 73 68
------ ------ ------ ------- ------- ------- ------- -------
Loss from operations............... (2)% (8)% (6)% (8)% (17)% (20)% (21)% (10)%
====== ====== ====== ======= ======= ======= ======= =======
OTHER DATA FOR WEB-BASED PRODUCTS
(AS OF THE QUARTER END)
(UNAUDITED): (IN THOUSANDS, EXCEPT NUMBER OF CUSTOMERS DATA)
Annualized contract value.......... $2,430 $4,815 $8,973 $11,854 $14,619 $19,754 $25,920 $28,338
Number of customers................ 92 149 233 279 322 386 445 460
Average annualized contract value
per customer..................... $ 26.4 $ 32.3 $ 38.5 $ 42.5 $ 45.4 $ 51.2 $ 58.2 $ 61.6
</TABLE>
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<PAGE> 33
Annualized contract value represents the invoiced fees for one month for
all customer contracts for Web-based products in effect at the measurement date,
multiplied by 12, without regard to the actual duration of such contracts. At
June 30, September 30 and December 31, 1997 and March 31, June 30, September 30
and December 31, 1998 and March 31, 1999, annualized contract value was
calculated by multiplying the total amount of fees invoiced for one month and
included in deferred revenues for all customer contracts for Web-based products
at June 30, September 30 and December 31, 1997 and March 31, June 30, September
30 and December 31, 1998 and March 31, 1999 of $202,500, $401,250 and $747,750
and $987,850, $1,218,250, $1,646,200 and $2,160,000 and $2,361,500,
respectively, by 12.
Our quarterly revenues, gross profits and results of operations have
fluctuated significantly in the past and we expect them to continue to fluctuate
significantly in the future. In addition, we believe that an important measure
of our business is the annualized contract value at the end of each period,
which also may fluctuate. Causes of such fluctuations have included and may
include, among other factors:
- changes in demand for our products
- the dollar value and timing of both new and renewal subscriptions
- competition (particularly price competition)
- increases in selling and marketing expenses, as well as other
operating expenses
- technical difficulties or system downtime affecting our products on
the Web generally
- economic conditions specific to the Web, as well as general economic
conditions
- consolidation of our customers
In addition, a substantial portion of our expenses, including certain product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our projected revenue does not meet our expectations,
then we are likely to experience an even larger shortfall in our operating
profit (loss) relative to our expectations.
Annualized contract value depends upon the timely renewal or upgrade of
existing customers and the sale to new customers of subscription agreements
within a quarter and can be difficult to forecast accurately. In addition, we
have experienced some quarterly seasonality in contract bookings with a
significant amount of activity occurring in the fourth quarter of a given year.
Accordingly, these timing variations can create shortfalls in revenues in
relation to our expectations and have an adverse effect on our operating
results.
ANNUALIZED CONTRACT VALUE
One measure of the performance of our business is "annualized contract
value." This is a measurement we use for normalized period-to-period comparisons
to indicate business volume and growth, both in terms of new customers and
upgrades and expansions at existing customers. Our presentation and calculation
of annualized contract value may not be comparable to similarly titled measures
used by other companies. It is not an absolute indicator and we cannot guarantee
that any annualized contract value will be ultimately realized as revenues.
We use annualized contract value as a measure of our business because it
shows the growth or decline in our customer base in a way that revenues cannot.
Since our business is a subscription business, revenues are recognized not when
a sale is made, but in ratable portions
33
<PAGE> 34
over the term of the subscription (which is usually twelve months). As a result,
from a revenue viewpoint the addition or loss of even a major customer contract
may not have a dramatic impact on a quarter-to-quarter basis. On the other hand,
by looking at the value of customer contracts in hand at the end of each
quarter, we can more readily see trends in our business. For example, the
addition of a one-year subscription contract with total payments of $1.0 million
may only increase revenues by approximately $250,000 ($1.0 million divided by
four) in the quarter in which the sale is made, but would increase annualized
contract value by $1.0 million. Similarly, if the customer were to cancel that
contract, revenues in next quarter would only decrease by $250,000, while
annualized contract value would decrease by $1.0 million.
In calculating annualized contract value, we include only those contracts
where the customer has actually been invoiced. Since amounts invoiced are
included in deferred revenues on our balance sheet for all customer contracts
with terms extending beyond the month of invoice, this demonstrates that
annualized contract value is based on actual customer contracts reflected in our
historical financial statements. To compute annualized contract value, we
multiply the total amount of fees invoiced for one month and included in
deferred revenues by twelve. Annualized contract value is not intended to be an
absolute indicator of future revenues. We only annualize existing, invoiced
contracts, but we do so without regard to the remaining term of those contracts.
Most of our contracts are for 12 months, but as of the date that we calculate
annualized contract value the remaining term of nearly all of our contracts will
be less than 12 months. If a customer fails to pay its invoiced fees or
terminates the contract or if we are unable to renew a contract, our revenues in
subsequent periods may be less than expected based solely on annualized contract
values. Conversely, if we add additional customers or renew existing contracts
at higher rates, our revenues in future periods may exceed expectations based
solely on annualized contract value.
The calculation of annualized contract value for our Web-based products is
illustrated below:
<TABLE>
<CAPTION>
ONE MONTH
OF INVOICED
WEB-BASED FEES IN
DEFERRED DEFERRED ANNUALIZED
MEASUREMENT DATE REVENUES REVENUES CONTRACT VALUE
---------------- --------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1996..................................... $ 316 $ 34.3 $ 411
December 31, 1997..................................... 4,756 747.8 8,973
December 31, 1998..................................... 15,935 2,160.0 25,920
March 31, 1998........................................ 6,004 987.8 11,854
March 31, 1999........................................ 14,205 2,361.5 28,338
</TABLE>
We have increased annualized contract value attributable to Web-based
products 189% to $25.9 million as of December 31, 1998 from $9.0 million as of
December 31, 1997. The number of Web-based customers has increased 91%, to 445
at December 31, 1998 from 233 at December 31, 1997. At the same time, the
average annualized contract value of all Web-based product customers has
increased 51%, to $58,248 per customer at December 31, 1998 from $38,512 per
customer at December 31, 1997. The average annualized contract value for the
customers that were under contract at both December 31, 1997 and 1998 grew to
$76,143 per customer at December 31, 1998 from $38,512 per customer at December
31, 1997. This growth was attributable to an increase in the number of user
seats purchased by customers and the addition of new products.
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<PAGE> 35
The renewal rate of the Business Browser product line for 1998 was 90%
calculated on a dollar basis. The renewal rate is measured by comparing a
customer's annualized contract value at December 31, 1998 to its annualized
contract value at December 31, 1997. The set of customers measured are those who
had subscriptions in effect at December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since acquiring our business from Lotus in 1993, we have funded our
operations through a combination of seller financing, proceeds received from the
sale of Class P common stock and common stock in connection with the purchase of
the business from Lotus, bank debt, proceeds received from the sale of
non-strategic lines of business, capitalized equipment leases and cash flows
from operations.
Our cash and cash equivalents totaled $6.7 million at March 31, 1999, as
compared to $0.4 million at March 31, 1998, an increase of $6.3 million. Net
cash of $1.2 million was provided by operations for the year ended December 31,
1998, primarily resulting from growth in contracts invoiced for the period. Net
cash of $1.0 million was used in operations in the quarter ended March 31, 1999.
Net cash provided by investing activities for 1998 was $9.0 million,
primarily reflecting net cash proceeds from the sale of the CD-Insurance
division, offset partially by expenditures of $1.3 million for property and
equipment. Net cash used in investing activities for the quarter ended March 31,
1999 was $0.8 million. Net cash used in financing activities for the year ended
December 31, 1998 was $2.0 million reflecting primarily repayments on our line
of credit, term loan and capital lease obligations. Net cash used by financing
activities for the quarter ended March 31, 1999 was $0.1 million.
We do not currently have a line of credit but intend to enter into a
revolving line of credit for letters of credit and general working capital.
We have a note outstanding to Lotus and the principal amount outstanding at
December 31, 1998 was $6.2 million. This note plus accrued interest is due
September 8, 2000 and a repayment of a portion of the note would be required
upon completion of this offering. We intend to repay the note upon the
completion of this offering. Upon repayment of the note, OneSource will
recognize a one-time expense of approximately $0.3 million relating to the
unamortized portion of the original issue discount.
We currently anticipate capital expenditures of approximately $2.8 million
for 1999, including approximately $0.9 million in connection with the relocation
of our corporate headquarters, which is scheduled to occur in June 1999.
We expect to investigate the possibility of investing in or acquiring
complementary businesses, products or technologies, although we have not entered
into any commitments or negotiations with respect to any such transactions.
We believe that our net proceeds from this offering, together with our
current cash and cash equivalents and funds anticipated to be generated from
operations, will be sufficient to satisfy working capital and capital
expenditure requirements for at least the next twelve months.
YEAR 2000 READINESS DISCLOSURE STATEMENT
We have established a Year 2000 compliance program and we anticipate that
our products and internal systems should operate correctly at the turn of the
century. We have been performing Year 2000 tests for the past three years.
Initial Year 2000 work was organized in late
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<PAGE> 36
1996 to certify readiness of the proprietary client software associated with our
CD Rom product line. A more formal organizational effort involving senior
management, product managers, developers and quality assurance personnel was
established in early 1998.
Compliance Program. The scope of OneSource's compliance program focuses on
four key areas: products, third-party information providers, third-party
software applications and internal systems. Our compliance program involves a
three-step process to evaluate each of the key areas, which includes
- inventory review,
- assessment/testing and
- resolution and contingency planning.
Products. We have assessed existing products to review OneSource's overall
compliance status. We have decided not to test those products that will be
discontinued prior to December 31, 1999. This includes, for example, all
products associated with our CD Rom product line with the exception of the "UK
Companies" product, which we expect to produce beyond 1999. We have established
clear migration paths for those customers who have products installed that will
be discontinued. As of February 1999, we had completed almost all work
associated with creating internal company awareness of Year 2000 issues,
organizing and executing high-level plans to address the concern, and
inventorying existing systems, data, and software dependency for Year 2000
exposure. We estimate that as of March 1999 we had completed about 90% of the
process of analyzing the impact of Year 2000 issues company-wide and developing
detailed plans for resolving problem situations. We are in the midst of
implementing those plans. Resolution of outstanding Year 2000 issues for
non-Information Services applications are being incorporated with plans to move
our corporate offices in June 1999. Projects that involve IS-related issues,
particularly those processes that prepare and deliver data in our products, are
expected to be completed in May 1999, with follow-up testing, if required,
extending through August 1999. In terms of verifying and planning for Year 2000
compliance for our products, we use the British Standards Institute's definition
of Year 2000 compliance as stated in DISC PD2000-1:1998: A Definition of Year
2000 Conformity Requirements. According to this definition, Year 2000 conformity
means that neither performance nor functionality is affected by dates prior to,
during and after the year 2000, and according to the following rules:
- No value for current date will cause any interruption in operation
- Date-based functionality must behave consistently for dates prior to,
during and after the year 2000
- In all interfaces and data storage, the century in any date must be
specified either explicitly or by unambiguous algorithms or
inferencing rules
- Year 2000 must be recognized as a leap year
New products under development for this year and next have Year 2000
qualification as part of their standard test plans. Products that fail their
standard test plans are not released to customers.
Third-Party Information Providers. OneSource relies on content provided by
third-party information providers. Communication with our information providers
with respect to their Year 2000 compliance status was largely complete as of
February 1999. OneSource's goal is to have all information providers' compliance
responses complete by May 31, 1999. We are also trying to
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<PAGE> 37
minimize our dependence on third-party information providers' external date
formats by accommodating changes in date format within our existing production
processes.
Third-Party Application and System Software. OneSource invests in
third-party software as components of the data storage and delivery requirements
of our products. We have identified an exhaustive list of such systems along
with research of the current status of their Year 2000 compliance efforts. We
completed this research in February 1999. Confirmation of compliance or a
specific plan to replace any non-compliant resource was completed in March 1999.
Only a short list of these resources remains non-compliant as of April 1999.
While OneSource is committed to taking every reasonable action to obtain
assurances from such business partners that their software is Year 2000
compliant, we cannot guarantee the performance of such business partners or
predict whether any of the assurances provided by them may be accurate or
realistic.
Internal Systems. OneSource has completed its inventory of its internal
systems and its assessment of such systems' compliance status is approximately
90% complete, with an anticipated completion date of May 31, 1999. The scope of
these systems ranges from accounting, payroll, communications, network hardware
and applications, Internet access, internal information systems and data
production systems. The majority of our internal systems and equipment are
currently Year 2000 compliant. Some existing Year 2000 issues, including
OneSource's phone switch and some components of the Corporate Local Area
Network, will be addressed as part of the relocation of our offices in June
1999.
Costs. To date we have not relied on outside consulting expertise for
assessing our products or testing for Year 2000 related issues. We are utilizing
internal personnel to identify Year 2000 readiness in our supported products,
network hardware/applications, internal business and information systems. A
large number of our personnel are necessarily involved in this work. We estimate
that the aggregation of all such efforts represents an equivalent of six
full-time employees. Not included in this estimate are those indirect costs
associated with time spent by management or staff discussing Year 2000 issues
internally or with third parties. Such discussions are handled by existing
employees in the ordinary course of business. We have not identified the need to
hire additional staff specifically to address third-party questions or concerns.
Risks. With regard to third-party information suppliers, OneSource is
addressing, through normal operating procedures any concerns that third-party
information providers may have delivery problems associated with Year 2000
issues. OneSource is identifying issues by internal quality assurance or
editorial reviewers. When identified, issues are being handled by contacting the
information provider who may correct the problem at the source or by developing
a workaround in the software. The risks associated with delivery problems
present more serious issues for us as our products could be deprived of certain
data content.
While OneSource does not anticipate a failure in its ability to deliver
data, and has established contingency plans as discussed below, such a failure
may
- have a material adverse effect upon our business, financial condition and
results of operations
- require us to incur unanticipated material expenses to remedy any problem
- result in litigation due to our inability to fulfill our contractual
obligations
In such cases, we would likely suffer a disruption in our revenue stream and
operations could be materially impacted.
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<PAGE> 38
Contingency Plans. At this time, our contingency plans relating to the
above discussed Year 2000 issues include having additional support staff and
programmers on call for rapid response dealing with any disruption of our
business during a critical date transition, for example January 1, 2000 or
February 29, 2000. Our assessment of our products and internal systems for Year
2000 compliance will be an ongoing effort throughout the remainder of this year.
The information contained herein is the product of conclusions made from the
information and test results available to OneSource at this time.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-1,
which is effective for OneSource beginning January 1, 1999, to have a material
effect on our financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for OneSource's calendar year 1999 financial statements
and we do not expect its adoption to have a material effect on our financial
condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. We do not expect SFAS No. 133 to have a material effect on our
financial condition or results of operations.
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<PAGE> 39
BUSINESS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. Our actual results, performance or
achievements could differ materially from the results expressed in or implied by
these forward-looking statements. Factors that could cause or contribute to
these differences include those discussed in "Risk Factors."
OVERVIEW
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry and market
intelligence. Our Business Browser product line integrates comprehensive and
up-to-date business and financial information on over one million public and
private companies from more than 25 information providers drawing upon over
2,500 sources of content. These sources include both textual information, such
as news, trade press, SEC filings, executive biographies and analyst reports,
and numeric information, such as company financial results, stock quotes and
industry statistics. Our customers access this information over the Internet
using standard Web browsers at a fixed annual subscription price.
Our products are designed to address information needs of leading
professional and financial services firms, technology companies and other large
organizations. Representative customers include American Express, Bain &
Company, BankAmerica, Boeing, British Telecom, Deloitte & Touche, Ernst & Young,
Harvard Business School, KPMG Peat Marwick, MCI/Worldcom, Merrill Lynch, Oracle
and SAP.
At March 31, 1999, 460 organizations subscribed to our Web-based Business
Browser product line, up from 279 at March 31, 1998. On average, our customers
for Web-based products at March 31, 1999 had an annualized contract value of
$61,604 per customer, compared to $42,489 per customer at March 31, 1998. The
annualized value of Business Browser customer contracts was $25.9 million at
December 31, 1998, having grown from $9.0 million at the end of 1997. Of this
$25.9 million, $14.2 million was attributable to those customers that were under
contract at both December 31, 1997 and 1998. The renewal rate of the Business
Browser product line for 1998 was 90% calculated on a dollar basis.
INDUSTRY BACKGROUND
According to Simba, the market for all Web-based and on-line business
information services was nearly $24.8 billion in 1997 and is projected to grow
to almost $39.8 billion in 2002. This reflects a compound annual growth rate of
9.9%. Simba also reported that the primary market segment in which OneSource
participates--Web-based and on-line financial news, current awareness and
research services--was $5.4 billion in 1997 and is projected to grow to $9.8
billion in 2002. This reflects a compound annual growth rate of 12.6%.
Recent industry growth has been driven by corporations and other
enterprises recognizing that productivity and competitiveness depend on
extensive knowledge of external information, including information about
industries, customers, competitors, prospects, business trends, breaking news
and market data. These organizations have already invested heavily in Internet
connectivity and networked computing infrastructures to manage internal
information and are seeking to leverage these infrastructures to access and
manage external information.
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The task of finding and using external information is often difficult and
cumbersome. Traditional, textual sources such as newspapers and directories
require hours to search. A centralized library can be costly to establish and
maintain and can be an inefficient and incomplete information source. While the
emergence of the Web has greatly increased access to information, finding
comprehensive, precise, up-to-date, relevant and reliable information on the Web
can still be time-consuming and difficult. While other on-line services can be
useful research tools in certain circumstances, most of these services currently
focus on specific areas of content, such as financial data or news. They do not
provide the full range of data required by professionals. In addition, most
on-line services charge a fee for each search performed.
Traditional sources, the Web and existing on-line services do not
adequately meet the information needs of many professionals who want to compete
effectively in today's fast-paced, global, customer-focused marketplace. These
professionals and their organizations demand external information that is:
- easily accessible in a user-friendly format
- comprehensive and includes both textual and numeric information
- derived from multiple, high quality sources
- integrated at a single site
- delivered on a platform that allows interpretation, manipulation and
analysis
- available throughout the enterprise at a fixed cost
- delivered in a product easily implemented and supported on a corporate
network
THE ONESOURCE SOLUTION
OneSource's Business Browser product line is designed to be a comprehensive
and easy to use business and financial information resource for professionals
who need quick access to reliable corporate, industry and market intelligence.
Business Browser products integrate over 2,500 sources of business
information from more than 25 category-leading business and financial
information providers. These sources include both textual information, such as
news, trade press, SEC filings, executive biographies and analyst reports, and
numeric information, such as company financial results, stock quotes and
industry statistics. OneSource uses its proprietary KeyID technology to sort,
prioritize, integrate and link information on over one million public and
private companies worldwide.
Our Business Browser product line is accessed through a standard Web
browser that is already available and familiar to end-users. Because our
products are based on standard Web technology, our customers require minimal
installation and systems support and users have full access to the products at
any time from anywhere via the Internet.
OneSource focuses on the functional uses of the business and financial
information it delivers. The Business Browser product line has been designed for
use not only by traditional users of business information, but also throughout
an organization, including sales, marketing, finance and management
professionals. We apply our knowledge of how business professionals use
information to transform raw, disparate data into meaningful, actionable
information. We focus on integrating and presenting information so that
interpretation, manipulation and analysis
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can be performed more easily by the end user. Because the interface is built
around the inquiries of professionals, users require minimal training to become
productive quickly.
OneSource's pricing strategy is designed to be particularly attractive to
large organizations. The Business Browser product line is available at a fixed
annual subscription price which declines on a per-user basis as the total number
of users increases for that customer. The fixed-price model encourages
professionals to use the products as needed without concern with additional
charges, and a declining marginal price per user encourages customers to
distribute our products widely throughout their organizations.
STRATEGY
Our goal is to become a leading Web-based provider of business and
financial information to professionals worldwide. To accomplish that goal, we
have adopted the following strategies:
--Focus on Information Needs of Professionals in Large Organizations. We
believe that professional and financial services firms, technology companies and
other large organizations have the widely distributed Web access necessary to
take advantage of the Business Browser product line and are most likely to be
willing to purchase external information services to gain the competitive
advantages available through our products. While many alternative products are
focused on small organizations and individual consumers, our product and pricing
strategies and sales and marketing efforts have been designed to address the
needs of large enterprises.
--Expand Customer Base. At March 31, 1999, 460 organizations subscribed to
our Web-based Business Browser product line, up from 279 at March 31, 1998. One
group of our direct sales force, our account executives, concentrates primarily
on selling the Business Browser product line to new customers. We intend to
continue to invest in training our sales force and in recruiting technically
qualified sales personnel to sell Business Browser products. In addition, while
the traditional users of on-line business information services have been
primarily financial analysts and professional service providers, we have
expanded our target customer base to include corporations which are purchasing
our products for use by their sales, marketing, finance and management
professionals. We also intend to explore selective third-party distribution of
our products primarily to expand geographic coverage. For example, we recently
entered into an agreement with Dun & Bradstreet under which they will serve as a
distributor of our European Business Browser product.
--Leverage Existing Customer Base. We will continue to seek to increase
sales to existing customers by expanding the number of authorized user seats at
each customer and by upgrading customers to new products, more extensive content
and increased functionality. Each customer is assigned an account manager who is
responsible for that customer's retention, monitoring that customer's needs and
assisting that customer with rollouts and upgrades. The average annualized
contract value at December 31, 1998 of Business Browser customers who were also
customers at December 31, 1997 was $76,143 per customer, compared to $38,512 per
customer at December 31, 1997, an increase of 98% during the course of the year.
--Expand Content and Product Offerings. Since introducing Business Browser
in December 1996, we have followed a strategy of enhancing the Business Browser
product line by adding content from new sources, increasing functionality and
designing products tailored to particular markets. For example, in January 1999
we introduced European Business Browser, which includes content focused on the
European market, and in December 1998 we introduced
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AppLink, which permits customers to integrate content from Business Browser
products within the customer's own intranet applications, such as sales force
automation applications.
--Strategic Alliances and Possible Acquisitions. We will seek to expand
our distribution channels in part by seeking strategic alliances with partners,
such as vendors of sales automation software, who may use AppLink to integrate
content from the Business Browser products into their software offerings. In
addition, OneSource may seek additional content sources, distribution channels
or technology through selective acquisitions or strategic alliances. While we
discuss potential acquisitions, investments and alliances from time to time, we
currently have no commitments or arrangements regarding any potential
acquisitions, investments or alliances.
PRODUCTS
Business Browser Product Line
The Business Browser product line includes:
US BUSINESS BROWSER. Released in December 1996, US Business Browser is
focused specifically on the US and Canada. It contains a subset of business and
financial information from the Global Business Browser product. It covers over
250,000 public and private companies in the US and Canada.
UK BUSINESS BROWSER. Released in September 1997, UK Business Browser is a
comprehensive source of information on over 350,000 public and private companies
in the UK.
GLOBAL BUSINESS BROWSER. Released in December 1997, Global Business
Browser is a single, integrated resource that provides information on over
350,000 public and private companies from around the world.
EUROPEAN BUSINESS BROWSER. Released in January 1999, European Business
Browser provides users with a comprehensive database on 300,000 public and
private companies across Europe, including 50,000 UK companies. An important
source of data for the European Business Browser is Dun & Bradstreet, a leading
business information source.
Business Browser delivers information in an integrated format. This allows
customers to obtain different types of information from multiple sources in a
single report. Business Browser products organize data around business
applications and transform raw, disparate data into meaningful, actionable
information, delivered according to the characteristics users have defined and
in the custom formats, tables and reports that users require. Users who need to
perform detailed analysis can also easily transfer quantitative data into
spreadsheets or other desktop tools, such as contact management software.
Specific applications available through the Business Browser product line
include:
- "Company Profiler" delivers integrated reports on a company's history,
products, competition, industry, executives, current news articles and
financials. Both summary and detailed company reports are available,
depending on the user's need. In addition, "Corporate Family Reports"
allow users to quickly map relationships among subsidiaries and
divisions of corporations.
- "WatchList Update" automatically keeps track of new articles, news
stories, financial filings and research reports on the companies the
user monitors.
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- "Industry Profiler" delivers reports on market size, segmentation,
financial norms, ratios and forecasts for a specified industry, as
well as participants, industry news and analysis, and creates research
reports with graphs and statistics that help track industry trends.
- "Company Finder" screens companies by defining key search
characteristics to deliver a targeted list by industry, geography,
size, revenues, employment or other key characteristics.
- "Topic Search" screens news stories, research reports, business
descriptions and trade articles for information by topic.
- "Executive Search" provides users with reports on business leaders by
name, company, location, schools and affiliated organizations.
Additional Software Applications
Two additional software applications are available with Business Browser
products.
BUSINESS BROWSER AP. Business Browser AP, which became commercially
available in August 1997, is an advanced Web-based quantitative analysis tool
available as an option with all of the Business Browser products other than
European Business Browser. Business Browser AP lets users screen across a wide
range of public company financial statement items, ratios, growth rates and
other criteria. It also allows users to produce detailed quantitative reports of
their own design. Business Browser AP also makes EDGAR documents more user
friendly by removing confusing computer codes, formatting tables for easy
viewing and printing, and allowing users to export tables to a spreadsheet.
BUSINESS BROWSER APPLINK. Business Browser AppLink, which became
commercially available in December 1998, is a software toolkit that allows
customers to easily incorporate Business Browser content, like company profiles,
news, business and trade articles, analyst reports, executive biographies,
industry intelligence and financial data, directly into corporate intranet
applications. Users have the ability to integrate in-depth, objective external
business information into their existing internal applications such as prospect
and customer databases, sales force automation tools, enterprise reporting
software and corporate Web applications. No special client software or dedicated
servers are necessary. AppLink-enabled applications are currently under
development at a number of client sites.
Legacy CD Rom Products
Prior to our introduction of Business Browser in 1996, we distributed
business information on CD Rom. Having made the strategic decision to transition
to a completely Web-based business, we began in 1998 to phase out our CD Rom
products. We expect that all but two of these products will be completely phased
out by the end of 1999, with the remaining two products being phased out shortly
thereafter.
PLATFORM AND PRODUCT DEVELOPMENT
The product development function is currently carried out by 39 employees
in our Global Strategic Web Applications Team. This team includes product
managers who define functional software components, end user interfaces, report
formats and content requirements; product development engineers who take content
feeds from information partners and write database
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loader code; and the KeyID team whose role, through both programming and
editorial expertise, is to ensure consistent integration and presentation of
information from multiple underlying sources of content.
Our product development strategy is to deliver a broad range of information
on a software platform which allows end users to efficiently research their
business questions. Since the inception of the Business Browser product line, we
have consistently added sources of content and improved the software
functionality for users. In the future, we expect to continue to make these
types of improvements to our product line.
The product development team uses our proprietary KeyID technology to
integrate and link public and private companies worldwide from multiple
databases, each with its own set of incompatible identifiers. Through a
combination of proprietary programmatic and editorial means, this technology
enables us to provide a single and unified presentation from multiple underlying
company databases. It also manages multiple SIC codes and industry mappings
assigned to companies by disparate databases and reclassifies the companies to
comparable categories. The system also keeps track of company name synonyms to
allow searching by commonly used alternative company names. The synonyms feature
allows the user to input one company name or term and to access all information
for that company although it may be categorized under different names or terms
depending on the database. In total, the KeyID database contains 1.1 million
companies, 1.7 million synonyms and 40,000 URLS.
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INFORMATION PROVIDERS
Each Business Browser product combines an array of carefully chosen
financial, company, industry, executive and news-related content obtained from
leading business and financial information providers identified by our Global
Strategic Web Applications Team. The following table lists the type of content
provided by our current information providers and which Business Browser
products include that content.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
BUSINESS BROWSER PRODUCT
---------------------------
TYPE OF INFORMATION INFORMATION PROVIDER GLOBAL US UK EURO
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Company Information........... CorpTech X X
Dun & Bradstreet X
Extel (Primark) X
Graham & Whiteside Limited X
Hemmington Scott X
Hoover's Inc. X X
ICC X
InfoUSA X X
Market Guide X X
Reed Elsevier X X
Worldscope (Disclosure Inc.) X
Industry Reports and Data..... McGraw-Hill X X
Integra X X
The Gale Group X X
Snapshots Intl X X X X
News and Newsletters.......... Asia Pulse X X X X
Comtex News X X X X
Phillips Newsletters X X X X
Reuters News X X X X
Business and Trade Press...... Responsive Database Services X X X X
Information Access Company X X X X
Executive Biographies......... Marquis Who's Who X X
Standard & Poor's Register X X
Stock Quotes.................. Datastream X
Quote.com X X
Investment Reports............ Investext X X X
Published Statistical
Tables..................... Responsive Database Services X X
SEC Filings................... EDGAR X X
- ---------------------------------------------------------------------------------------------
</TABLE>
We enter into contracts with our information providers which are generally
for a term of at least one year, and which renew for the same period if not
canceled with advance notice. These contracts may be terminated under certain
circumstances. For more information, see "Risk Factors--If our information
providers stopped doing business with us, we could not continue to sell Business
Browser." Under these arrangements, royalties are generally paid on a quarterly
basis to information providers. Royalties are typically calculated either as a
flat percentage of our revenues or as a per-user fee that declines as the number
of authorized users of the product increases. In limited cases, we pay a fixed
fee per period for unlimited use of the information.
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CUSTOMERS
At March 31, 1999, 460 organizations had subscribed to our Web-based
Business Browser product line, up from 279 at March 31, 1998. On average, our
customers at March 31, 1999 had an annualized contract value of $61,604 per
customer, compared to $42,489 per customer at March 31, 1998. The annualized
contract value of customer contracts for Business Browser products was $25.9
million at December 31, 1998, having grown from $9.0 million at December 31,
1997. The following is a representative list of significant customers in each of
our primary industry sectors:
PROFESSIONAL SERVICES
Arthur Andersen
Arthur D. Little
Bain & Company
Cambridge Technology Partners
Deloitte & Touche
EDS
Ernst & Young
KPMG
Watson Wyatt
OTHER CORPORATIONS
Avery Dennison
Bayer
Boeing
British Telecom
Cargill
Coca Cola
General Electric
GTE
Johnson & Johnson
Pitney Bowes
Sears
FINANCIAL SERVICES
American Express
BankAmerica
BankBoston
Bank of Scotland
Bank of Tokyo
Bear Stearns
Credit Lyonnais
First Union Bank
Merrill Lynch
Oppenheimer
Royal Bank of Canada
BUSINESS SCHOOLS
Dartmouth
Duke
Harvard
Stanford
University of Florida
University of Southern California
University of Texas
Yale
TECHNOLOGY
AT&T
Compaq
Data General
JD Edwards
Lockheed Martin
MCI/Worldcom
Nortel
Oracle
PeopleSoft
Platinum Technology
SAP
Sun Microsystems
At December 31, 1998, approximately 60% of our annualized contract value
for Web-based products came from customers in the professional services and
financial services sectors, which have been the traditional customers for
business information products. The remaining 40% of our annualized contract
value at December 31, 1998 for Web-based products represented customers in
sectors that have not historically been heavy consumers of business information
products. At these customers, Business Browser products are used by
professionals throughout the organization, including sales, marketing, finance
and management personnel, as a result of the products' ease of use and
availability over the Web.
SALES AND MARKETING
We market our products through a direct sales force and marketing staff,
which as of March 31, 1999 consisted of 69 full-time employees based at five
locations throughout the US and one location in the UK. The sales function
breaks down into two major parts:
- the initial sale, which is conducted by account executives
- customer retention and growth through the sale of additional seats and
upgrades, which are primarily handled by account managers
46
<PAGE> 47
As of March 31, 1999, we had 19 account executives and 15 account managers.
Compensation for account executives and account managers is comprised of base
salary plus commission. The commission component typically constitutes 50% and
40% of the compensation of account executives and account managers,
respectively. We also employ a telemarketing group which assists in generating
leads for the account executives. As of March 31, 1999, there were seven members
of the telemarketing group.
Business Browser products are sold on a subscription basis, generally for a
one-year period. Customers typically prepay for annual subscriptions. Typically,
contracts automatically renew for the same period prior to expiration unless
canceled by the client. The Business Browser product line is available at a
fixed annual subscription price which declines on a per-user basis as the total
number of users increases. The fixed-price model encourages business
professionals to use the products as needed without concern with additional
charges, and a declining marginal price per user encourages customers to
distribute the products widely throughout their organizations. List prices as of
January 1, 1999 ranged from $20,000 per year for a single user seat to $290,000
per year for 1,000 user seats.
CUSTOMER SUPPORT
We provide both on-site and telephone support for clients. As of March 31,
1999, we had eight field support consultants who provide assistance before and
after sales are completed. For example, they assist in managing free product
trials for prospective customers and expanding the availability of our products
to additional users through training and rollout initiatives within an
organization. They also provide technical consulting which may be requested,
such as the customization of Web pages for large clients or the building of
prototype applications using AppLink.
As of March 31, 1999, we had six telephone-based customer support
representatives in the U.S. and one in the UK. These representatives operate the
telephone help desk which is open from 8:00 a.m. to 8:00 p.m. Monday through
Friday.
WEBSITE TECHNOLOGY AND OPERATIONS
OneSource has designed its Website architecture to be open, flexible,
scaleable and reliable. The architecture is designed to accommodate an evolving
collection of third-party technologies that together provide the functionality
required by our products' applications. These technologies are adapted and
integrated with software developed in-house. As a result, we believe our systems
are flexible enough to upgrade or change software as new, improved third-party
software products are developed or as we develop our own new software.
Our on-line architecture was also designed to be able to expand easily and
efficiently as usage grows. By treating the core backoffice technologies as
system "objects," we have constructed a natural environment for simply adding
additional copies of specific servers, as needed, to share the load. Besides
load sharing and usage expansion, this setup also provides natural failover
capabilities for the system. Any given server can suffer a problem and one or
several backups share the load while the problem is corrected.
The OneSource on-line site is located at a dedicated hosting facility
managed by GTE/BBN Internetworking. It is a node on the GTE/BBN Internet
backbone. The system is available 24 hours a day, seven days a week. For more
information, see "Risk Factors--If our Website
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<PAGE> 48
service is disrupted, our customers could lose access to Business Browser and
our reputation could be harmed."
The engineering team closely monitors the usage, delivery performance and
availability of the system. Particular attention is paid to individual product
usage, relative levels of customer activity, speed of data retrieval and
delivery, peak usage figures, uptime statistics and power requirements. This
engineering team is key to maintaining continuous service for our customers.
COMPETITION
The business information services industry is intensely competitive. We
face direct or indirect competition from numerous companies as described in
"Risk Factors--Competition in our industry is intense and many of our
competitors have greater resources than we do; this competition may adversely
affect our financial results," "--Free information may lessen the demand for
Business Browser," and "--Increased competition could result in price
reductions, reduced gross margins and loss of market share."
The principal competitive factors in our industry are availability of
comprehensive and integrated business and financial information, ease of use,
support and training required and price/performance characteristics. We believe
that Business Browser products are differentiated from the products offered by
other providers because of our ability to deliver information from many
different, competing providers on an enterprise-wide basis. We also believe that
our focus on integrating and presenting information so that interpretation,
manipulation and analysis can be performed more easily also differentiates our
products.
EMPLOYEES
We had 168 full-time employees as of March 31, 1999, including 69 in sales
and marketing, 20 in engineering, 16 in production/on-line support, 24 in
finance and administration and 39 on our Global Strategic Web Applications Team.
Our employees are not represented by any collective bargaining organization. We
have never experienced a work stoppage and we believe our relationships with our
employees are good.
FACILITIES
Our corporate headquarters are located in a 28,766 square foot rented
facility in Cambridge, Massachusetts, under a lease expiring in July 1999. We
have entered into a new lease for a new, 35,766 square foot headquarters
facility in Concord, Massachusetts. We intend to move to that facility in June
1999. Our lease to the new facility expires in May 2004. We lease additional
sales offices in Chicago, New York, San Francisco and London, England. We
believe that these facilities and additional or alternative space available to
us will be adequate to meet our needs for the foreseeable future.
LITIGATION
OneSource is not a party to any material legal proceedings.
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<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to the executive
officers and directors of OneSource as of March 31, 1999.
<TABLE>
<CAPTION>
AGE POSITION
NAME --- --------
<S> <C> <C>
Martin Kahn(1)(2)........... 48 Chairman of the Board of Directors
Daniel J. Schimmel.......... 39 President, Chief Executive Officer and Director
James A. Becker............. 41 Vice President, Global Strategic Web Applications Team
Philip J. Garlick........... 37 Vice President, Global Enterprise Sales and Marketing
Mark C. VanDine............. 42 Vice President, Engineering
Roy D. Landon............... 43 Vice President, Finance and Administration
David Dominik(1)............ 42 Director
Gregg S. Newmark(2)......... 40 Director
</TABLE>
- ------------
(1) Member of compensation committee.
(2) Member of audit committee.
Martin Kahn joined OneSource as Chairman of the board of directors in
September 1993. Mr. Kahn has served as managing director of Cadence Information
Associates LLC since 1996. Mr. Kahn was the chairman of Ovid Technologies, Inc.,
a producer of medical, scientific and technical CD Rom and network products,
from 1990 to 1998, was chairman of VISTA Information Solutions, Inc., a supplier
of information about geographically-based risk, from 1992 to 1996 and was
chairman of Shoppers Express, Inc., an Internet-based grocery shopping service,
from 1995 to 1998. Mr. Kahn holds an MBA from the Harvard Business School and a
B.A. from Yale University.
Daniel J. Schimmel joined OneSource as President, Chief Executive Officer
and a Director in 1993. Prior to joining OneSource, Mr. Schimmel served as
general manager of the OneSource Division and held other operating positions at
Lotus. Mr. Schimmel holds an MBA from the Harvard Business School and a B.A.
from Harvard University.
James A. Becker joined OneSource as the Director of Product Management in
1993 and became Vice President, Global Strategic Web Applications Team in 1995.
Prior to joining OneSource, Mr. Becker served as group product manager at Lotus.
Mr. Becker holds an MBA from the Yale School of Management and a B.A. from Brown
University.
Philip J. Garlick joined OneSource as Director of Marketing and Product
Development in 1993, served as Vice President and General Manager Europe from
1995 to October 1997, and in October 1997 became Vice President, Global
Enterprise Sales and Marketing. Prior to joining OneSource, Mr. Garlick was a
marketing executive at Lotus UK. Mr. Garlick holds an MA in Economics and a B.A.
from Manchester University.
Mark C. VanDine joined OneSource as Senior Product Manager in 1993, served
as Director, Platform Product Management in 1995 and in 1996 became Vice
President, Engineering. Prior to joining OneSource, Mr. VanDine was a senior
consultant at Lotus. Mr. VanDine holds a B.A. and an MBA from Penn State
University.
49
<PAGE> 50
Roy D. Landon joined OneSource as Director, Finance and Administration in
1993 and became Vice President, Finance and Administration in 1997. Prior to
joining OneSource, Mr. Landon was director of plans and controls for the
Consulting and Information Services Group at Lotus. Mr. Landon holds a B.S. from
Babson College.
David Dominik joined OneSource as a Director in 1993. Mr. Dominik has been
a managing director at Bain Capital Inc. since January 1990. He is also a
director of Oacis Healthcare Holdings Corp., a clinical information systems
software company.
Gregg S. Newmark joined OneSource as a Director in 1993. Since 1993 Mr.
Newmark has served as general partner of William Blair Venture Partners, as a
principal of William Blair & Company, L.L.C. and as a managing director of
William Blair Capital Partners.
ELECTION OF OFFICERS AND DIRECTORS
The executive officers of OneSource are elected by the board of directors
on an annual basis and serve until their successors are duly elected and
qualified. Messrs. Dominik and Newmark were selected as directors of OneSource
pursuant to a Stockholders Agreement dated September 8, 1993, as amended, among
OneSource and its principal stockholders, which agreement will terminate as of
the effective date of this offering. For more information, see "Certain
Transactions." There are no family relationships among any of the executive
officers or directors of OneSource.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has appointed a compensation committee consisting of
Messrs. Kahn and Dominik. The compensation committee reviews and evaluates the
compensation and benefits of all officers of OneSource, reviews general policy
matters relating to compensation and benefits of OneSource employees and make
recommendations concerning these matters to the board of directors. The
compensation committee also administers OneSource's stock option and stock
purchase plans. For more information, see "--Equity Plans."
The board of directors has also appointed an audit committee consisting of
Messrs. Kahn and Newmark. The audit committee reviews, with OneSource's
independent auditors, the scope and timing of their audit services and any other
services they are asked to perform, the auditors' report on OneSource's
consolidated financial statements following completion of their audit, and
OneSource's policies and procedures with respect to internal accounting and
financial controls. In addition, the audit committee will make annual
recommendations to the board of directors for the appointment of independent
auditors for the ensuing year.
DIRECTOR COMPENSATION
Directors who are not employees of OneSource and who are not affiliated
with principal stockholders (also referred to as "outside directors"), will
receive an annual retainer fee and a fee for attending regular or special
meetings of the board of directors and for meetings of any committees of the
board of directors on which they serve, if committee meetings are held
separately. Currently, Mr. Kahn is the only outside director. Outside directors
also are eligible to participate in OneSource's 1999 Stock Option and Incentive
Plan. Directors also are reimbursed for reasonable out-of-pocket expenses
incurred in attending such meetings. For more information, see "--Equity Plans,"
and "Certain Transactions."
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<PAGE> 51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is comprised of Messrs. Kahn and Dominik.
Neither member of the compensation committee 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 OneSource's board of directors or compensation
committee.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the compensation earned by (a) the Chief
Executive Officer and (b) OneSource's four other most highly compensated
executive officers for services rendered in all capacities to OneSource during
the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- ---------- --------- ---------------
<S> <C> <C> <C>
Daniel J. Schimmel.............................. $164,997 $57,749 --
President and Chief Executive Officer
James A. Becker................................. 123,748 24,750 --
Vice President, Global Strategic Web
Applications Team
Philip J. Garlick............................... 144,000 47,520 $145,725
Vice President, Global Enterprise Sales and
Marketing
Mark C. VanDine................................. 115,498 23,100 --
Vice President, Engineering
Roy D. Landon................................... 105,186 21,037 --
Vice President, Finance and Administration
</TABLE>
- ------------
(1) OneSource did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during 1998 to
its executive officers. Options granted to the named executive officers were
granted at fair market value as determined by the board of directors based
on all factors available to them on the grant date.
(2) Mr. Garlick received additional compensation in connection with his
relocation from the UK to Massachusetts, including car and housing
allowances, moving expenses and payment of taxes.
Option Grants in Last Fiscal Year
None of the named executive officers were granted options in the year ended
December 31, 1998.
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<PAGE> 52
Option Exercises and Year-End Holdings
The following table sets forth information concerning stock option
exercises during 1998 by each of the named executive officers and the number and
value of unexercised options held by them as of December 31, 1998.
AGGREGATE OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel J. Schimmel............. 0 -- 1,031,199 0 $11,367,695 $ 0
President and Chief Executive
Officer
James A. Becker................ 44,770 $530,900 248,270 203,500 2,487,080 2,078,000
Vice President, Global
Strategic
Web Applications Team
Philip J. Garlick.............. 0 -- 137,566 223,850 1,438,722 2,288,500
Vice President, Global
Enterprise
Sales and Marketing
Mark C. VanDine................ 0 -- 156,898 123,932 1,636,027 1,268,714
Vice President, Engineering
Roy D. Landon.................. 0 -- 105,820 40,700 1,135,540 416,100
Vice President, Finance and
Administration
</TABLE>
- ------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated by determining the
difference between the initial public offering price of $12.00 per share and
the exercise price of the named executive officer's options.
EQUITY PLANS
1999 Stock Option and Incentive Plan. OneSource's 1999 Stock Option and
Incentive Plan was adopted by the board of directors in February 1999 and
approved by OneSource's stockholders in April 1999, to be effective upon this
offering. The 1999 Stock Option Plan provides for the grant of stock-based
awards to employees, officers and directors of, and consultants or advisors to,
OneSource. Under the 1999 Stock Option Plan, OneSource may grant options that
are intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, options not intended to
qualify as incentive stock options, restricted stock and other stock-based
awards. Incentive stock options may be granted only to employees of OneSource. A
total of 800,000 shares of common stock may be issued upon the exercise of
options or other awards granted under the 1999 Stock Option Plan after the
completion of this offering. The maximum number of shares with respect to which
awards may be granted to any employee under the 1999 Stock Option Plan shall not
exceed 100,000 shares of common stock during any calendar year.
The 1999 Stock Option Plan is administered by the board of directors and
the compensation committee. Subject to the provisions of the 1999 Stock Option
Plan, each of the board of directors and the compensation committee has the
authority to select the persons to whom
52
<PAGE> 53
awards are granted and determine the terms of each award, including the number
of shares of common stock subject to the award. Payment of the exercise price of
an award may be made in cash, shares of common stock, a combination of cash and
stock, a promissory note or by any other method approved by the board or
compensation committee, consistent with Section 422 of the Code and Rule 16b-3
under the Exchange Act. Unless otherwise permitted by the board of directors,
awards are not assignable or transferable except by will or the laws of descent
and distribution, and, during the participant's lifetime, may be exercised only
by the participant.
The board of directors or compensation committee may, in its sole
discretion, amend, modify or terminate any award granted or made under the 1999
Stock Option Plan, so long as the amendment, modification or termination would
not materially and adversely affect the participant. The board of directors or
compensation committee may also, in its sole discretion, accelerate or extend
the date or dates on which all or any particular option or options granted under
the 1999 Stock Option Plan may be exercised.
1993 Stock Purchase and Option Plan. OneSource's 1993 Stock Purchase and
Option Plan was adopted by the board of directors and approved by OneSource's
stockholders in September 1993. Under the 1993 Plan, OneSource is authorized to
grant incentive stock options and non-qualified stock options to employees,
consultants, directors and advisors of OneSource. The aggregate number of shares
of common stock which may be issued under the 1993 Plan is 4,273,500 shares and
the aggregate number of shares of Class P common stock that may be issued under
the 1993 Plan is 40,700 shares. In February 1999, the board of directors, voted
to terminate the 1993 Plan effective immediately prior to the closing of this
offering.
To date, OneSource has granted stock options to purchase an aggregate of
3,919,479 shares of common stock pursuant to the 1993 Plan.
1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan
was adopted by the board of directors in February 1999 and approved by
OneSource's stockholders in April 1999, to be effective upon this offering. The
1999 Purchase Plan provides for the issuance of a maximum of 100,000 shares of
common stock after the completion of this offering.
The 1999 Purchase Plan is administered by the compensation committee of the
board of directors. All employees of OneSource whose customary employment is for
more than 20 hours per week and for more than five months in any calendar year
and who have completed more than three months of employment with OneSource on or
before the first day of any six-month payment period are eligible to participate
in the 1999 Purchase Plan. Employees who would own 5% or more of the total
combined voting power or value of OneSource's stock immediately after the grant
may not participate in the 1999 Purchase Plan. To participate in the 1999
Purchase Plan, an employee must authorize OneSource to deduct an amount (not
less than one percent nor more than 10 percent of a participant's total cash
compensation) from his or her pay during six-month payment periods. The first
payment period will commence on June 1, 1999 and will end on January 31, 2000.
Thereafter, the payment periods will commence on the six-month periods
commencing on February 1 and August 1, respectively, and ending on the following
July 30 and January 31, respectively, of each year, but in no case shall an
employee be entitled to purchase more than 1,000 shares in any one payment
period. The exercise price for the option granted in each payment period is 85%
of the lesser of the average market price of the common stock on the first or
last business day of the payment period, in either event rounded up to the
53
<PAGE> 54
nearest cent to avoid fractions of a dollar other than 1/4, 1/2 and 3/4. If an
employee is not a participant on the last day of the payment period, the
employee is not entitled to exercise his or her option, and the amount of his or
her accumulated payroll deductions will be refunded. Options granted under the
1999 Purchase Plan may not be transferred or assigned. An employee's rights
under the 1999 Purchase Plan terminate upon his or her voluntary withdrawal from
the plan at any time or upon termination of employment. No options have been
granted to date under the 1999 Purchase Plan.
401(K) PLAN
OneSource has established a tax-qualified employee savings and retirement
plan. Employees must complete three months of service at OneSource before they
are eligible to participate on the first day of the month following the
completion. Employees may contribute a percentage of their pre-tax compensation
and OneSource may, in its discretion from year-to-year, make matching
contributions to the employees. Amounts matched by OneSource vest over three
years.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
OneSource's restated certificate of incorporation and amended and restated
by-laws provide that the directors and officers of OneSource shall be
indemnified by OneSource to the fullest extent authorized by Delaware law, as it
now exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with their service for or on behalf of
OneSource. In addition, the restated certificate of incorporation provides that
the directors of OneSource will not be personally liable for monetary damages to
OneSource for breaches of their fiduciary duty as directors, unless they
violated their duty of loyalty to OneSource or its stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors. OneSource intends to obtain insurance which insures the directors and
officers of OneSource against specified losses and which insures OneSource
against specific obligations to indemnify its directors and officers.
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<PAGE> 55
CERTAIN TRANSACTIONS
In connection with the management buy-out from Lotus in 1993, each William
Blair Venture Partners III Limited Partnership and Information Partners Capital
Fund, L.P. and its affiliated entities purchased 329,669 and 329,665 shares
respectively, of Class P common stock for $1.62 million each, or $4.91 per
share, and 2,967,029 and 2,967,027 shares respectively, of common stock for
$180,000 each, or $0.06 per share. The shares of common stock held by William
Blair Venture Partners and Information Partners Capital are subject to
registration rights entitling the holder to demand that OneSource register the
shares under the Securities Act in some circumstances to enable the holder to
resell its shares. For more information, see "Shares Eligible For Future Sale."
A Stockholders Agreement, as amended, among OneSource, William Blair Venture
Partners, Information Partners Capital and other stockholders provides that, for
so long as William Blair Venture Partners or Information Partners Capital
continues to own at least 25% of the common stock which each entity originally
purchased in the buy-out, OneSource shall cause a representative of each of
William Blair Venture Partners and Information Partners Capital to be nominated
to the board of directors. Mr. Newmark, a general partner of William Blair
Venture Management Company, which is the general partner of William Blair
Venture Partners, currently serves as the William Blair Venture Partners
representative. Mr. Dominik, a general partner of Information Partners, Inc.,
which is the general partner of Information Partners Capital, currently serves
as the Information Partners Capital representative. The Stockholders Agreement
will be terminated upon consummation of this offering.
Since 1993, OneSource has paid each of William Blair Venture Partners and
an affiliate of Information Partners Capital an annual management fee of $0.1
million, pursuant to an oral arrangement. OneSource has agreed to pay each of
these entities a one-time fee of $0.5 million to terminate the management fee
arrangement. In addition, William Blair Venture Partners owns 329,669 shares of
Class P common stock and will participate in the recapitalization. For more
information, please see "Risk Factors--The offering will benefit William Blair &
Company, L.L.C., one of the underwriters."
OneSource intends to use approximately $6.8 million of its net proceeds
from this offering to repay a note issued by OneSource to Lotus in connection
with the purchase of OneSource's business from Lotus in 1993. The note bears
interest at the rate of 8% per year and is due September 8, 2000, unless
accelerated upon the occurrence of any one of several events. The completion of
this offering would require OneSource to repay a significant portion of the note
if it is not repaid in full.
In 1998, William Blair Venture Partners and Information Partners Capital
and its affiliates subscribed for an aggregate of $335,000 of services from
OneSource.
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<PAGE> 56
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to OneSource
regarding beneficial ownership of OneSource's common stock as of March 31, 1999
and as adjusted to reflect the sale of the shares of common stock in this
offering by:
- each person known by OneSource to be the beneficial owner of more than 5%
of OneSource's common stock;
- each of OneSource's directors;
- each named executive officer (for more information, see
"Management--Executive Compensation");
- all executive officers and directors as a group; and
- each selling stockholder.
Unless otherwise indicated, to the knowledge of OneSource, each stockholder
possesses sole voting and investment power with respect to the shares listed,
except to the extent an individual stockholder's shares are owned jointly with
that person's spouse.
The following table is based on 7,410,804 shares of common stock
outstanding prior to the offering and 9,926,500 shares outstanding upon
completion of the offering. The number of shares of common stock deemed
outstanding includes (a) one share of common stock for each share of outstanding
Class P common stock and (b) shares issuable pursuant to options and warrants
held by the respective person or group which may be exercised within 60 days
after March 31, 1999 ("presently exercisable stock options"), as set forth in
the table. For purposes of calculating each person's or group's percentage
ownership, presently exercisable stock options are included for that person or
group but not the presently exercisable stock options of any other person or
group.
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<PAGE> 57
For more information, see "Management--Executive Officers and Directors."
Unless otherwise indicated, the address for each beneficial owner is c/o
OneSource Information Services, Inc., 150 CambridgePark Drive, Cambridge, MA
02140.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES PRIOR TO THE OFFERING OWNED AFTER THE
--------------------------------------- OFFERING IF
SHARES UNDERWRITERS DO
NUMBER OF OPTIONS OFFERED IF NOT EXERCISE
AND WARRANTS UNDERWRITERS OVERALLOTMENT
EXERCISABLE DO NOT ------------------- SHARES
NUMBER OF WITHIN 60 DAYS OF EXERCISE NUMBER OF OFFERED IN
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES MARCH 31, 1999 PERCENT OVERALLOTMENT SHARES PERCENT OVERALLOTMENT
- ------------------------------------ --------- ----------------- ------- ------------- --------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Information Partners Capital Fund,
L.P. and related funds(1)... 3,296,692 0 44.0% 390,642 2,906,050 29.3% 133,092
William Blair Venture Partners III
Limited Partnership(2)..... 3,296,698 0 44.0 729,662 2,567,036 25.9 132,542
Martin Kahn.................. 162,800 507,445 8.5 0 670,245 6.4 80,430
Daniel J. Schimmel........... 162,800 1,031,199 14.1 0 1,193,999 10.9 143,270
James A. Becker.............. 89,538 244,200 4.4 0 333,738 3.1 23,089
Philip J. Garlick............ 8,138 137,566 1.9 0 145,704 1.5 7,176
Mark C. Van Dine............. 16,280 158,730 2.3 0 175,010 1.7 9,572
Roy D. Landon................ 16,280 105,820 1.6 0 122,100 1.2 14,642
David Dominik(1)............. 3,296,692 0 44.0 390,642 2,906,050 29.3 133,092
Gregg Newmark(2)............. 3,296,698 0 44.0 729,662 2,567,036 25.9 132,542
Lotus Development Corporation... 0 407,000 5.2 0 407,000 3.9
55 Cambridge Parkway
Cambridge, MA 02139
Silicon Valley Bank.......... 0 82,222 1.1 15,696 65,518 * 1,587
40 Williams Street
Suite 350
Wellesley, MA 02481
All executive officers and directors
as a group (8 persons)..... 7,049,226 2,184,960 96.2 1,120,304 8,050,093 66.5 543,813
Total:....................... 7,049,226 2,674,182 96.4 1,136,000 8,522,611 67.6 545,400
</TABLE>
- ------------
* Less than 1%
(1) The sole general partner of Information Partners Capital Fund, L.P. is
Information Partners. The general partners of Information Partners that
have a beneficial interest in the shares listed in the table above are Mr.
Dominik, Mark Nunnelly, Stephen G. Pagliuca, and Bain Capital Partners IV,
L.P., whose general partner is a corporation wholly-owned by W. Mitt
Romney. Includes 113,821 shares owned by BCIP Associates and 123,346 shares
owned by BCIP Trust Associates, L.P. BCIP Associates, BCIP Trust
Associates, L.P. and Information Partners Capital Fund, L.P. may be deemed
to be a "group" under the Securities Exchange Act of 1934. The general
partners of BCIP Associates with an interest in the shares listed in the
table above are Joshua Bekenstein, Roy Edgar Brakeman, III, Edward Conard,
Dominic Ferrante, Jeremy Ferris, Adam W. Kirsch, Michael Krupka, Matthew
Levin, Simon Lonergan, John W. Maki, Geoffrey S. Rehnert, W. Mitt Romney,
Paul Spinale, Samantha Trotman and Mark B. Wolpow. The general partners of
BCIP Trust Associates, L.P. with an interest in the shares listed in the
table above are Prescott Ashe, Mr. Dominik, Paul B. Edgerley, Jonathan
Lavine, Michael D. May, Ronald Mika, Mark Nunnelly, R. David Nurme, Stephen
G. Pagliuca, Joseph Pretlow, Geoffrey S. Rehnert, Paul Spinale, Ann Marie
Viglione, Robert F. White and Robert C. Gray. Certain of the respective
general partners of these entities, including Mr. Dominik, exercise sole
voting and investment power with respect to the shares owned by such
entities. Each of these persons disclaims beneficial ownership of such
shares except to the extent of his respective proportionate pecuniary
interest therein. The address for each of these entities is Two Copley
Place, Boston, Massachusetts 02116.
(2) The general partners of this entity, including Mr. Newmark, exercise sole
voting and investment power with respect to the shares owned by such
entity. The general partner of William Blair Venture Partners III Limited
Partnership is William Blair Venture Management whose general partners are
Mr. Newmark, Ellen Carnahan, Samuel Guren and William Blair & Company, a
limited liability company with approximately 150 members. Each of these
persons disclaims beneficial ownership of such shares except to the extent
of his respective proportionate pecuniary interest therein.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and the filing of OneSource's
restated certificate of incorporation, the authorized capital stock of OneSource
will consist of 20,000,000 shares of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share.
Prior to the closing of this offering and in accordance with OneSource's
certificate of incorporation as currently in effect, OneSource is authorized to
issue up to 20,000,000 shares of common stock, par value $.01 per share, of
which 6,693,685 shares are issued and outstanding and 1,250,000 shares of Class
P common stock, par value $.01 per share, of which 717,119 shares are issued and
outstanding. Prior to the closing of this offering, all shares of Class P common
stock and the preference amount thereon will be reclassified into 717,119 shares
of common stock. All shares of common stock issued in respect of the aggregate
preference amount will be repurchased by OneSource prior to completion of this
offering.
The following summary description of OneSource's capital stock is not
intended to be complete and is qualified by reference to the provisions of
applicable law and to OneSource's restated certificate of incorporation and
amended and restated by-laws filed as exhibits to the registration statement of
which this prospectus is a part.
COMMON STOCK
As of March 31, 1999, there were 7,410,804 shares of common stock
outstanding held by 57 stockholders of record. Based upon the number of shares
outstanding as of that date and giving effect to the following transactions,
there will be 9,926,500 shares of common stock outstanding after this offering:
- the issuance of the 2,500,000 shares of common stock offered by OneSource
in this offering
- the reclassification of Class P common stock into common stock
- the issuance of 15,696 shares of common stock upon partial exercise of a
warrant by a selling stockholder
In addition, there will be outstanding stock options for the purchase of a total
of 3,919,479 shares of common stock and outstanding warrants for the purchase of
473,526 shares of common stock.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in such election.
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally available
therefor, subject to any preferential dividend rights of outstanding preferred
stock. Upon the liquidation, dissolution or winding up of OneSource, the holders
of common stock are entitled to receive ratably the net assets of OneSource
available after the payment of all debts and other liabilities of OneSource,
subject to the prior rights of any outstanding preferred stock. Holders of the
common stock have no preemptive, subscription, redemption or conversion rights,
nor are they entitled to the benefit of any sinking fund. The outstanding shares
of common stock are, and the shares offered by OneSource in this offering will
be, when issued and paid for, validly
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<PAGE> 59
issued, fully paid and nonassessable. The rights, powers, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which OneSource may designate and issue in the future.
PREFERRED STOCK
The board of directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of preferred stock, in one or more
series. Each series of preferred stock shall have the number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the board of directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights.
The stockholders of OneSource have granted the board of directors authority
to issue the preferred stock and to determine its rights and preferences in
order to eliminate delays associated with a stockholder vote on specific
issuances. The rights of the holders of common stock will be subject to the
rights of holders of any preferred stock issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting power or other rights of the holders of common stock, and could make it
more difficult for a third-party to acquire, or discourage a third-party from
attempting to acquire, a majority of the outstanding voting stock of OneSource.
OneSource has not, to date, issued any shares of preferred stock and has no
present plans to issue any shares of preferred stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
Upon completion of this offering, OneSource will be subject to the
provisions of Section 203 of the General Corporation Law of Delaware. Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the prior three years did own, 15% or
more of the corporation's outstanding voting stock.
OneSource's restated certificate of incorporation provides that directors
may be removed only for cause by the affirmative vote of the holders of 75% of
the shares of capital stock of OneSource entitled to vote. In addition, under
the restated certificate of incorporation any vacancy on the board of directors,
however occurring, including a vacancy resulting from an enlargement of the
board, may only be filled by vote of a majority of the directors then in office.
The likely effect of the limitations on the removal of directors and filling of
vacancies is an increase in the time required for the stockholders to change the
composition of the board of directors.
OneSource's restated by-laws to be adopted upon the closing of this
offering provide that any action required or permitted to be taken by the
stockholders of OneSource at an annual meeting or special meeting of
stockholders may only be taken if OneSource is given proper
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<PAGE> 60
advance notice of the action. The restated by-laws further provide that special
meetings of stockholders may only be called by a majority of the board of
directors, the chairman of the board of directors or the president of OneSource.
The foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of OneSource. However, the
restated by-laws provide that stockholders may take action by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. OneSource's restated by-laws require the
affirmative vote of the holders of at least 75% of the issued and outstanding
shares of capital stock of OneSource entitled to vote to amend or repeal any of
the foregoing provisions of the restated by-laws. The 75% stockholder vote would
be in addition to any separate class vote that might be required pursuant to the
terms of any series of preferred stock that might be outstanding at the time any
amendments are submitted to stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be American
Stock Transfer & Trust Company.
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<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, OneSource will have 9,926,500 shares of
common stock outstanding, assuming no exercise of outstanding options or
warrants. Of these shares, the 3,636,000 shares, 4,181,400 shares if the
over-allotment option is exercised in full, to be sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except that any shares purchased by affiliates of OneSource, as that term
is defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 6,290,500 shares of common stock outstanding upon completion
of this offering are deemed "restricted shares" under Rule 144 or Rule 701 under
the Securities Act. Approximately 170,926 restricted shares will be eligible for
sale in the public market pursuant to Rule 144(k) on the date of this
prospectus. Upon expiration of lock-up agreements with the underwriters, 180
days after the date of this prospectus, an additional 5,307,162 shares of common
stock will be eligible for sale in the public market pursuant to Rule 144 under
the Securities Act.
In general, under Rule 144, a person, or persons whose shares are
aggregated, including an affiliate, who has beneficially owned restricted shares
for at least one year is entitled to sell, within any three-month period, a
number of his or her shares that does not exceed the greater of
- one percent of the then outstanding shares of common stock, approximately
99,265 shares immediately after this offering or
- the average weekly trading volume in the common stock in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of the sale is filed, provided requirements concerning availability
of public information, manner of sale and notice of sale are satisfied. In
addition, affiliates must comply with the restrictions and requirements of Rule
144, other than the one-year holding period requirement, in order to sell shares
of common stock which are not restricted shares. Under Rule 144(k), a person who
is not an affiliate and has not been an affiliate for at least three months
prior to the sale and who has beneficially owned restricted shares for at least
two years may resell the shares without compliance with the foregoing
requirements. In meeting the one- and two-year holding periods described above,
a holder of restricted shares can include the holding periods of a prior owner
who was not an affiliate. The one- and two-year holding periods described above
do not begin to run until the full purchase price or other consideration is paid
by the person acquiring the restricted shares from the issuer or an affiliate.
Rule 701 provides that currently outstanding shares of common stock acquired
under OneSource's employee compensation plans may be resold by persons, other
than affiliates, beginning 90 days after the date of this prospectus, subject
only to the manner of sale provisions of Rule 144, and by affiliates under Rule
144, without compliance with its one-year minimum holding period, subject to
specified limitations.
OPTIONS
Rule 701 also provides that the shares of common stock acquired upon the
exercise of currently outstanding options or pursuant to other rights granted
under OneSource's stock plans may be resold by persons, other than affiliates,
beginning 90 days after the date of this
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<PAGE> 62
prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144, without compliance with its one-year minimum holding
period, subject to limitations. As of the date of this prospectus, the board of
directors has authorized an aggregate of up to 4,819,487 shares of common stock
for issuance pursuant to OneSource's stock option and stock purchase plans. At
March 31, 1999, 2,777,909 shares of common stock were issuable pursuant to
outstanding vested options or pursuant to other rights granted under OneSource's
stock plan(s), of which approximately 588,869 shares are not subject to lock-up
agreements with the underwriters and will be eligible for sale in the public
market in accordance with Rule 701 under the Securities Act beginning 90 days
after the date of this prospectus; 1,141,570 shares of common stock are issuable
pursuant to outstanding options that are not yet exercisable; and 900,000 shares
of common stock are available for future grants under OneSource's stock option
and stock purchase plans.
OneSource intends to file one or more registration statements on Form S-8
under the Securities Act 90 days after the date of this prospectus to register
all shares of common stock which are issuable pursuant to OneSource's stock
option and stock purchase plans. The registration statements are expected to
become effective upon filing. Shares covered by the registration statements will
thereupon be eligible for sale in the public markets.
WARRANTS
Pursuant to Rule 144, 473,526 shares of common stock issuable upon exercise
of outstanding warrants which are fully exercisable will be freely tradable one
year from the date the warrants are exercised.
LOCK-UP AGREEMENTS
OneSource, its executive officers and directors, the selling stockholders
and Lotus have agreed not to sell or transfer any shares of common stock (or any
security convertible into or exchangeable or exercisable for common stock), or
to engage in hedging transactions with respect to the common stock without the
prior written consent of William Blair & Company, L.L.C. for a period of 180
days from the date of this prospectus. In addition, for a period of 180 days
from the date of this prospectus, except as required by law, OneSource has
agreed that its board of directors will not consent to any offer for sale, sale
or other disposition, or any transaction which is designed or could be expected
to result in the disposition by any person, directly or indirectly, of any
shares of common stock without the prior written consent of William Blair. For
more information, see "Underwriting." William Blair in its sole discretion at
any time or from time to time and without notice may release for sale in the
public market all or any portion of the shares subject to the lock-up
agreements.
REGISTRATION RIGHTS
Upon the expiration of the contractual lock-up period, particular security
holders of OneSource will be entitled to require OneSource to register under the
Securities Act up to a total of 5,530,284 shares of outstanding common stock
under the terms of a registration rights agreement between OneSource and the
holders of the shares. The registration rights agreement provides that if
OneSource proposes to register in a firm commitment underwritten offering any of
its securities under the Securities Act at any time or times, these security
holders, subject to exceptions, shall be entitled to include some of their
shares in the registration. However, the
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managing underwriter of any such offering may exclude for marketing reasons some
or all of the shares from the registration. The security holders also have,
subject to conditions and limitations, the right to require OneSource, no more
than once in any six-month period, to prepare and file a registration statement
under the Securities Act with respect to their shares. OneSource is generally
required to bear the expenses of all these registrations, except underwriting
discounts and commissions.
Prior to this offering, there has been no public market for the common
stock of OneSource, and no predictions can be made as to the effect, if any,
that market sales of shares of common stock prevailing from time to time, or the
availability of shares for future sale, may have on the market price for our
common stock. Sales of substantial amounts of common stock, or the perception
that these sales could occur, could adversely affect prevailing market prices
for our common stock and could impair OneSource's future ability to obtain
capital through an offering of equity securities.
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<PAGE> 64
UNDERWRITING
The several underwriters named below, for which William Blair & Company,
L.L.C., U.S. Bancorp Piper Jaffray Inc. and Adams, Harkness & Hill, Inc. are
acting as representatives, have severally agreed, subject to the terms and
conditions set forth in the underwriting agreement among OneSource, the selling
stockholders and the underwriters, to purchase from OneSource and the selling
stockholders, and OneSource and the selling stockholders have agreed to sell to
each of the underwriters, the respective number of shares of common stock set
forth opposite each underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
William Blair & Company, L.L.C. ............................ 1,068,000
U.S. Bancorp Piper Jaffray Inc. ............................ 640,800
Adams, Harkness & Hill, Inc. ............................... 427,200
BancBoston Robertson Stephens Inc. ......................... 100,000
BT Alex. Brown Incorporated................................. 100,000
CIBC Oppenheimer Corp. ..................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 100,000
A. G. Edwards & Sons, Inc. ................................. 100,000
Hambrecht & Quist LLC....................................... 100,000
ING Baring Furman Selz LLC.................................. 100,000
Morgan Stanley & Co., Incorporated.......................... 100,000
Thomas Weisel Partners LLC.................................. 100,000
George K. Baum & Company.................................... 50,000
J.C. Bradford & Co. ........................................ 50,000
Dain Rauscher Wessels....................................... 50,000
FAC/Equities................................................ 50,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 50,000
Jefferies & Company, Inc. .................................. 50,000
McDonald Investments Inc., a KeyCorp company................ 50,000
Needham & Company, Inc. .................................... 50,000
Raymond James & Associates, Inc. ........................... 50,000
Sutro & Co. Incorporated.................................... 50,000
Volpe Brown Whelan & Company, LLC........................... 50,000
WIT Capital Corporation..................................... 50,000
---------
Total.................................................. 3,636,000
=========
</TABLE>
This offering will be underwritten on a firm commitment basis. In the
underwriting agreement, the underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase the shares of common stock being sold
pursuant thereto at a price per share equal to the public offering price less
the underwriting discount specified on the cover page of this prospectus.
According to the terms of the underwriting agreement, the underwriters will
either purchase all of the shares or none of them. In the event of default by
any underwriter, in certain circumstances the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
The representatives of the underwriters have advised OneSource and the
selling stockholders that the underwriters will offer the shares of common stock
to the public at the public offering price specified on the cover page of this
prospectus. The underwriters may also offer the shares to dealers at the public
offering price less a concession of up to $0.50 per share. The underwriters may
allow, and these dealers may re-allow, a concession of up to $0.10 per share to
certain other dealers. The underwriters will offer the shares subject to prior
sale and subject to receipt and acceptance of the shares by the underwriters.
The underwriters may reject any order to purchase shares in whole or in part.
The underwriters expect that OneSource and the selling
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<PAGE> 65
stockholders will deliver the shares to the underwriters through the facilities
of the Depository Trust Company in New York, New York on or about May 24, 1999.
At that time, the underwriters will pay OneSource and the selling stockholders
for the shares in immediately available funds. After the commencement of the
initial public offering, the representatives may change the public offering
price and the other selling terms.
The underwriters have the option to purchase up to an aggregate of 545,400
additional shares of common stock from the selling stockholders at the same
price they are paying for the 3,636,000 shares offered hereby. The underwriters
may purchase additional shares only to cover over-allotments made in connection
with this offering and only within 30 days after the date of this prospectus. If
the underwriters decide to exercise this over-allotment option, each underwriter
will be required to purchase additional shares in approximately the same
proportion as set forth in the table above. The underwriters will offer any
additional shares that they purchase on the terms described in the preceding
paragraph.
The following table summarizes the compensation to be paid by OneSource and
the selling stockholders to the underwriters:
<TABLE>
<CAPTION>
TOTAL
---------------------------------------------
PER SHARE WITHOUT OVER-ALLOTMENT WITH OVER-ALLOTMENT
--------- ---------------------- -------------------
<S> <C> <C> <C>
Public offering price.................. $12.00 $ 43,632,000 $ 50,176,800
Underwriting discount paid by
OneSource............................ .84 2,100,000 2,100,000
Underwriting discount paid by the
selling stockholders................. .84 954,240 1,412,376
</TABLE>
OneSource estimates the expenses of this offering payable by OneSource
(excluding the underwriting discount) to be $750,000.
OneSource and the selling stockholders have agreed to indemnify the
underwriters and their controlling persons against specific liabilities,
including liabilities under the Securities Act.
OneSource, its executive officers and directors, the selling stockholders
and Lotus have agreed not to sell or transfer any shares of common stock, or to
engage in hedging transactions with respect to the common stock, for a period of
180 days from the date of this prospectus without the consent of William Blair,
except in limited circumstances. After giving effect to this offering,
stockholders who have agreed to this lock-up arrangement will hold an aggregate
of 7,049,226 shares of common stock, options to purchase 2,775,120 shares of
common stock and warrants to purchase 473,526 shares of common stock. For more
information, see "Shares Eligible for Future Sale."
In connection with this offering, the underwriters and other persons
participating in this offering may engage in transactions which affect the
market price of the common stock. These may include stabilizing and
over-allotment transactions and purchases to cover syndicate short positions.
Stabilizing transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the common stock. Over-allotment
involves selling more shares of common stock in this offering than are specified
on the cover page of this prospectus, which results in a syndicate short
position. The underwriters may cover this short position by purchasing common
stock in the open market or by exercising all or part of their over-allotment
option. In addition, the representatives of the underwriters may impose a
penalty bid. This allows the representatives to reclaim the selling concession
allowed to an underwriter or selling group
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<PAGE> 66
member if common stock sold by such underwriter or selling group member in this
offering is repurchased by the representatives in stabilizing or syndicate short
covering transactions. These transactions, which may be effected on the Nasdaq
National Market or otherwise, may stabilize, maintain or otherwise affect the
market price of the common stock and could cause the price to be higher than it
would be without these transactions. The underwriters and other participants in
this offering are not required to engage in any of these activities and may
discontinue any of these activities at any time without notice. Neither
OneSource nor any of the underwriters makes any representation or prediction as
to whether the underwriters will engage in these transactions or choose to
discontinue any transactions engaged in or as to the direction or magnitude of
any effect that these transactions may have on the price of the common stock.
The representatives of the underwriters have advised OneSource and the
selling stockholders that the underwriters do not intend to confirm, without
client authorization, sales to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for OneSource's
common stock. Consequently, OneSource, representatives of the selling
stockholders and the representatives of the underwriters will negotiate to
determine the initial public offering price. They will consider current market
conditions, OneSource's operating results in recent periods, the market
capitalization of other companies in its industry, estimates of OneSource's
potential and other factors they deem relevant. The estimated price range
specified on the cover page of this prospectus may change because of market
conditions and other factors.
The underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of common stock in this offering for OneSource
employees and other individuals with a relationship with OneSource. Purchases of
the reserved shares would reduce the number of shares available for sale to the
general public. The underwriters will offer any reserved shares which are not so
purchased to the general public on the same terms as the other shares.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "ONES."
Some of the underwriters and their affiliates engage in transactions with,
and perform services for, OneSource in the ordinary course of business and have
engaged, and may in the future engage, in commercial banking and investment
banking transactions with OneSource. In connection with rendering these services
in the past, the underwriters and their affiliates have received customary
compensation.
William Blair Venture Partners is an affiliate of William Blair. As such,
William Blair may be deemed to be an affiliate of OneSource under Rule 2720 of
the National Association of Securities Dealers, Inc. Mr. Newmark, a principal of
William Blair, currently serves on OneSource's board of directors as the
representative of William Blair Venture Partners. In addition, since 1993,
OneSource has paid William Blair Venture Partners an annual management fee of
$100,000 pursuant to an oral arrangement and OneSource will pay William Blair
Venture Partners $500,000 upon the closing of this offering to terminate this
arrangement. For more information, see "Principal and Selling Stockholders" and
"Certain Transactions." When an NASD member participates in an offering of an
affiliated company's equity securities, Rule 2720 of the NASD requires that a
"qualified independent underwriter" within the meaning of that rule participate
in the preparation of the registration statement and prospectus for the offering
and conduct due diligence as part of such preparation. In addition, the public
offering price can be no
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<PAGE> 67
higher than that recommended by the qualified independent underwriter. U.S.
Bancorp Piper Jaffray has accepted the responsibility of acting as the
"qualified independent underwriter" with respect to this offering and,
accordingly, the initial public offering price specified on the cover page of
this prospectus does not exceed that recommended by U.S. Bancorp Piper Jaffray
in its capacity as such.
LEGAL MATTERS
The validity of the shares of common stock to be issued in this offering
will be passed upon for OneSource by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Legal matters in connection with the shares of common stock to be
issued in this offering, this prospectus and the related registration statement
and the underwriting agreement will be passed upon for the underwriters by
Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
OneSource has filed with the Commission a registration statement on Form
S-1 (including all amendments and exhibits thereto) under the Securities Act
with respect to the common stock in this offering. As permitted by the rules and
regulations of the Commission, this prospectus omits certain information
contained in the registration statement. For further information with respect to
OneSource and the common stock offered in this offering, you should refer to the
registration statement and to the exhibits and schedules filed as part thereof.
Statements contained in this prospectus regarding the contents of any agreement
or other document filed as an exhibit to the registration statement are not
necessarily complete, and in each instance reference is made to the copy of that
agreement or document filed as an exhibit to the registration statement, each
such statement being qualified in all respects by such reference. You may obtain
copies of all or any portion of the registration statement at prescribed rates
from the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, at its regional
offices located at Seven World Trade Center, New York, New York 10007 and 500
West Madison Street, Chicago, Illinois 60661, or by calling the Commission at
1-800-SEC-0330. In addition, the Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
registrants (including OneSource) that file electronically with the Commission
which can be accessed at http://www.sec.gov.
OneSource intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and with quarterly reports for each of the first quarters of each fiscal
year containing unaudited consolidated financial statements.
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<PAGE> 68
ONESOURCE INFORMATION SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet as of December 31, 1997 and 1998
and March 31, 1999 (unaudited) and Pro Forma March 31,
1999 (unaudited).......................................... F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1996, 1997 and 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited)................. F-4
Consolidated Statement of Changes in Stockholders' Deficit
for the Years Ended December 31, 1996, 1997 and 1998 and
the Three Months Ended March 31, 1999 (unaudited)......... F-5
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited)................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
OneSource Information Services, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of OneSource Information Services, Inc. and its subsidiary at December 31, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 26, 1999, except for Note 6,
as to which the date is April 13, 1999
F-2
<PAGE> 70
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
-------- -------- ----------- -----------
(UNAUDITED)
(NOTE 2)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 341 $ 8,665 $ 6,739 $ 6,739
Accounts receivable, net of allowance for doubtful
accounts of $210, $300 and $288 at December 31, 1997 and
1998 and March 31, 1999 (unaudited), respectively....... 8,703 9,621 4,822 4,822
Deferred subscription costs............................... 5,037 6,662 5,789 5,789
Prepaid expenses and other current assets................. 323 426 578 578
-------- -------- -------- --------
Total current assets.................................... 14,404 25,374 17,928 17,928
Property and equipment, net................................. 1,826 1,770 1,788 1,788
Restricted time deposit..................................... -- 100 515 515
Other assets................................................ 414 402 492 492
-------- -------- -------- --------
Total assets.......................................... $ 16,644 $ 27,646 $ 20,723 $ 20,723
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations.............. $ 580 $ 471 $ 401 $ 401
Notes payable............................................. 1,530 -- -- --
Accounts payable.......................................... 1,204 995 729 729
Accrued expenses.......................................... 2,450 3,378 2,159 2,159
Accrued royalties......................................... 2,684 4,626 2,347 2,347
Deferred revenues......................................... 15,748 18,022 15,293 15,293
-------- -------- -------- --------
Total current liabilities............................... 24,196 27,492 20,929 20,929
Capital lease obligations................................... 439 233 179 179
Long-term debt.............................................. 5,622 6,232 6,270 6,270
-------- -------- -------- --------
Total liabilities..................................... 30,257 33,957 27,378 27,378
-------- -------- -------- --------
Commitments (Note 13)....................................... -- -- -- --
Stockholders' deficit:
Preferred stock, $0.01 par value:
No shares authorized, issued or outstanding at December
31, 1997 and 1998 and March 31, 1999 (unaudited);
1,000,000 shares authorized, no shares issued and
outstanding at March 31, 1999 on a pro forma basis
(unaudited)............................................. -- -- -- --
Class P common stock, $0.01 par value:
1,250,000 shares authorized; 717,948, 717,119, and
717,119 shares issued and outstanding at December 31,
1997 and 1998 and March 31, 1999 (unaudited),
respectively, at issuance cost (liquidation preference
of $6,869 at March 31, 1999); no shares authorized,
issued and outstanding at March 31, 1999 on a pro forma
basis (unaudited)....................................... 3,528 3,524 3,524 --
Common stock, $0.01 par value: 20,000,000 shares
authorized; 6,684,959, 6,775,313, 6,693,685 and
7,689,572 shares issued; and 6,582,395, 6,665,423,
6,693,685 and 7,689,572 shares outstanding, at December
31, 1997 and 1998, March 31, 1999 (unaudited) and March
31, 1999 on a pro forma basis (unaudited),
respectively............................................ 67 68 67 77
Additional paid-in capital................................ 362 724 1,176 4,690
Unearned compensation..................................... -- (39) (464) (464)
Accumulated deficit....................................... (17,432) (10,444) (10,856) (10,856)
Accumulated other comprehensive loss...................... (132) (138) (102) (102)
Common stock held in treasury, at cost.................... (6) (6) -- --
-------- -------- -------- --------
Total stockholders' deficit........................... (13,613) (6,311) (6,655) (6,655)
-------- -------- -------- --------
Total liabilities and stockholders' deficit........... $ 16,644 $ 27,646 $ 20,723 $ 20,723
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 71
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Web-based product............... $ 15 $ 3,312 $ 16,058 $ 2,628 $ 6,903
CD Rom product.................. 30,419 27,072 14,370 5,322 1,240
---------- ---------- ----------- ---------- ----------
30,434 30,384 30,428 7,950 8,143
---------- ---------- ----------- ---------- ----------
Cost of revenues:
Web-based product............... 295 2,401 7,863 1,287 2,970
CD Rom product.................. 12,244 10,444 5,792 1,979 487
---------- ---------- ----------- ---------- ----------
12,539 12,845 13,655 3,266 3,457
---------- ---------- ----------- ---------- ----------
Gross profit.................... 17,895 17,539 16,773 4,684 4,686
---------- ---------- ----------- ---------- ----------
Operating expenses:
Selling and marketing........... 8,572 9,167 11,577 2,797 2,927
Platform and product
development................... 7,252 6,375 6,313 1,561 1,718
General and administrative...... 3,664 3,401 3,847 957 860
---------- ---------- ----------- ---------- ----------
Total operating expenses...... 19,488 18,943 21,737 5,315 5,505
---------- ---------- ----------- ---------- ----------
Loss from operations.......... (1,593) (1,404) (4,964) (631) (819)
Interest expense.................. (752) (943) (878) (247) (192)
Interest income................... 19 13 283 3 99
Gain on sale of product line...... -- 501 12,797 -- --
Other income...................... 393 -- -- -- 500
---------- ---------- ----------- ---------- ----------
Income (loss) before income
taxes...................... (1,933) (1,833) 7,238 (875) (412)
Provision for income taxes........ -- -- 250 -- --
---------- ---------- ----------- ---------- ----------
Net income (loss)............. (1,933) (1,833) 6,988 (875) (412)
---------- ---------- ----------- ---------- ----------
Less: income attributable to Class
P common stock.................. 335 414 1,367 72 139
---------- ---------- ----------- ---------- ----------
Net income (loss) attributable
to common stock............ $ (2,268) $ (2,247) $ 5,621 $ (947) $ (551)
========== ========== =========== ========== ==========
Class P common stock:
Basic and diluted earnings per
share......................... $ 0.47 $ 0.57 $ 1.91 $ 0.10 $ 0.19
Weighted average Class P common
shares outstanding............ 718,966 717,948 717,541 717,948 717,119
Common stock:
Basic earnings (loss) per
share......................... $ (0.35) $ (0.34) $ 0.85 $ (0.14) $ (0.08)
Diluted earnings (loss) per
share......................... $ (0.35) $ (0.34) $ 0.59 $ (0.14) $ (0.08)
Weighted average common shares
outstanding:
Basic......................... 6,486,959 6,545,343 6,640,834 6,620,952 6,685,164
Diluted....................... 6,486,959 6,545,343 9,563,151 6,620,952 6,685,164
Unaudited pro forma earnings per
share:
Basic........................... $ 0.92 $ (0.05)
Diluted......................... $ 0.66 $ (0.05)
Weighted average common shares
outstanding:
Basic......................... 7,620,172 7,681,051
Diluted....................... 10,542,489 7,681,051
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 72
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS P
COMMON STOCK COMMON STOCK ADDITIONAL
---------------- ------------------ PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT
------- ------ --------- ------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 719,983 $3,538 6,564,096 $65 $ 343 $ -- $(13,666)
Comprehensive loss:
Net loss...................... $(1,933) (1,933)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................ (130)
-------
Comprehensive loss........ (2,063)
=======
Issuance of common stock
pursuant to exercise of
options....................... 30,476 1 3
Reacquisition and retirement of
Class P common stock.......... (2,035) (10)
Reacquisition of common stock
for treasury..................
------- ------ --------- --- ------ ----- --------
Balance, December 31, 1996..... 717,948 3,528 6,594,572 66 346 -- (15,599)
Comprehensive loss:
Net loss...................... (1,833) (1,833)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................ 30
-------
Comprehensive loss........ (1,803)
=======
Issuance of common stock
pursuant to exercise of
options....................... 90,387 1 16
------- ------ --------- --- ------ ----- --------
Balance, December 31, 1997..... 717,948 3,528 6,684,959 67 362 -- (17,432)
Comprehensive income:
Net income.................... 6,988 6,988
Other comprehensive income
(loss):
Foreign currency translation
adjustment................ (6)
-------
Comprehensive income...... 6,982
=======
Issuance of common stock
pursuant to exercise of
options....................... 90,354 1 22
Unearned compensation relating
to grants of stock options.... 45 (45)
Compensation relating to grants
of stock options.............. 6
Compensation relating to
modification of stock options
on sale of product line....... 295
<CAPTION>
ACCUMULATED
OTHER TREASURY STOCK TOTAL
COMPREHENSIVE ----------------- STOCKHOLDERS'
LOSS SHARES AMOUNT DEFICIT
------------- -------- ------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995..... $ (32) 84,249 $(5) $ (9,757)
Comprehensive loss:
Net loss...................... (1,933)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................ (130) (130)
Comprehensive loss........
Issuance of common stock
pursuant to exercise of
options....................... 4
Reacquisition and retirement of
Class P common stock.......... (10)
Reacquisition of common stock
for treasury.................. 18,315 (1) (1)
----- -------- --- --------
Balance, December 31, 1996..... (162) 102,564 (6) (11,827)
Comprehensive loss:
Net loss...................... (1,833)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................ 30 30
Comprehensive loss........
Issuance of common stock
pursuant to exercise of
options....................... 17
----- -------- --- --------
Balance, December 31, 1997..... (132) 102,564 (6) (13,613)
Comprehensive income:
Net income.................... 6,988
Other comprehensive income
(loss):
Foreign currency translation
adjustment................ (6) (6)
Comprehensive income......
Issuance of common stock
pursuant to exercise of
options....................... 23
Unearned compensation relating
to grants of stock options.... --
Compensation relating to grants
of stock options.............. 6
Compensation relating to
modification of stock options
on sale of product line....... 295
</TABLE>
F-5
<PAGE> 73
<TABLE>
<CAPTION>
CLASS P
COMMON STOCK COMMON STOCK ADDITIONAL
---------------- ------------------ PAID-IN UNEARNED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT
------- ------ --------- ------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reacquisition and retirement of
Class P common stock.......... (829) (4)
Reacquisition of common stock
for treasury..................
------- ------ --------- --- ------ ----- --------
Balance, December 31, 1998..... 717,119 3,524 6,775,313 68 724 (39) (10,444)
Comprehensive loss:
Net loss (unaudited).......... (412) (412)
Other comprehensive loss:
Foreign currency translation
adjustment (unaudited).... 36
-------
Comprehensive loss
(unaudited)................. $ (376)
=======
Issuance of common stock
pursuant to exercise of
options (unaudited)........... 28,262 -- 19
Unearned compensation relating
to grants of stock options
(unaudited)................... 438 (438)
Compensation relating to grants
of stock options
(unaudited)................... 13
Retirement of treasury stock
(unaudited)................... (109,890) (1) (5)
------- ------ --------- --- ------ ----- --------
Balance, March 31, 1999
(unaudited)................... 717,119 $3,524 6,693,685 $67 $1,176 $(464) $(10,856)
======= ====== ========= === ====== ===== ========
<CAPTION>
ACCUMULATED
OTHER TREASURY STOCK TOTAL
COMPREHENSIVE ----------------- STOCKHOLDERS'
LOSS SHARES AMOUNT DEFICIT
------------- -------- ------ -------------
<S> <C> <C> <C> <C>
Reacquisition and retirement of
Class P common stock.......... (4)
Reacquisition of common stock
for treasury.................. 7,326 -- --
----- -------- --- --------
Balance, December 31, 1998..... (138) 109,890 (6) (6,311)
Comprehensive loss:
Net loss (unaudited).......... (412)
Other comprehensive loss:
Foreign currency translation
adjustment (unaudited).... 36 36
Comprehensive loss
(unaudited).................
Issuance of common stock
pursuant to exercise of
options (unaudited)........... 19
Unearned compensation relating
to grants of stock options
(unaudited)................... --
Compensation relating to grants
of stock options
(unaudited)................... 13
Retirement of treasury stock
(unaudited)................... (109,890) 6 --
----- -------- --- --------
Balance, March 31, 1999
(unaudited)................... $(102) -- $-- $ (6,655)
===== ======== === ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 74
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows relating to operating activities
Net income (loss)........................................ $(1,933) $(1,833) $ 6,988 $ (875) $ (412)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization.......................... 2,670 1,776 1,518 321 383
Compensation expense relating to grants of stock
options.............................................. -- -- 6 -- 13
Amortization of debt discount.......................... 108 142 121 30 38
Loss on sale leaseback transaction..................... -- -- 45 45 --
Gain on sale of product line........................... -- (501) (12,797) -- --
Other income from dispute settlement................... (393) -- -- -- --
Changes in assets and liabilities:
Accounts receivable.................................. (781) 17 (946) 2,592 4,763
Deferred subscription costs.......................... (178) (748) (2,217) (153) 873
Prepaid expenses and other assets.................... (255) 14 (43) (19) (323)
Accounts payable..................................... 509 (459) (213) (462) (250)
Accrued expenses..................................... 507 758 1,075 (17) (1,194)
Accrued royalties.................................... 76 (128) 2,283 (368) (2,279)
Deferred revenues.................................... 943 453 5,373 (833) (2,602)
------- ------- -------- ------ -------
Net cash provided (used) by operating activities....... 1,273 (509) 1,193 261 (990)
------- ------- -------- ------ -------
Cash flows relating to investing activities
Investment in certificate of deposit..................... -- -- (100) -- (415)
Purchases of property and equipment...................... (1,332) (878) (1,252) (245) (346)
Capitalization of software development costs............. (300) (75) (200) (24) (56)
Net proceeds from sale of product line................... -- 501 10,563 -- --
------- ------- -------- ------ -------
Net cash provided (used) by investing activities....... (1,632) (452) 9,011 (269) (817)
------- ------- -------- ------ -------
Cash flows relating to financing activities
Proceeds from issuance of common stock................... 4 17 23 6 19
Repurchase of Class P common stock and common stock...... (11) -- (4) -- --
Net borrowings (repayments) under line of credit......... (400) 883 (1,183) 35 --
Borrowings under term loan............................... 575 -- -- -- --
Repayments of term loan.................................. (208) (228) (347) -- --
Proceeds from sale and leaseback of fixed assets......... 289 753 228 228 --
Repayments of capital lease obligations.................. (402) (607) (684) (228) (124)
------- ------- -------- ------ -------
Net cash provided (used) by financing activities....... (153) 818 (1,967) 41 (105)
------- ------- -------- ------ -------
Effect of exchange rate changes on cash and cash
equivalents.............................................. 81 (51) 87 5 (14)
------- ------- -------- ------ -------
Increase (decrease) in cash and cash equivalents........... (431) (194) 8,324 38 (1,926)
Cash and cash equivalents, beginning of period............. 966 535 341 341 8,665
------- ------- -------- ------ -------
Cash and cash equivalents, end of period................... $ 535 $ 341 $ 8,665 $ 379 $ 6,739
======= ======= ======== ====== =======
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 218 $ 301 $ 209 $ 90 $ 547
Cash paid for taxes...................................... -- -- 175 4 154
Supplemental disclosure of noncash investing and financing
activities:
Additions to capital lease obligations for purchases of
fixed assets........................................... $ 430 $ 87 $ 183 $ 183 $ --
Additions to capital lease obligations for sale and
leaseback of fixed assets.............................. 289 753 228 228 --
Additions to long-term debt for accrued interest......... 440 480 489 489 --
Exchange of property and equipment for the retirement of
capital lease obligations.............................. -- -- 41 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 75
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
OneSource Information Services, Inc. and its wholly-owned subsidiary
provide Web-based business and financial information to professionals in
corporations and other enterprises. OneSource primarily sells its products
through a direct sales force located throughout the United States and United
Kingdom. OneSource manages its business as a single segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of OneSource
Information Services, Inc. and OneSource Information Services Limited, its
wholly-owned subsidiary (collectively, "OneSource"). All significant
intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
OneSource's products are sold on a subscription basis pursuant to customer
contracts that span varying periods of time but are generally for a period of
one year. In accordance with its customer agreements, OneSource initially
records receivables and defers the related revenue at the time amounts are
billed to customers. Revenues are recognized ratably over the related
subscription period.
SUBSCRIPTION COSTS
Subscription costs represent sales commission and royalty costs that are
directly associated with securing a subscription and procuring information to be
delivered over the subscription period, respectively. These costs are deferred
and amortized ratably over the associated subscription period as a component of
selling and marketing expense and cost of revenues, respectively. At December
31, 1997 and 1998, deferred subscription costs consisted of $1,365,000 and
$1,250,000, respectively, related to sales commissions and $3,672,000 and
$5,412,000, respectively, related to royalties. At March 31, 1999 (unaudited),
deferred subscription costs consisted of $1,148,000 related to sales commissions
and $4,641,000 related to royalties.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of money market funds with original maturities of
three months or less and are stated at cost which approximates fair market
value. These funds are managed by a financial institution with a strong credit
rating. Accordingly, the investments are subject to minimal credit and market
risks.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, generally three to five years, using the straight-line
method. Equipment held under capital
F-8
<PAGE> 76
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
leases is stated at the fair value of the equipment at inception of the leases
and is amortized on a straight-line basis over the term of the leases.
PLATFORM AND PRODUCT DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Platform and product development costs, other than certain software
development costs, are charged to expense as incurred. Software development
costs incurred subsequent to the establishment of technological feasibility, and
prior to general release of the product, are capitalized and amortized on a
straight-line basis over the estimated useful lives of the related products,
generally twenty-four to thirty-six months. For the years ended December 31,
1996, 1997 and 1998, amortization of capitalized software development costs
amounted to $340,000, $413,000 and $198,000, respectively.
FINANCIAL INSTRUMENTS
Fair values of OneSource's financial instruments, which include cash and
cash equivalents, restricted time deposits, accounts receivable, long-term debt
and capital lease obligations are based on quoted market prices and assumptions
concerning the amount and timing of estimated future cash flows and assumed
discount rates reflecting varying degrees of perceived risk. The carrying value
of these financial instruments approximated their fair value at December 31,
1997 and 1998.
CONCENTRATION OF CREDIT RISK
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of companies comprising OneSource's client base. Ongoing
credit evaluations of customers' financial condition are performed and
collateral is generally not required. OneSource maintains reserves for potential
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
ACCOUNTING FOR STOCK-BASED COMPENSATION
OneSource accounts for stock-based compensation to employees in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees" and related interpretation. Accordingly, compensation
expense is recorded for options issued to employees in fixed amounts to the
extent that the fixed exercise prices are less than the fair market value of
OneSource's common stock at the date of grant. OneSource follows the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" (Note 8). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.
UNAUDITED INTERIM FINANCIAL STATEMENTS
Data and information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited. In the opinion of OneSource's management,
the March 31, 1998 and 1999 unaudited interim consolidated financial statements
include all adjustments, consisting of
F-9
<PAGE> 77
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for that period. The results of operations
for the three month period ended March 31, 1999 are not necessarily indicative
of the results of operations for the year ended December 31, 1999.
UNAUDITED PRO FORMA BALANCE SHEET
Prior to the closing of OneSource's initial public offering, each
outstanding share of Class P common stock (the "Class P stock") will be
reclassified into one share of common stock plus an additional number of shares
of common stock (determined by dividing the preference amount for such share by
the initial public offering price of $12.00 per share). In addition, upon the
closing of OneSource's initial public offering, OneSource will file a Restated
Certificate of Incorporation which will authorize 1,000,000 shares of a single
class of undesignated preferred stock, $0.01 par value per share, will cancel
authorization of the Class P common stock and will have authorized 20,000,000
shares of common stock. This reclassification and other changes have been
reflected in the unaudited pro forma balance sheet as of March 31, 1999.
EARNINGS PER SHARE AND UNAUDITED PRO FORMA EARNINGS PER SHARE
Earnings per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." SFAS No. 128 requires the presentation of two amounts, basic
earnings per share and diluted earnings per share. The two-class method of
computing earnings per share has been used since the Class P stock and the
common stock share ratably in earnings remaining subsequent to the 12% yield on
the Class P stock.
Earnings per share of Class P stock is calculated by dividing the yield
earned and income (loss) attributable to Class P stock by the weighted average
number of shares of Class P stock outstanding during the period. Diluted
earnings per share is the same for all periods presented as there are no
securities outstanding that would result in dilution for Class P stock.
Earnings per share of common stock is calculated by dividing income (loss)
attributable to common stock by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per share is calculated by
considering the impact of potential common stock as if they were converted into
common stock at the beginning of the period. Potential common stock equivalents
are not included in loss periods as they are anti-dilutive.
Unaudited pro forma basic and diluted earnings per share of common stock
for the year ended December 31, 1998 and three months ended March 31, 1999 have
been calculated based on net income applicable to all classes of common stock
and assuming the reclassification of OneSource's Class P common stock prior to
the completion of this offering, as if such reclassification had occurred at
January 1, 1998 for the year ended December 31, 1998 and at January 1, 1999 for
the three months ended March 31, 1999, respectively. Each share of Class P
common stock will be reclassified into one share of common stock plus an
additional number of shares of common stock (determined by dividing the
preference amount for such share by the initial public offering price of $12.00
per share).
F-10
<PAGE> 78
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of OneSource's United Kingdom operations, where the
local currency is the functional currency, are translated into US dollars at the
exchange rate in effect as of the balance sheet date, while revenues and
expenses are translated at average exchange rates during the period. The
resultant translation adjustment is reflected as a separate component of
stockholders' deficit. Transaction gains and losses, which are not material in
amount, are reflected in the consolidated statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires OneSource 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. OneSource does not expect
SOP 98-1, which is effective for OneSource beginning January 1, 1999, to have a
material effect on OneSource's financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for OneSource's calendar year 1999 financial statements
and OneSource does not expect its adoption to have a material effect on
OneSource's financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. OneSource does not expect SFAS No. 133 to
have a material effect on its financial condition or results of operations.
F-11
<PAGE> 79
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Office and computer equipment................... $ 5,222 $ 5,478
Furniture and fixtures.......................... 293 326
------- -------
5,515 5,804
Less: accumulated depreciation and
amortization.................................. (3,689) (4,034)
------- -------
$ 1,826 $ 1,770
======= =======
</TABLE>
At December 31, 1997 and 1998, office and computer equipment under capital
leases totaled $2,112,000 and $1,304,000, respectively. Related accumulated
amortization of assets under capital leases totaled $1,158,000 and $702,000 at
December 31, 1997 and 1998, respectively. During the years ended December 31,
1996, 1997 and 1998, OneSource sold and leased back certain computer equipment
with net book values of $308,000, $788,000, and $237,000, respectively for cash
proceeds of $289,000, $753,000 and $228,000. During 1998, OneSource retired
$525,000 of fully depreciated property and equipment.
4. BORROWINGS
NOTES PAYABLE
OneSource entered into a credit agreement (the "Agreement") with a bank, as
amended, which provides for a line of credit (the "Line") of up to $2,500,000
through April 1, 1998 and a term loan (the "Term Loan") of $750,000 to be used
for financing equipment purchases. At December 31, 1997, borrowings under the
Line were $1,183,000 and borrowings under the Term Loan were $347,000. During
1998, the Line and the Term Loan expired and were repaid in full.
LONG-TERM DEBT
In connection with the acquisition of the business in 1993, OneSource
entered into a subordinated note agreement with the seller with a face amount of
$5,000,000 (the "Note"). The Note bears interest at 8% per annum, payable
annually commencing March 31, 1995 and has been discounted to reflect the market
rate of 12% at the time of issuance. The initial discount totaling $938,000 is
being amortized to interest expense over the life of the Note using the
effective interest method. As of December 31, 1998, the unamortized discount was
$291,000. Interest payments may be added to the unpaid principal of the Note if
OneSource's cash flow, as defined in the Note agreement, is less than a
specified amount.
The Note, and any accrued but unpaid interest thereon, is due on the
earlier of i) September 8, 2000, ii) the date OneSource's stockholders, in
connection with an acquisition, cease to own a majority of the capital stock of
OneSource, or iii) the date OneSource sells substantially all of its assets. In
the event OneSource issues equity securities with net proceeds to
F-12
<PAGE> 80
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OneSource in excess of $10,000,000, OneSource is required to make a prepayment
of the principal amount as defined in the Note agreement. The Note agreement
requires OneSource to comply with certain restrictive covenants, including the
maintenance of specified financial ratios, and restricts OneSource from paying
dividends.
In December 1996, OneSource reached a settlement agreement for an alleged
breach by the seller of a provision of the Note agreement regarding the initial
acquisition of the business. Under the terms of the settlement, the seller
forgave $393,000 of the principal on the Note, which amount has been recognized
as other income.
As of December 31, 1998, the carrying value of the Note was $6,232,000. In
accordance with the terms of the Note agreement, OneSource has added $1,523,000
to the principal of the Note for interest which had accrued through the end of
December 31, 1997. Accrued interest related to the Note was $504,000 for the
year ended December 31, 1998 and, since OneSource met the cash flow requirements
set forth in the Note agreement, such amount is due by March 31, 1999. During
the three months ended March 31, 1999 (unaudited), OneSource paid the accrued
interest related to the Note.
5. EARNINGS PER SHARE
The following tables set forth the computation of earnings per share of
common stock and Class P stock from net income (loss):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------ -----------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator for common stock
(in thousands):
Net income (loss)......... $ (1,933) $ (1,833) $ 6,988 $ (875) $ (412)
Less: income attributable
to Class P stock....... 335 414 1,367 72 139
---------- ---------- ---------- ---------- ----------
$ (2,268) $ (2,247) $ 5,621 $ (947) $ (551)
========== ========== ========== ========== ==========
Denominator for common
stock:
Weighted average shares
outstanding used for
basic earnings per
share.................. 6,486,959 6,545,343 6,640,834 6,620,952 6,685,164
Effect of dilutive
securities:
Stock options............. -- -- 2,433,095 -- --
Common stock warrants..... -- -- 489,222 -- --
---------- ---------- ---------- ---------- ----------
Weighted average shares
outstanding used for
diluted earnings per
share.................. 6,486,959 6,545,343 9,563,151 6,620,952 6,685,164
========== ========== ========== ========== ==========
</TABLE>
F-13
<PAGE> 81
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total potential common equivalent shares consist of 3,547,916 stock options
outstanding with a weighted average exercise price of $1.43 per share and
489,222 common stock warrants exercisable at $0.06 per share as of December 31,
1998.
(Unaudited)
Total potential common equivalent shares consist of 3,919,479 stock options
outstanding with a weighted average exercise price of $2.19 per share and
489,222 common stock warrants exercisable at $0.06 per share as of March 31,
1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------ -----------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator for Class P stock
(in thousands):
Yield earned by Class P
stock.................. $ 586 $ 660 $ 742 $ 177 $ 200
Income (loss) attributable
to Class P stock....... (251) (246) 625 (105) (61)
---------- ---------- ---------- ---------- ----------
$ 335 $ 414 $ 1,367 $ 72 $ 139
========== ========== ========== ========== ==========
</TABLE>
Basic and diluted earnings per share of Class P stock are the same for all
periods presented since there are no potentially dilutive securities.
6. CLASS P COMMON STOCK AND COMMON STOCK
In connection with its initial capitalization, OneSource issued 725,274
shares of Class P stock and 6,527,466 shares of common stock at $4.91 per share
and $0.06 per share, respectively. The holders of the Class P stock, as a
separate class, are entitled to receive first all or a portion of any
distribution, as defined, until the "preference amount" and the original
issuance cost has been paid in full. The preference amount is 12% compounded
quarterly. After all such payments have been made, the holders of the Class P
stock and of the common stock shall share pro rata in the remaining portion of
the distribution, as a single class. As of December 31, 1998, no dividends on
either the Class P stock or the common stock have been declared or paid, and no
payments of the aggregate yield have been made to the Class P stockholders. As a
result, the Class P stock is stated at its original issuance cost of $4.91 per
share. As of December 31, 1998, the liquidation preference of these shares was
$6,656,000. As of March 31, 1999 (unaudited), the liquidation preference of
these shares was $6,869,000.
All holders of Class P stock and all holders of common stock are entitled
to one vote per share on all matters to be voted upon by OneSource's
stockholders. The Class P stock is not convertible into common stock without the
prior agreement of the Class P stockholders and OneSource.
On April 13, 1999, OneSource authorized a 2.035 for one stock split on
common stock and Class P common stock. As a result, all common stock and Class P
common stock share data
F-14
<PAGE> 82
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
included in the accompanying consolidated financial statements and notes have
been retroactively restated for this split.
7. WARRANTS
In connection with the Note agreement (Note 4), OneSource issued a warrant
exercisable at $0.06 per share for 407,000 shares of OneSource's common stock.
The warrant is currently exercisable and expires on September 8, 2002. In
connection with the credit agreement (Note 4), OneSource also issued a warrant
to the Term Loan holder which entitles the holder to purchase 82,222 shares of
OneSource's common stock at $0.06 per share. The warrant is currently
exercisable and expires on the later of September 8, 2003 or five years from the
effective date of an initial public offering of OneSource's common stock. The
fair value of these warrants at the date of issuance in 1993 was determined to
be $10,000 in the aggregate. OneSource has reserved 489,222 shares of common
stock for issuance upon exercise of the above warrants.
8. STOCK PLANS
The 1993 Stock Purchase and Option Plan (the "1993 Plan") provides for the
grant of incentive stock options and non-qualified stock options for the
purchase of up to an aggregate of 4,273,500 shares of OneSource's common stock
by employees, directors, consultants and advisors of OneSource. The Board of
Directors determines the term of each option, option price, number of shares for
which each option is granted, whether restrictions will be imposed on the shares
subject to options, and the vesting schedule of each option. The exercise price
for incentive stock options granted may not be less than the fair value per
share of the underlying common stock on the date granted as determined by the
Board of Directors (not less than 110% of the fair value for options granted to
holders of more than 10% of the voting stock of OneSource). Additionally, the
term of the options cannot exceed ten years (five years for options granted to
holders of more than 10% of the voting stock of OneSource). The options
generally vest over a four-year period.
In February 1999, the Board of Directors of OneSource approved the 1999
Stock Option and Incentive Plan (the "1999 Stock Option Plan") to be effective
upon OneSource's initial public offering. The 1999 Stock Option Plan provides
for the grant of stock-based awards to employees, officers and directors of, and
consultants or advisors to, OneSource. A total of 800,000 shares of common stock
are authorized for issuance upon the exercise of options or other awards granted
under the 1999 Stock Option Plan.
In February 1999, the Board of Directors of OneSource approved the 1999
Employee Stock Purchase Plan (the "1999 Purchase Plan"), to be effective upon
OneSource's initial public offering. The 1999 Purchase Plan provides for the
issuance of a maximum of 100,000 shares of common stock.
F-15
<PAGE> 83
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Transactions under the 1993 Plan during the years ended December 31, 1996,
1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding--December 31, 1995............... 2,813,908 $1.07
Granted (weighted average fair value of
$0.12).................................. 1,263,125 1.73
Exercised.................................. (30,476) 0.12
Forfeited.................................. (174,758) 0.68
---------
Outstanding--December 31, 1996............... 3,871,799 1.31
Granted (weighted average fair value of
$0.12).................................. 294,261 1.73
Exercised.................................. (90,387) 0.19
Forfeited.................................. (469,149) 1.47
---------
Outstanding--December 31, 1997............... 3,606,524 1.35
Granted (weighted average fair value of
$0.82).................................. 204,925 2.18
Exercised.................................. (90,354) 0.27
Forfeited.................................. (173,179) 1.34
---------
Outstanding--December 31, 1998............... 3,547,916 1.43
=========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING NUMBER OF
NUMBER CONTRACTUAL OPTIONS
EXERCISE PRICE OF OPTIONS LIFE IN YEARS EXERCISABLE
-------------- ---------- ------------- -----------
<S> <C> <C> <C>
$0.12............................. 754,064 4.9 744,755
1.37............................. 1,375,457 6.4 1,011,293
2.19............................. 1,418,395 6.7 974,409
--------- ---------
3,547,916 6.2 2,730,457
========= =========
</TABLE>
As of December 31, 1996 and 1997, 1,884,111 and 2,472,240 options were
exercisable, respectively, under the 1993 Plan. As of December 31, 1998, there
were 514,367 shares of common stock available for grant to employees under the
1993 Plan.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions for grants in 1996, 1997
and 1998: dividend yield of 0.0% for all years; risk-free interest rates of
6.4%, 6.2% and 5.2% for 1996, 1997 and 1998, respectively; and a
weighted-average expected option term of 5 years for all years.
F-16
<PAGE> 84
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Compensation expense has been recognized for OneSource's stock option plan
under APB No. 25. Had compensation cost been determined based on the fair value
of the options at the grant date consistent with the provisions of SFAS No. 123,
OneSource's net income (loss) and earnings (loss) per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Net income (loss) (in thousands):
As reported.................................. $(1,933) $(1,833) $6,988
Pro-forma.................................... (2,006) (1,890) 6,909
Basic and diluted earnings per Class P common
share:
As reported.................................. 0.47 0.57 1.91
Pro-forma.................................... 0.45 0.57 1.89
Basic earnings per common share:
As reported.................................. (0.35) (0.34) 0.85
Pro-forma.................................... (0.36) (0.35) 0.84
Diluted earnings per common share:
As reported.................................. (0.35) (0.34) 0.59
Pro-forma.................................... (0.36) (0.35) 0.58
</TABLE>
Because options vest over several years and additional option grants are
expected to be made in future years, results of operations for future years may
be materially different if the provisions of SFAS No. 123 are applied.
In conjunction with the sale of the CD-Insurance division, OneSource
modified the terms of 226,601 stock options held by terminated employees. In
accordance with APB No. 25, compensation expense of $295,000 was recorded as a
reduction of the gain on the sale of the insurance division in the year ended
December 31, 1998.
During 1998, 203,093 stock options were granted with an exercise price of
$2.19 per share and 1,832 stock options were granted with an exercise price of
$1.37 per share; these exercise prices were below the estimated fair market
value of the common stock at the date of grant. Unearned compensation of $45,000
was recorded, in accordance with APB No. 25, and will be amortized over the
related vesting period. Related compensation expense of $6,000 was recorded
during the year ended December 31, 1998. Options issued during 1996 and 1997
were granted with exercise prices above the estimated fair market value of the
common stock at the date of grant.
(Unaudited)
During the three months ended March 31, 1999, 40,700 stock options were
granted with an exercise price of $2.19 per share and 30,525 stock options were
granted with an exercise price of $5.90 per share; these exercise prices were
below the estimated fair market value of the common
F-17
<PAGE> 85
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock at the date of grant. Unearned compensation of $438,000 was recorded in
accordance with APB No. 25, and will be amortized over the related vesting
period of four years. Related compensation expense of $10,000 was recorded
during the three months ended March 31, 1999.
9. INCOME TAXES
Components of the income (loss) before income taxes and extraordinary gain
and of the current provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary gain:
Domestic..................................... $(1,976) $(2,124) $7,204
Foreign...................................... (350) 291 34
------- ------- ------
$(2,326) $(1,833) $7,238
======= ======= ======
Current provision for income taxes:
Federal...................................... $ -- $ -- $ 200
State........................................ -- -- 45
Foreign...................................... -- -- 5
------- ------- ------
$ -- $ -- $ 250
======= ======= ======
</TABLE>
OneSource had no deferred provision for income taxes in each of the years
ended December 31, 1996, 1997 and 1998 due to the offsetting effects of the
valuation allowance on its net deferred tax assets. There was no income tax
effect related to the extraordinary gain on early extinguishment of debt in
1996. Provision has not been made for US or additional foreign taxes on
undistributed earnings of foreign subsidiaries as those earnings have been
permanently reinvested. Such taxes, if any, are not expected to be significant.
F-18
<PAGE> 86
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes computed using the federal statutory income tax rate differ
from OneSource's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at US federal
statutory tax rate............................. $(657) $(623) $ 2,461
State income taxes, net of federal tax effect.... (115) (125) 508
Permanent items.................................. 79 20 21
Other............................................ 20 (4) 36
Change in deferred tax asset valuation
allowance...................................... 673 732 (2,776)
----- ----- -------
Provision for income taxes....................... $ -- $ -- $ 250
===== ===== =======
</TABLE>
Components of OneSource's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $ 3,394 $ 238
Depreciation.................................. 378 537
Accrued expenses.............................. 222 623
Deferred revenues............................. 2,159 1,342
Equity compensation........................... -- 123
Miscellaneous................................. 120 133
------- -------
Gross deferred tax asset................... 6,273 2,996
Less: valuation allowance..................... (4,544) (1,768)
------- -------
Total deferred tax assets.................. 1,729 1,228
------- -------
Deferred tax liabilities:
Prepaid expenses.............................. 1,068 513
Deferred royalties............................ 253 252
Amortization of debt discount................. 163 217
Capitalized software development costs........ 126 127
Tax operating leases.......................... 119 119
------- -------
Total deferred tax liabilities............. 1,729 1,228
------- -------
Net deferred tax assets......................... $ -- $ --
======= =======
</TABLE>
F-19
<PAGE> 87
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Realization of OneSource's net deferred tax assets is contingent upon the
generation of future taxable income. Due to the uncertainty of realization of
these tax benefits, OneSource has provided a valuation allowance for the full
amount of its net deferred tax assets.
During 1998, OneSource utilized $8,000,000 of net operating loss
carryforwards. At December 31, 1998, OneSource had net operating loss
carryforwards of $575,000 for foreign tax purposes which do not expire. Under
the provisions of the Internal Revenue Code, if certain substantial changes in
OneSource's ownership should occur, the amount of net operating loss
carryforwards which could be utilized annually to offset future taxable income
and income tax liability may be limited. The amount of any annual limitation is
determined based upon OneSource's value prior to an ownership change.
10. SALE OF PRODUCT LINES
In June 1997, OneSource sold its CD Rom banking product line for $650,000
in cash. In connection with the sale, OneSource entered a non-compete agreement
for five years. As a result of the sale, OneSource recorded a gain of $501,000
which is net of expenses of $149,000 incurred in conjunction with the sale. No
assets or liabilities with recorded net book values were transferred in
connection with this product line sale.
In May 1998, OneSource sold its CD-Insurance division for $11,000,000 in
cash and entered a software license agreement for $4,000,000 to be received in
equal quarterly installments for two years commencing January 1, 1999. In
connection with the sale, OneSource also entered a non-compete agreement for
five years. As a result of the sale, OneSource recorded a gain of $12,797,000
which includes: (i) the recognition of $3,124,000 of deferred revenues and
$595,000 of deferred subscription costs based upon the assumption by the buyer
of all obligations to service the existing subscriber base of the insurance
division, (ii) $530,000 of employee severance costs and (iii) $202,000 of
expenses associated with the sale. Payments pertaining to the software license
agreement will be recognized in other income as support services are performed
and payments become due in accordance with the agreement. During the three
months ended March 31, 1999 (unaudited), OneSource recorded $500,000 of other
income related to the software license agreement.
11. EMPLOYEE BENEFIT PLANS
After three months of service, OneSource employees are eligible to
participate in a tax deferred savings plan (the "Savings Plan") under Section
401(k) of the Internal Revenue Code. OneSource matches 25% of the first 6%
contributed by the employee, and the employee becomes fully vested in
OneSource's matching contribution after three years of service. OneSource's
contributions to the Savings Plan totaled $122,000, $116,000 and $120,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
12. RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1998, OneSource had accounts receivable of
$117,000 and $335,000, respectively, due from two stockholders. OneSource
recognized revenue of $200,000,
F-20
<PAGE> 88
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$292,000 and $318,000 in the years ended December 31, 1996, 1997, and 1998
respectively, from these parties.
Management fees paid to a stockholder and an affiliate of another
stockholder totaling $200,000 for each of the years ended December 31, 1996,
1997 and 1998 are included in general and administrative expenses.
13. COMMITMENTS
Leases
OneSource leases facilities and certain equipment under various
noncancellable operating lease agreements. Total rent expense under such leases
was $1,271,000, $1,191,000 and $1,146,000 for the years ended December 31, 1996,
1997, and 1998, respectively. Future minimum lease commitments under all
noncancellable capital and operating leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1999............................................... $490 $ 920
2000............................................... 207 231
2001............................................... 80 223
2002............................................... -- 221
2003............................................... -- 68
---- ------
Total minimum lease payments....................... 777 $1,663
======
Less: amount representing interest................. 73
----
Present value of net minimum lease payments,
including current maturities of $471............. $704
====
</TABLE>
In January 1999, OneSource entered into a five-year noncancellable
operating lease for a new operating facility. Minimum yearly rental payments
will be $655,000, commencing in June 1999. Pursuant to the lease, OneSource
entered into a $415,000 irrevocable letter of credit collateralized by a
certificate of deposit.
Restricted Time Deposit
In connection with a facility lease, OneSource is required to maintain, on
behalf of the landlord, an irrevocable letter of credit with a bank in the
amount of $100,000 over the term of the lease. In addition, OneSource was
required to maintain a certificate of deposit in an equal amount as security for
the letter of credit.
F-21
<PAGE> 89
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. GEOGRAPHIC INFORMATION
Revenue was distributed geographically as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States......................... $25,294 $24,193 $23,428
United Kingdom........................ 5,140 6,191 7,000
------- ------- -------
$30,434 $30,384 $30,428
======= ======= =======
</TABLE>
Substantially all of OneSource's identifiable assets are located in the
United States.
F-22
<PAGE> 90
[The graphic contains the OneSource logo in the center of the page. Reading
from the top right diagonally to the bottom left of the page is the following
text: Turning World Class Information into Integrated Solutions For Demanding
Business Professionals Worldwide. The top left of the page depicts the names and
logos of the following OneSource information providers: The Investext Group;
Market Guide; Standard & Poor's; Comtex; Financial Times; Corp Tech; WorldScope
Disclosure; Hoover's Inc.; Reuters; and Dun & Bradstreet. The bottom half of the
page depicts the following OneSource customers by name and logo displayed
according to the following industry sectors noted in the text:
Financial Institutions:
Credit Suisse; Merrill Lynch; American Express: Bank of America.
Professional Services:
Bain & Company; KMPG; Deloitte Touche Tohmatsu; Ernst & Young.
High Tech:
Oracle; SAP; Platinum; IBM.
Leading Corporations:
Boeing; MCI Worldcom; BT; Nortel Networks.]
<PAGE> 91
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
WHICH IS SET FORTH IN THIS PROSPECTUS. WE ARE OFFERING TO SELL SHARES OF COMMON
STOCK AND SEEKING OFFERS TO BUY SHARES OF COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THE PROSPECTUS OR OF ANY SALE OF COMMON STOCK.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 7
Reclassification................... 18
Use of Proceeds.................... 19
Dividend Policy.................... 19
Capitalization..................... 20
Dilution........................... 21
Selected Consolidated Financial
Data............................. 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 25
Business........................... 39
Management......................... 49
Certain Transactions............... 55
Principal and Selling
Stockholders..................... 56
Description of Capital Stock....... 58
Shares Eligible for Future Sale.... 61
Underwriting....................... 64
Legal Matters...................... 67
Experts............................ 67
Additional Information............. 67
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
---------------------------
Until June 13, 1999 (25 days after the date of this prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,636,000 SHARES
ONE SOURCE LOGO
COMMON STOCK
------------------------
PROSPECTUS
MAY 19, 1999
------------------------
WILLIAM BLAIR & COMPANY
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
- ------------------------------------------------------
- ------------------------------------------------------
