<PAGE>
As filed with the Securities and Exchange Commission on March 1, 2000
Registration No. 333-90013
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
SWITCHBOARD INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
------------------
<TABLE>
<S> <C>
Delaware 7375 04-3321134
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
</TABLE>
115 Flanders Road
Westboro, Massachusetts 01581
(508) 898-1122
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------
Dean Polnerow
President
SWITCHBOARD INCORPORATED
115 Flanders Road
Westboro, Massachusetts 01581
(508) 898-1122
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------
Copies to:
<TABLE>
<S> <C>
Mark G. Borden Brian D. Goldstein
Virginia K. Kapner Testa, Hurwitz & Thibeault, LLP
Hale and Dorr LLP 125 High Street
60 State Street Boston, Massachusetts 02110
Boston, Massachusetts 02109 Telephone: (617) 248-7000
Telephone: (617) 526-6000 Telecopy: (617) 248-7100
Telecopy: (617) 526-5000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
------------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum
Securities to be Registered Registered(1) Offering Price per Share(2) Aggregate Offering Price(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.01 par value
per share................. 6,325,000 $14.00 $88,550,000
<CAPTION>
Title of Each Class of Amount of
Securities to be Registered Registration Fee(3)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $.01 par value
per share................. $24,218
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 825,000 shares which the underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of
1933, as amended.
(3) A registration fee of $16,680 was previously paid in connection with the
initial filing of the Registration Statement, based on a maximum
aggregate offering price of $60,000,000 and a registration fee rate of
$278 per $1,000,000. An additional registration fee of $4,198 was paid in
connection with Amendment No. 3 based on an increase in the maximum
aggregate offering price of $15,900,000 and a registration fee rate of
$264 per $1,000,000. An additional registration fee of $3,340 is being
paid in connection with this filing based on an increase in the maximum
aggregate offering price of $12,650,000 and a registration fee rate of
$264 per $1,000,000. The total registration fee is $24,218.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 1, 2000
[SWITCHBOARD/(R)/ LOGO APPEARS HERE]
5,500,000 Shares
Common Stock
Switchboard Incorporated is offering 5,500,000 shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "SWBD." We anticipate that the initial public
offering price will be between $12.00 and $14.00 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price......................................... $ $
Underwriting Discounts and Commissions........................ $ $
Proceeds to Switchboard....................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Switchboard has granted the underwriters a 30-day option to purchase up to an
additional 825,000 shares of common stock to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 2000.
--------------
Joint Lead Managers
Robertson Stephens J.P. Morgan & Co.
--------------
The Robinson-Humphrey Company Wit SoundView
The date of this prospectus is , 2000.
<PAGE>
[Narrative description of graphic material omitted in electronically filed
document:
Description of inside front cover:
Set in the middle of the page against a purple background is the phrase, "Think
outside the bookSM ". On the right side of the page is a silhouette of a person
holding out its right hand.
Description of two page graphical foldout:
This two page layout is broken into three vertical sections, with headings at
the top of each section set against a purple background. The headings are, from
left to right, "Promotion and Distribution", "Features and Content" and "Local
Merchant Network".
The "Promotion and Distribution" section is separated into three vignettes,
from top to bottom of the page. The first and largest vignette is a snapshot of
the Switchboard.com Web page. The second vignette is preceded by the heading,
"Some of our Syndicated Sites:". The remainder of the second vignette displays
four overlapping snapshot pictures of some of Switchboard's syndicated Web
sites. The syndicated Web sites are with, from left to right, cbs2ny.com,
athand.com, askjeeves.com and discovercard.com. The third vignette includes
three pictures beside each other, from left to right, one of a television, one
of a radio and one of a billboard. The words "Television," "Radio" and "Outdoor
Advertising" appear beneath their respective pictures. Centered below the
pictures and words is the CBS logo and eye design.
The "Features and Content" section is separated into four vignettes, from top
to bottom of the page. The first vignette at the top of the page portrays two
snapshot pictures of Switchboard's Find a Business and Switchboard's What's
Nearby? Services. Centered to the left of the pictures is the caption "Find a
Business & What's Nearby?" The second vignette portrays a snapshot picture of
Switchboard's Find a Person and What's Nearby? services. Centered to the left
of the picture is the caption "Find a Person & What's Nearby?". The third
vignette portrays a snapshot picture of a map provided by Switchboard's Maps on
Us service. Centered to the left of the picture is the caption "Maps and
Directions". The fourth vignette portrays a snapshot picture of a Web search
results page from Switchboard's "Search the Web" service. Centered to the left
of the picture is the caption "Search the Web".
Two red arrows point from the first vignette to the third section, "Local
Merchant Network". One red arrow points from each of the other three vignettes
to the third section, "Local Merchant Network".
The "Local Merchant Network" section includes a single vignette of four
overlapping Web pages portraying restaurants participating in the local
merchant network. Centered above the pictures of the Web pages is the caption,
"Our online network gives merchants a fast, easy, cost-effective way to get
their business represented online and facilitates commerce by connecting them
with consumers".]
<PAGE>
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 21
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 25
Selected Financial Data.................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 27
Business................................................................. 36
Management............................................................... 47
Certain Transactions..................................................... 57
Principal Stockholders................................................... 65
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 71
Underwriting............................................................. 73
Validity of Common Stock................................................. 75
Experts.................................................................. 75
Where You Can Find More Information...................................... 76
Index to Financial Statements............................................ F-1
</TABLE>
3
<PAGE>
SUMMARY
This summary may not contain all of the information that is important to
you. You should read the entire prospectus, including "Risk Factors" and the
financial statements and related notes, before deciding to invest in our common
stock.
Our Company
We are a leading Internet-based local merchant network interconnecting
consumers, merchants and national advertisers. We connect consumers searching
for specific products and services with the merchants that provide them. We
offer our users local information about people and businesses across the United
States, including listings of over 96 million individuals, 12 million
businesses and four million e-mail addresses. Our online network gives local
merchants a fast, easy, cost-effective way to get their businesses represented
online and facilitates commerce by connecting them with consumers. We provide
an effective online lead generation engine for these local merchants and for
national advertisers that reaches consumers motivated to buy products and
services in specific geographic locations.
We entered into a strategic relationship with CBS in June 1999 under which
CBS became a minority stockholder of Switchboard in exchange for $95.0 million
in advertising and promotion to be provided to us through June 2006 across all
CBS media properties, including television, radio and outdoor advertising, and
$5.0 million in cash. We also received a license from CBS to use the "CBS" and
CBS "eye" device trademarks. Our relationship with CBS positions us to build
our brand, attract consumers and increase the credibility of our service with
local merchants. In addition to our CBS relationship, we reach a large base of
consumers and local merchants through our relationships with financial
services, telecommunications and newspaper companies and Internet destinations.
Through these relationships, we add new merchants to our network and increase
the number of consumers using our Web site.
Our Market Opportunity
The number of Internet users worldwide is projected to increase to 500
million by the end of 2003 from approximately 195 million in 1999, according to
International Data Corporation. IDC projects total business-to-consumer online
commerce will increase to $178 billion in 2003 from approximately $31 billion
in 1999. Forrester Research estimates that online advertising in the United
States will increase to $17.2 billion in 2003 from approximately $1.3 billion
in 1998.
Historically, consumers have used printed materials such as yellow pages
directories and maps to identify and seek out businesses that provide specific
products and services in their area. These sources, however, typically cover
narrowly defined geographic areas and some are updated only once per year.
Recently, consumers have turned to online directories as an alternative source
of local information. Consumers, however, continue to encounter difficulties
obtaining the relevant information they seek because of the volume and
fragmented nature of online local information.
At the same time, local merchants are increasingly recognizing the need to
establish an online presence to remain competitive. According to Forrester
Research, the aggregate number of businesses with 100 or fewer employees with a
Web presence is projected to increase to approximately 4.2 million by the end
of 2003 from approximately 2.1 million in 1999. Forrester Research also
predicts local online commerce will increase to $6.1 billion in 2003 from
approximately $680 million in 1998. Creating an online presence, however, is
often a difficult and costly task for small businesses. Local merchants may
struggle with the financial, technical and administrative challenges associated
with creating, maintaining and promoting an effective Web site.
4
<PAGE>
Our Solution
We have created a single online destination, Switchboard.com, that
satisfies consumers' need for easily accessible detailed local information and
merchants' need to establish and maintain an online presence. Switchboard.com
attracted approximately 2.5 million unique visitors in December 1999 according
to Media Metrix. Our Web sites have over 2.4 million registered users, and our
users viewed over 50 million pages in December 1999.
We provide the following benefits to consumers:
Extensive information base. We provide our users with links to a growing
base of over 350,000 business Web sites. This provides our users with a
powerful tool to research and compare competitive products and services and to
ultimately conduct business, both online and offline.
Powerful search capability. Our proprietary directory architecture combined
with our intuitive screen display allows search results to be delivered quickly
with fewer page views. Search results can be organized alphabetically or by
geographic proximity.
Integrated maps and driving directions. Our Maps On Us maps and driving
directions technology is fully integrated with our directory services. Once a
consumer identifies a desired address, Maps On Us allows the consumer to plot
the most effective route to that destination, including intermediate stopping
points.
We also provide the following benefits to merchants and national
advertisers:
Fast cost-effective Web presence. We quickly and cost-effectively develop
and deploy multi-page Web sites for local merchants while eliminating the
associated technical, administrative and financial challenges.
Participation in a leading online local merchant network. We provide local
merchants with access to our nationally recognized, highly trafficked merchant
network, Switchboard.com, which provides merchants with exposure to consumers
beyond their immediate local area.
Lead generation. Our online network attracts self-qualified consumers and
helps to connect them with our merchant customers.
Customized advertising options for national advertisers. We offer national
advertisers a wide range of customized advertising options designed to generate
leads at the local or national level.
Our Strategy
We intend to be the leading Internet-based local merchant network by:
. building our brand;
. expanding our merchant aggregation programs;
. creating specialized directories for targeted groups of consumers who
share a common interest;
. extending our technology leadership; and
. expanding our operations internationally.
Our Operating History
We were incorporated in Delaware in April 1996 as a subsidiary of Banyan
Systems Incorporated, or Banyan Worldwide. Prior to this offering, we were a
majority owned subsidiary of Banyan Worldwide. We have incurred significant net
losses in each fiscal quarter since our inception and expect to continue to
incur net losses and negative cash flows during 2000.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Switchboard................. 5,500,000 shares
Common stock to be outstanding after this offering.. 23,716,355 shares
Use of proceeds..................................... For general corporate
purposes. Please see "Use
of Proceeds."
Nasdaq National Market symbol....................... SWBD
</TABLE>
The number of shares of our common stock that will be outstanding after
this offering is based on 18,216,355 shares outstanding on December 31, 1999.
This number includes 3,552,421 shares issuable upon the conversion of our
series A, series C and series D convertible preferred stock, which will convert
automatically into 3,552,421 shares of our common stock upon the closing of
this offering.
The number of shares outstanding excludes:
. an aggregate of 2,951,600 shares subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $6.23 per
share;
. an aggregate of 1,751,937 shares subject to outstanding warrants as of
December 31, 1999 at a weighted average exercise price of $2.71 per
share, assuming these warrants are all exercised in full;
. an aggregate of 1,793,026 shares reserved for issuance under our 1996
stock incentive plan, our 1999 stock incentive plan and our 1999
employee stock purchase plan as of December 31, 1999; and
. one share issuable upon the conversion of our one outstanding share of
series E special voting preferred stock, which will not convert
automatically upon the closing of this offering.
Our Offices
Our principal executive offices are located at 115 Flanders Road, Westboro,
Massachusetts 01581, and our telephone number at that location is (508) 898-
1122. Our Web site address is www.Switchboard.com. The information on our Web
site is not incorporated by reference into this prospectus and should not be
considered to be a part of this prospectus.
Additional Information
Except as set forth in the financial statements and related notes or as
otherwise indicated, all information in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. reflects the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock on a one-for-one basis,
with the exception of the one outstanding share of series E special
voting preferred stock, which will remain outstanding; and
. reflects, as of the closing of this offering, the filing of our amended
and restated certificate of incorporation and the adoption of our
amended and restated by-laws.
"Switchboard," "Maps On Us" and "SideClick" are our registered service
marks. We have applied for service mark registrations for "Ad Studio," "What's
Nearby," "Think Outside the Book," "My Corner" and "My Studio." "CBS" and the
CBS "eye" device are registered trademarks of CBS Broadcasting Inc. This
prospectus also contains other trademarks, tradenames and service marks of ours
and other companies which are the property of their respective owners.
6
<PAGE>
Summary Financial Data
The following summary historical and pro forma financial data should be
read together with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes
included elsewhere in this prospectus. The summary pro forma data do not
purport to represent what our results would have been if the events below had
occurred at the dates indicated.
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue.............................. $ 650 $ 6,536 $ 8,304
Gross profit......................... (143) 5,229 6,334
Loss from operations................. (5,334) (4,961) (8,656)
Net loss............................. $ (5,329) $ (5,365) $ (8,805)
============ ============ ============
Basic and diluted net loss per
share.............................. $ (0.81) $ (0.81) $ (0.89)
============ ============ ============
Shares used in computing basic and
diluted net loss per share......... 7,000 7,011 10,915
Unaudited pro forma basic and diluted
net loss per share................. $ (0.67)
============
Shares used in computing unaudited
pro forma basic and diluted net
loss per share..................... 13,078
</TABLE>
The following table is a summary of our balance sheet at December 31, 1999.
The pro forma data give effect to:
. the conversion of 750,000 shares of our series A convertible preferred
stock into 750,000 shares of common stock;
. the conversion of 2,655,916 shares of our series C convertible
preferred stock into 2,655,916 shares of common stock; and
. the conversion of 146,505 shares of our series D convertible preferred
stock into 146,505 shares of common stock.
The pro forma as adjusted data give effect to the sale of 5,500,000 shares
of common stock at an assumed initial public offering price of $13.00 per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by Switchboard.
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $ 3,605 $3,605 $68,100
Working capital.................................. 4,310 4,310 68,805
Total assets..................................... 12,195 12,195 76,690
Total current liabilities........................ 5,464 5,464 5,464
Redeemable convertible preferred stock........... 16,320 -- --
Total stockholders' equity (deficit)............. (9,588) 6,731 71,226
</TABLE>
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the risks and uncertainties described below and the other information in this
prospectus, including the financial statements and related notes, before
deciding to invest in shares of our common stock. The risks and uncertainties
described below may not be the only risks that we face. If any of these risks
or uncertainties actually occurs, our business, financial condition and results
of operations would likely suffer. In that event, the market price of our
common stock could decline and you could lose all or part of the money you paid
to buy our common stock.
Risks Related to Our Business
Our limited operating history and our lack of any operating history as a stand-
alone company makes it difficult to evaluate our business and our ability to
address the risks and uncertainties that we face
We have only a limited operating history on which you can evaluate our
business and prospects. In addition, since commencing operations in 1996, we
have been a subsidiary of Banyan Worldwide. Consequently, we have no operating
history as a stand-alone company and no experience in addressing various
business challenges without the support of a corporate parent. We may not
successfully address the risks and uncertainties which confront stand-alone
companies, particularly companies in new and rapidly evolving markets like
ours.
We have a history of incurring net losses, we expect our net losses to continue
as a result of planned increases in operating expenses and we may never
achieve profitability
We have incurred significant net losses in each fiscal quarter since our
inception. From inception to December 31, 1999, we have incurred net losses
totaling $21.0 million. We expect to continue to incur net losses and negative
cash flows throughout 2000 because we intend to increase operating expenses to
develop the Switchboard brand through marketing, promotion and enhancement and
to expand our services. As a result of this expected increase in operating
expenses, we will need to generate significant additional revenue to achieve
profitability. It is possible that we may never achieve profitability and, even
if we do achieve profitability, we may not sustain or increase profitability on
a quarterly or annual basis in the future. If we do not achieve sustained
profitability, we will be unable to continue our operations.
Our quarterly results of operations are likely to fluctuate, and as a result,
we may fail to meet the expectations of our investors and securities analysts,
which may cause the price of our common stock to decline
Our quarterly revenue and results of operations are volatile and are
particularly difficult to predict. Our quarterly results of operations have
fluctuated significantly in the past and are likely to fluctuate significantly
from quarter to quarter in the future. We do not believe that period-to-period
comparisons of our results of operations are necessarily meaningful and you
should not rely upon these comparisons as indicators of our future performance.
Factors that may cause our results of operations to fluctuate include:
. the addition or loss of relationships with third parties that are our
source of new merchants or that license our services for use on their
own Web sites;
. our ability to attract and retain consumers, local merchants and
national advertisers to our Web site;
. the amount and timing of expenditures for expansion of our operations,
including the hiring of new employees, capital expenditures and related
costs;
. technical difficulties or failures affecting our systems or the
Internet in general;
. the cost of acquiring, and the availability of, content, including
directory information and maps; and
. the fact that our expenses are partially based on our expectations
regarding future revenue and are largely fixed in nature, particularly
in the short term.
As a result of these factors, results in any future quarter may be below the
expectations of securities analysts or investors. If so, the market price of
our common stock may decline significantly.
8
<PAGE>
Our business model will fail if our operations are unable to generate
sufficient revenue to cover the cost of the content and services we provide to
consumers at no charge
Our model for conducting business is unproven and may not succeed. Because
we provide our services to consumers at no charge, our business model depends
upon our ability to generate revenue from:
. Internet advertising and sponsorships fees;
. Web site design, construction, hosting and enhancement services
provided to local merchants; and
. licensing of our services to third parties for use on their Web sites.
We may not be able to generate sufficient revenue to cover the cost of the
content and services that we provide to consumers at no charge.
We need to develop the Switchboard brand to attract users to our Web site,
which will be costly and may not generate revenue
Building recognition of our brand is critical to attracting and expanding
our user base. We are pursuing an aggressive brand-building strategy and, if
this strategy is unsuccessful, we may never cover our costs. In addition to the
advertising and promotion available to us from CBS, we intend to incur
significant additional expenditures for future advertising and promotional
programs and activities. We may find it necessary to accelerate expenditures on
our sales and marketing efforts or otherwise increase our financial commitment
to creating and maintaining brand awareness among potential users. In addition,
even if awareness of our brand increases, the number of new users of our Web
site may not increase or result in increased revenue.
If our relationship with CBS does not for any reason result in positive
association with the Switchboard brand, our brand could be damaged
We use the "CBS" trademark and "eye" device under a license agreement with
CBS, which we entered into in June 1999. Therefore, we have limited experience
integrating CBS's trademarks into our effort to build our brand. While CBS's
trademarks are well-recognized, we cannot be certain that our use of these
trademarks will increase awareness of or preference for the Switchboard brand
due to our limited experience in using them and the potential for confusion
between CBS's businesses and our business. In addition, CBS licenses the use of
its name and trademarks to other companies, some of whom have unproven business
plans in competitive markets. If CBS or any of these companies experiences
business difficulties or conducts activities which damage the CBS brand, the
Switchboard brand could be damaged.
If we do not enter into and maintain relationships with merchant aggregators,
our ability to attract new local merchant customers and to deliver services to
current local merchant customers would be impeded
For our business to be successful, we must expand our merchant aggregation
program and generate significant revenue from that program. The success of our
merchant aggregation program depends in substantial part upon our ability to
access a broad base of local merchants. The local merchant base is highly
fragmented. Local merchants are difficult to contact efficiently and cost-
effectively. Consequently, we depend on merchant aggregators, like Discover
Financial Services, Inc., a subsidiary of Morgan Stanley Dean Witter & Co., to
provide us with local merchant contacts and to provide billing and other
administrative services relating to our local merchant services. The
termination of our strategic relationship with Discover or other merchant
aggregators would significantly impair our ability to attract potential local
merchant customers and deliver our local merchant services to our current
customers. Furthermore, we cannot be certain that we will be able to develop or
maintain relationships with new merchant aggregators on terms acceptable to us
or at all.
If we cannot demonstrate the value of our local merchant services, local
merchant customers may stop using our services, which could reduce our revenue
We may be unable to demonstrate to our local merchant customers the value
of our local merchant services. If local merchants cancel our services, which
are generally provided on a month-to-month basis, our
9
<PAGE>
revenue could decline and we may need to incur additional expenditures to
obtain new local merchant customers. We do not presently provide our local
merchant customers with data demonstrating the number of leads generated by our
local merchant services. Other forms of advertising available to local
merchants provide local merchants with tangible evidence, such as a coupon, of
a lead resulting from their advertising efforts. Regardless of whether our
local merchant services effectively produce leads, our local merchant customers
may not know the source of the leads and may cancel our local merchant
services.
We depend on strategic alliances with third parties to grow our business and
our business may not grow if the strategic alliances upon which we depend fail
to produce the expected benefits or are terminated
Our business depends upon our ability to maintain and benefit from our
existing strategic alliances and to establish additional strategic alliances.
In addition to our relationship with CBS and our existing relationships with
merchant aggregators, we have entered into relationships with syndication
customers and third-party content providers. These parties may not perform
their contractual obligations to us and, if they do not, we may not be able to
require them to do so. Some of our strategic relationships may be terminated by
either party on short notice.
Our strategic relationships are in early stages of development. These
relationships may not provide us benefits that outweigh the costs of the
relationships. If any strategic ally demands a greater portion of revenue or
requires us to make payments for access to its Web site, we may need to
terminate or refuse to renew that relationship, even if it had been previously
profitable or otherwise beneficial. In addition, if we lose a significant
strategic ally, we may be unable to replace that relationship with other
strategic relationships with comparable revenue potential, content or user
demographics.
The attractiveness of our services would diminish if we are not able to license
accurate database information from third-party content providers
We principally rely upon single third-party sources to provide us with our
business and residential listings data, e-mail data and mapping data. The loss
of any one of these sources or the inability of any of these sources to collect
their data could significantly and adversely affect our ability to provide
information to consumers. Although other sources of database information exist,
we may not be able to integrate data from these sources into our database
systems in a timely, cost-effective manner or without an inordinate expenditure
of internal engineering resources. Other sources of data may not be offered on
terms acceptable to us. Moreover, the rapid consolidation being experienced by
Internet-related businesses could reduce the number of content providers with
which we could form relationships.
We typically license information under arrangements that require us to pay
royalties or other fees for the use of the content. In the future, some of our
content providers may demand a greater portion of advertising revenue or
increase the fees that they charge us for their content. If we fail to enter
into and maintain satisfactory arrangements with existing or substitute content
providers, we may be unable to continue to provide our services.
The success of our business depends on the quality of our services and the
quality is substantially dependent on the accuracy of data we license from
third parties. Any failure to maintain accurate data could impair the
reputation of our brand and our services, reduce the volume of users attracted
to our Web site and diminish the attractiveness of our service offerings to our
strategic partners, advertisers and content providers.
If we do not attract a large number of users to our Web site who have
demographic characteristics that are attractive to advertisers, the advertising
revenue on which we rely will substantially decline
We have derived a substantial portion of our revenue from the sale of
advertisements and sponsorships. If we are unable to remain an attractive
medium for advertising, our revenue will substantially decline. Our ability to
remain an attractive medium for advertising will depend upon a number of
factors, including, the acceptance of our services by a large number of users
who have demographic characteristics that are attractive to advertisers.
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Our agreements to sell advertisements expose us to competitive pricing
pressures and may require us to provide advertising at no charge if we do not
meet minimum guarantees
We typically sell advertisements under agreements with terms of less than
six months. These short-term agreements expose us to competitive pricing
pressures and potentially severe fluctuations in our results of operations. In
addition, these agreements often contain guarantees by us of a minimum number
of impressions or click throughs by Web users. If we fail to meet these
guarantees, we are required to provide our advertising customers with
advertising at no charge until the guarantees are met.
We rely on a small number of advertising and syndication customers, the loss of
whom may substantially reduce our revenue
We derive a substantial portion of our revenue from a small number of
advertising and syndication customers. For the year ended December 31, 1999,
revenue derived from our top ten customers accounted for approximately 64.3% of
our total revenue. Consequently, our revenue may substantially decline if we
lose any of these customers. We anticipate that our future results of
operations will continue to depend to a significant extent upon revenue from a
small number of customers. In addition, we anticipate that the identity of
those customers will change over time.
The growth of our revenue will suffer if we do not increase the number and
productivity of our sales personnel, many of whom have only recently joined us
Our ability to generate revenue through the sale of advertising would be
adversely affected if we do not develop and maintain a productive sales force.
Our sales group consisted of only seven members as of December 31, 1999. We
need to increase the size of our sales force to accelerate our revenue growth.
Our Director of National Ad Sales joined us in April 1999, and four other
members of our sales group joined us since October 1999. Typically new sales
personnel require six to twelve months to become productive. If our sales force
does not increase its productivity, the growth of our revenue may be impeded.
If we do not introduce new or enhanced services for our Web site, we may be
unable to attract and retain consumers and local merchants, which would
significantly impede our ability to generate revenue
We need to introduce new or enhanced services to attract and retain local
merchants to our services, attract more consumers to our Web site and respond
to competition. If we are not able to introduce new or enhanced services, we
may lose existing local merchants and consumers or fail to attract new ones,
which would significantly impede our revenue growth. Any new product or service
introduction not favorably received could damage our reputation and our brand.
We may also experience difficulties that could delay or prevent us from
introducing new services.
Our senior management has limited experience working together as a team and any
difficulties they encounter in integrating successfully may interfere with the
operation of our business
Our future success depends to a significant extent on the continued
services and effective working relationships of our senior management and other
key personnel, including Douglas Greenlaw, our Chief Executive Officer, and
Dean Polnerow, our founder and President. Mr. Greenlaw joined us in October
1999 and has not previously worked with other members of our senior management
team. Our business will suffer if we lose the services of Mr. Greenlaw, Mr.
Polnerow or other key personnel, or if we are unable to integrate Mr. Greenlaw
successfully into our current senior management team.
If we are not able to attract and retain highly skilled managerial and
technical personnel with Internet experience, we may not be able to implement
successfully our business model
We believe that our management must be able to act decisively to apply and
adapt our business model in the rapidly changing Internet markets in which we
compete. In addition, we rely upon our technical employees to develop and
maintain much of the technology used to provide our services. Consequently, we
believe that our success depends largely on our ability to attract and retain
highly skilled managerial and technical
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personnel. The industry in which we compete has a high level of employee
turnover. We may not be able to hire or retain the necessary personnel to
implement our business strategy. In addition, we may need to pay higher
compensation for employees than we currently expect. Individuals with the
skills we require, particularly with Internet experience, are in very short
supply. Competition to hire from this limited pool is intense.
If we do not improve our management, financial and information systems and
controls, we may fail to properly manage our growth, which would strain our
resources and could impede further growth
We have significantly expanded our operations and must expand further if we
are to be successful in building our business. Our growth has placed, and will
continue to place, a significant strain on our management, operating and
financial systems, and sales, marketing and administrative resources. If we
cannot manage our expanding operations, we may not be able to continue to grow
or may grow at a slower pace. Furthermore, our operating costs may escalate
faster than we expect. To manage our growth successfully we will need to
improve our management, financial and information systems and controls.
The markets for Internet content, services and advertising are highly
competitive and our failure to compete successfully will limit our ability to
increase or retain our market share
Our failure to maintain and enhance our competitive position will limit our
ability to increase or maintain our market share, which would seriously harm
our business. We compete in the markets for Internet content, services and
advertising. These markets are new, rapidly evolving and highly competitive. We
expect this competition to intensify in the future. We compete, or expect to
compete, with many providers of Internet content, information services and
products, as well as with traditional media, for audience attention and
advertising and sponsorship expenditures. We license much of our database
content under nonexclusive agreements with third-party providers which are in
the business of licensing their content to many businesses, including our
current and potential competitors. Many of our competitors are substantially
larger than we are and have substantially greater financial, infrastructure and
personnel resources than we have. In addition, many of our competitors have
well established, large and experienced sales and marketing capabilities and
greater name recognition than we have. As a result, our competitors may be in a
stronger position to respond quickly to new or emerging technologies and
changes in customer requirements. They may also develop and promote their
services more effectively than we do. Moreover, barriers to entry are not
significant, and current and new competitors may be able to launch new Web
sites at a relatively low cost. We therefore expect additional competitors to
enter these markets. Some of these new competitors may be traditional media
companies, who are increasingly expanding onto the Internet.
Many of our current customers have established relationships with our
current and potential competitors. If our competitors develop content that is
superior to ours or that achieves greater market acceptance than ours, we may
not be able to develop alternative content in a timely, cost-effective manner,
or at all, and we may lose market share.
We may not be able to dedicate the substantial resources required to expand,
monitor and maintain our internally developed systems without contracting with
an outside supplier at substantial expense
We will have to expand and upgrade our technology, transaction-processing
systems and network infrastructure if the volume of traffic on our Web site or
our syndication partners' Web sites increases substantially. We could
experience temporary capacity constraints that may cause unanticipated system
disruptions, slower response times and lower levels of customer service. We may
not be able to project accurately the rate or timing of increases, if any, in
the use of our services or expand and upgrade our systems and infrastructure to
accommodate these increases in a timely manner. Our inability to upgrade and
expand as required could impair the reputation of our brand and our services,
reduce the volume of users able to access our Web site and diminish the
attractiveness of our service offerings to our strategic partners, advertisers
and content providers. Because we developed these systems internally, we must
either dedicate substantial internal resources to monitor, maintain and upgrade
these systems or contract with an outside supplier for these services at
substantial expense.
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Our internally developed software may contain undetected errors, which could
limit our ability to provide our services and diminish the attractiveness of
our service offerings
We use internally developed, custom software to provide our services. This
software may contain undetected errors, defects or bugs. Although we have not
suffered significant harm from any errors or defects to date, we may discover
significant errors or defects in the future that we may not be able to fix. For
example, while we have not experienced any operational difficulties relating to
the transition from December 31, 1999 to January 1, 2000, it is possible that
we may in the future experience unexpected date-related processing errors. Our
inability to fix any of those errors could limit our ability to provide our
services, impair the reputation of our brand and our services, reduce the
volume of users who visit our Web site and diminish the attractiveness of our
service offerings to our strategic partners, advertisers and content providers.
We do not have a formal disaster recovery plan, and a disaster that results in
the inability of consumers to visit our site would severely damage our
operations.
Our ability to generate revenue depends in large part on the number of
users that access our Web site. Our computer and communications hardware is
located at hosting facilities in Waltham, Massachusetts provided by Exodus
Communications, Inc. Our systems and operations could be damaged or interrupted
by fire, flood, power loss, telecommunications failure, Internet breakdown,
break-in, earthquake and similar events. We do not have a formal disaster
recovery plan, and we do not carry business interruption insurance that is
adequate to compensate us for losses that may occur. Any system interruptions
resulting in the complete or partial unavailability or slow or delayed delivery
of our Web site could impair the reputation of our brand and our services,
diminish the attractiveness of our service offerings to our strategic partners,
advertisers and content providers and reduce the volume of users able to access
our Web site. Any volume reductions could harm our ability to satisfy minimum
advertising commitments. In addition, a system interruption may give CBS the
right to suspend or terminate our advertising and promotion agreements and our
license to use the "CBS" trademark and "eye" device.
Our inexperience in doing business in international markets exposes us further
to various risks and may limit the success of any expansion of our business
into international markets
In September 1999, we entered into an agreement to provide directory
services in Canada. As opportunities arise, we intend to pursue strategic
initiatives internationally. We will face additional risks related to doing
business in international markets, such as changes in regulatory requirements,
difficulties in protecting and enforcing our intellectual property, tariffs and
other trade barriers, fluctuations in currency exchange rates and adverse tax
consequences. Our inexperience in doing business in international markets
exposes us further to these risks and may make it more difficult for us to
staff and manage any foreign operations. In addition our services may not be
perceived to be valuable because of different consumer preferences and
requirements in specific international markets. The effects of one or more of
these factors may limit the success of any expansion of our business into
international markets.
We may need additional capital, which may not be available to us and which, if
available, may dilute your ownership interest in us
We may need to raise additional funds through public or private equity or
debt financings to:
. expand our sales and marketing operations to increase their
productivity;
. develop new technology and upgrade current technology and data network
infrastructure to comply with rapidly evolving industry standards;
. develop new and expand current content and services to attract and
retain consumers and local merchants;
. pursue acquisitions or expansion opportunities in our consolidating
markets; or
. address additional general corporate needs.
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If we cannot obtain any needed financing on acceptable terms, we may be
forced to curtail some or all of these activities. As a result we could grow
more slowly or stop growing. Any additional capital raised through the sale of
equity may dilute your ownership interest in us and may be on terms that are
unfavorable to holders of our common stock.
We have no experience acquiring companies, and any acquisitions we undertake
could limit our ability to manage and maintain our business, result in adverse
accounting treatment and be difficult to integrate into our business
We have no experience in acquiring businesses and have very limited
experience in acquiring complementary technologies. In the future we may
undertake acquisitions. Acquisitions, in general, involve numerous risks,
including:
. diversion of our management's attention;
. amortization of substantial goodwill, adversely affecting our reported
results of operations;
. inability to retain the management, key personnel and other employees
of the acquired business;
. inability to assimilate the operations, product, technologies and
information systems of the acquired business with our business; and
. inability to retain the acquired company's customers, affiliates,
content providers and advertisers.
If we are unable to adequately protect our intellectual property rights, our
technology and information may be used by others to compete against us
We depend upon our internally developed and other proprietary technology.
If we do not effectively protect our proprietary technology, others may become
able to use it to compete against us. To protect our proprietary rights, we
rely on a combination of copyright and trademark laws, patents, trade secrets,
confidentiality agreements with employees and third parties, and protective
contractual provisions. Despite our efforts to protect our proprietary rights,
unauthorized parties may misappropriate our proprietary technology or obtain
and use information that we regard as proprietary. We may not be able to detect
these or any other unauthorized uses of our intellectual property or take
appropriate steps to enforce our proprietary rights. In addition, others could
independently develop substantially equivalent intellectual property.
If our services infringe on intellectual property rights of others, we may be
required to expend substantial resources to reengineer our services and to
incur substantial costs and damages related to infringement claims
We are subject to the risk of claims alleging infringement of third-party
proprietary rights. If we are subject to claims of infringement of, or are
infringing on, the rights of third parties, we may not be able to obtain
licenses to use those rights on commercially reasonable terms. In that event,
we may need to undertake substantial reengineering to continue our service
offerings. Any effort to undertake such reengineering might not be successful.
In addition, any claim of infringement could cause us to incur substantial
costs defending against the claim, even if the claim is invalid, and could
distract our management. Furthermore, a party making such a claim could secure
a judgement that requires us to pay substantial damages. A judgment could also
include an injunction or other court order that could prevent us from providing
our services.
Risks Related to Our Relationships with CBS and Banyan Worldwide
Termination of our agreements with CBS would negatively affect our financial
results
If our agreements with CBS terminate, our business, particularly our
branding and advertising initiatives, would suffer, which would impede our
revenue growth. If our license agreement terminates, we would lose the right to
use the "CBS" trademark and "eye" device which are very important to our
marketing and brand building activities. Our license agreement with CBS will
expire on June 30, 2009 and CBS is not obligated to
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renew it. If our advertising and promotion agreement terminates, we may lose
the unused portion of the $95.0 million of advertising and promotion services
which CBS has agreed to provide us through June 2006. Under specified
circumstances, CBS has the right to suspend or terminate the license agreement
and the advertising and promotion agreement prior to their scheduled
expirations.
CBS's contractual right to require us to remove content from our Web site and
to approve all of our uses of its trademarks may restrict our marketing
activities and business opportunities
Under our license agreement with CBS, CBS can require us to remove any
content on our Web site which it determines conflicts with, interferes with or
is detrimental to its reputation or business. We are also required to conform
to CBS's guidelines for the use of its trademark. CBS has the right to approve
all materials, such as marketing materials, that include CBS trademarks.
Because of these restrictions we may not be able to perform our desired
marketing activities or include some types of content on our Web site which we
would otherwise decide to include.
CBS does not guarantee the availability of the particular advertising
placements that we desire or access to the type of audiences at which we target
our ads, and therefore our ads may not be effective
CBS does not guarantee us placement of our ads or the demographic
composition or size of the audience that views our ads. Moreover, CBS provides
its advertising and on-air promotions to us under the same terms as it provides
to its other advertising customers and does not extend us priority in the
placement of our ads. CBS has entered into agreements similar to ours with
other companies, some of whom may be targeting similar audiences for their ads
as we target for ours. We cannot be certain that we will receive the ad
placements we desire, particularly if other advertisers are seeking the same
placements. Even if we do receive our desired ad placements, we cannot be
certain of the demographic composition or size of the audience viewing our ads.
Therefore, the CBS advertising available to us may not be effective.
The combined ownership of Banyan and CBS after the offering will, if Banyan and
CBS act together, permit Banyan and CBS to control matters submitted for
approval of our stockholders which could delay or prevent a change of control
or depress our stock price
After this offering, Banyan Worldwide will beneficially own approximately
41.3% of our common stock and CBS will beneficially own approximately 34.4% of
our common stock. Acting together, Banyan Worldwide and CBS will be able to
control, and acting alone each of Banyan Worldwide and CBS will be able to
substantially influence, all matters submitted to our stockholders for approval
and our management and affairs, including the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our
assets. Other than with respect to the election of directors, Banyan Worldwide
and CBS do not have an agreement to vote in concert. This control could have
the effect of delaying or preventing a change of control of Switchboard that
other stockholders may believe would result in a premium or better management.
In addition, this control could depress our stock price because purchasers will
not be able to acquire a controlling interest in us. These risks would be
exacerbated if a competitor of CBS acquires a 30% voting interest in, or all or
substantially all of the assets of, Banyan Worldwide. In that event, CBS has
the right to purchase all of Banyan Worldwide's shares of our stock.
Banyan Worldwide has pledged all of our capital stock that it owns as
security for Banyan Worldwide's obligations under its bank credit facility. If
Banyan Worldwide defaults under its bank credit facility, its lender could take
ownership of Banyan Worldwide's capital stock of Switchboard. Moreover, either
or both of Banyan Worldwide and CBS may elect to sell all or a substantial
portion of its capital stock to one or more third parties. In either case, a
third party with whom we have no prior relationship could exercise the same
degree of control over Switchboard as Banyan Worldwide or CBS presently
possess.
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So long as Banyan Worldwide and CBS maintain their significant ownership
interest in Switchboard, you will not be able to elect a majority of our board
of directors
We are a party to a voting agreement with Banyan Worldwide and CBS. Under
that voting agreement Banyan Worldwide has the right to designate a majority of
our board of directors for election. CBS has agreed to vote its shares of our
capital stock for the directors designated by Banyan Worldwide. After this
offering Banyan Worldwide and CBS will together continue to control enough
shares of our capital stock to elect all of our directors. As a result,
directors designated for election by Banyan Worldwide will continue to control
our board of directors and therefore all of our business and affairs. You may
not agree with the management decisions made by our board of directors.
Overlapping management and boards of directors could hinder or delay decisions
regarding significant business matters
Three of our directors hold positions as officers or directors of Banyan
Worldwide, as described in the following table:
<TABLE>
<CAPTION>
Name Switchboard Position Banyan Worldwide Position
---- --------------------- ------------------------------------
<C> <C> <S>
William P. Ferry Chairman of the Board Chairman of the Board, President and
Chief Executive Officer
Richard M. Spaulding Director Senior Vice President and Chief
Financial Officer
Robert M. Wadsworth Director Director
</TABLE>
Serving as a director of Switchboard and either a director or an officer of
Banyan Worldwide could create, or appear to create, potential conflicts of
interest when those directors and officers are faced with decisions that could
have different implications for us than for Banyan Worldwide. These decisions
may relate, for example, to:
. potential acquisitions of businesses;
. intercompany agreements, such as our services agreement;
. the issuance or disposition of securities;
. the election of new or additional directors; and
. the payment of dividends by us.
These conflicts, or potential conflicts, of interest could hinder or delay our
management's ability to make timely decisions regarding significant matters
relating to our business.
If Banyan Worldwide ceases to provide us with the services and facilities that
it currently provides, we may experience increased costs and disruption of our
operations to replace those services and facilities
Banyan Worldwide provides us with some of our financial, administrative and
operational services and related support functions. In addition, we occupy our
headquarters in Westboro, Massachusetts under an agreement with Banyan
Worldwide. If Banyan Worldwide ceases or fails to provide these services
satisfactorily or terminates our occupancy, we would be required to perform
these services ourselves or obtain these services from another provider or
locate new facilities. Replacing these services may cause us to incur
additional costs and experience disruption of our operations. We may not be
able to replace these services on commercially reasonable terms or, if we
choose to perform these services ourselves, we may not be able to perform them
adequately.
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Risks Related to the Internet
If the acceptance and effectiveness of Internet advertising does not become
fully established, the growth of our advertising revenue will suffer
Our future success depends, in part, on an increase in the use of the
Internet as an advertising medium. We generated 45.1% of our revenue from the
sale of advertisements and sponsorships during the year ended December 31, 1999
and 61.5% in the year ended December 31, 1998. The Internet advertising market
is new and rapidly evolving, and cannot yet be compared with traditional
advertising media to gauge its effectiveness. As a result, demand for and
market acceptance of Internet advertising is uncertain. Many of our current and
potential local merchant customers have little or no experience with Internet
advertising and have allocated only a limited portion of their advertising and
marketing budgets to Internet activities. The adoption of Internet advertising,
particularly by entities that have historically relied upon traditional methods
of advertising and marketing, requires the acceptance of a new way of
advertising and marketing.
These customers may find Internet advertising to be less effective for
meeting their business needs than traditional methods of advertising and
marketing. In addition, there are software programs that limit or prevent
advertising from being delivered to a user's computer. Widespread adoption of
this software would significantly undermine the commercial viability of
Internet advertising. If the market for Internet advertising fails to develop
or develops more slowly than we expect, our advertising revenue will suffer.
There are currently no generally accepted standards for the measurement of
the effectiveness of Internet advertising. Standard measurements may need to be
developed to support and promote Internet advertising as a significant
advertising medium. Our advertising customers may challenge or refuse to accept
our, or third-party, measurements of advertisement delivery.
If we are unable to adapt as Internet technologies and customer demands evolve,
our services may not be attractive to consumers, local merchants and
advertisers
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our Web site. Our industry has
been characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies. These changes could render our Web site, technology
and systems obsolete. If we do not periodically enhance our existing services,
develop new services and technologies that address sophisticated and varied
consumer needs, respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis, and address
evolving customer preferences, our services may not be attractive to consumers,
local merchants and advertisers.
If we are sued for content distributed through, or linked to by, our Web site,
we may be required to spend substantial resources to defend ourselves and could
be required to pay monetary damages
We aggregate and distribute third party data over the Internet. In
addition, third-party Web sites are accessible through our Web site. As a
result, we could be subject to legal claims for defamation, negligence,
intellectual property infringement and product or service liability. Other
claims may be based on errors or false or misleading information provided on
our Web site, such as information deemed to constitute legal, medical,
financial or investment advice. Other claims may be based on links to sexually
explicit Web sites and sexually explicit advertisements. We may need to expend
substantial resources to investigate and defend these claims, regardless of
whether we successfully defend against them. While we carry general business
insurance, the amount of coverage we maintain may not be adequate. In addition,
implementing measures to reduce our exposure to this liability may require us
to spend substantial resources and limit the attractiveness of our content to
users.
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We may need to expend significant resources to protect against online security
risks that could result in misappropriation of our proprietary information or
cause interruption in our operations
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Someone who is able to circumvent security measures
could misappropriate our proprietary information or cause interruptions in our
operations. Internet and online service providers have experienced, and may in
the future experience, interruptions in service as a result of the accidental
or intentional actions of Internet users, current and former employees or
others. We may need to expend significant resources protecting against the
threat of security breaches or alleviating problems caused by breaches.
Eliminating computer viruses and alleviating other security problems may
require interruptions, delays or cessation of service.
We may be sued for disclosing to third parties personal identifying information
without consent
Individuals whose names, addresses and telephone numbers appear in our
yellow pages and white pages directories have occasionally contacted us because
their phone numbers and addresses were unlisted with the telephone company.
While we have not received any formal legal claims from these individuals, we
may receive claims in the future for which we may be liable. In addition, if we
begin disclosing to third parties personal identifying information about our
users without consent or in violation of our privacy policy, we may face
potential liability for invasion of privacy.
We may become subject to burdensome government regulation and legal
uncertainties which could limit our growth
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Laws and regulations may
be adopted covering issues such as user privacy, pricing, content, taxation and
quality of products and services. Any new legislation could hinder the growth
in use of the Internet and other online services generally and decrease the
acceptance of the Internet and other online services as media of
communications, commerce and advertising. Various U.S. and foreign governments
might attempt to regulate our transmissions or levy sales or other taxes
relating to our activities. The laws governing the Internet remain largely
unsettled, even in areas where legislation has been enacted. It may take years
to determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet and Internet
advertising services. In addition, the growth and development of the market for
electronic commerce may prompt calls for more stringent consumer protection
laws, both in the United States and abroad, that may impose additional burdens
on companies conducting business over the Internet.
If we cannot protect our domain names, our ability to successfully brand
Switchboard will be impaired
We currently hold various Web domain names, including Switchboard.com and
MapsOnUs.com. The acquisition and maintenance of domain names generally is
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business. This problem may be exacerbated by the length of
time required to expand into any other country and the corresponding
opportunity for others to acquire rights in relevant domain names. Furthermore,
it is unclear whether laws protecting trademarks and similar proprietary rights
will be extended to protect domain names. Therefore, we may be unable to
prevent third parties from acquiring domain names that are similar to, infringe
upon or otherwise decrease the value of our trademarks and other proprietary
rights. We may not be able to successfully carry out our business strategy of
establishing a strong brand for Switchboard if we cannot prevent others from
using similar domain names or trademarks.
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Risks Related to this Offering
We may become subject to an equity ownership claim from America Online which,
if successful, would result in substantial additional dilution to investors in
this offering
America Online may assert a claim to acquire 3.75% of our capital stock
under a warrant we issued in 1996. While we believe the warrant has expired
pursuant to its terms, America Online has in the past indicated to us that it
does not agree that the warrant has expired. In March 1999, we resolved a
number of outstanding intercompany balances between ourselves and America
Online, but did not resolve the status of the warrant.
The disputed warrant, if in effect, would entitle America Online to
purchase 3.75% of our capital stock on the date of exercise, determined on a
fully diluted basis. The latest stated expiration date of the warrant is
November 5, 2000. The per share exercise price of the warrant is equal to $60.0
million divided by the number of fully diluted shares of our capital stock on
the date of exercise.
Immediately after this offering, the disputed warrant, if in effect, would
entitle America Online to purchase 1,085,751 shares of our common stock at
$2.07 per share. Under our common stock and warrant purchase agreement with
CBS, in the event of a warrant exercise by America Online, we would be required
to issue to CBS for no additional consideration 466,785 additional shares of
our common stock and warrants to purchase 66,683 additional shares of common
stock at an exercise price of $1.00 per share. If we are required to issue
securities to America Online and CBS, the dilution per share to new investors
in this offering, at an assumed initial public offering price of $13.00 per
share, would be increased from $10.03 to $10.58. The amount of dilution could
be greater depending on the number of fully diluted shares of our capital stock
when the America Online warrant is exercised.
While we intend to vigorously defend against any legal actions America
Online may commence relating to the warrant, there can be no assurance that we
will be successful.
Projections included in this prospectus relating to the growth of the Internet
are based on assumptions that could turn out to be incorrect, and actual
results could be materially different from these projections
This prospectus contains various third-party data and projections,
including those relating to the number of Internet users and the amount spent
on online commerce and advertising. These data and projections have been
included in studies prepared by independent market research firms, and the
projections are based on surveys, financial reports and models used by these
firms. Actual results or circumstances may be materially different from the
projections. Any difference could reduce our revenue and the growth of our
business. These data and projections are inherently imprecise and investors are
cautioned not to place undue reliance on them.
Our stock price could be volatile, which could result in substantial losses for
investors purchasing shares in this offering and expose us to costly securities
class action litigation
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, has experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. In the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
Due to the potential volatility of our stock price, we may be the target of
securities litigation which could result in substantial costs and divert
management's attention and resources. We cannot be sure that an active public
market for our common stock will develop or continue after this offering.
Investors may not be able to sell their common stock at or above our initial
public offering price. Prices for the common stock will be determined in the
marketplace and may be influenced by many factors, including variations in our
financial results, changes in earnings estimates by industry research analysts,
the failure or success of our branding initiatives and investors' perceptions
of us.
19
<PAGE>
Our stock price could be adversely affected by future sales of our common
stock, which could limit our ability to raise capital and undertake
acquisitions
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital and undertake acquisitions
through the issuance of additional equity securities. See "Shares Eligible for
Future Sale."
We have antitakeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock
Provisions of our certificate of incorporation, our by-laws and Delaware
law could delay, defer or prevent an acquisition or change of control of
Switchboard or otherwise adversely affect the price of our common stock. For
example, our board of directors is classified into three classes, and
stockholders do not have the right to call special meetings of stockholders. In
addition, our certificate of incorporation permits our board to issue shares of
preferred stock without stockholder approval. In addition to delaying or
preventing an acquisition, the issuance of a substantial number of preferred
shares could adversely affect the price of the common stock and may dilute your
ownership interest in us. Please refer to "Description of Capital Stock" for a
more detailed discussion of these provisions.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements that are subject to a
number of risks and uncertainties. All statements, other than statements of
historical facts included in this prospectus, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this prospectus, the words "will", "believe", "anticipate", "intend",
"estimate", "expect", "project" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain these identifying words. We cannot guarantee future results,
levels of activity, performance or achievements and you should not place undue
reliance on our forward-looking statements. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or strategic alliances. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including the risks described in "Risk Factors"
and elsewhere in this prospectus. We do not assume any obligation to update any
of the forward-looking statements we make.
21
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 5,500,000 shares of
common stock will be approximately $64,495,000, assuming an initial public
offering price of $13.00 per share and after deducting estimated underwriting
discounts and our estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, we estimate that the net proceeds will
be approximately $74,469,000.
We expect to use the net proceeds of this offering for general corporate
purposes. As of the date of this prospectus, we have not made any specific
expenditure plans with respect to the proceeds of this offering.
The principal purposes of this offering are to increase our working
capital, create a public market for our common stock, facilitate future access
to the public capital markets and increase our visibility in the marketplace.
Pending use of the net proceeds, we intend to invest these proceeds in short-
term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
intend to retain future earnings, if any, to finance our growth strategy. We do
not anticipate paying cash dividends on our common stock. Payment of future
dividends, if any, will be at the discretion of our board of directors after
taking into account various factors, including:
. our financial condition;
. our results of operations; and
. our current and anticipated cash needs.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to give effect to the automatic conversion of our
series A, C, and D convertible preferred stock into common stock upon
the closing of this offering; and
. on a pro forma basis as adjusted to reflect the issuance and sale by us
of 5,500,000 shares of common stock in this offering at an assumed
initial public offering price of $13.00 per share and after deducting
the estimated underwriting discounts and estimated offering expenses
payable by Switchboard.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ---------- ------------
(unaudited)
(in thousands, except share and
per share data)
<S> <C> <C> <C>
Redeemable convertible preferred stock,
$0.01 par value; 7,750,000 shares
designated actual; none designated pro
forma and pro forma as adjusted.........
Series A--750,000 shares designated,
issued and outstanding actual; none
designated, issued and outstanding
pro forma and pro forma as adjusted... $ 3,973 -- --
Series B--1,500,000 shares designated,
none issued and outstanding actual;
none designated, issued and
outstanding pro forma and pro forma
as adjusted........................... -- -- --
Series C--4,000,000 shares designated,
2,655,916 shares issued and
outstanding actual; none designated,
issued and outstanding pro forma and
pro forma as adjusted................. 11,189 -- --
Series D--1,500,000 shares designated,
146,505 shares issued and outstanding
actual; none issued and outstanding
pro forma and pro forma as adjusted... 1,157 -- --
---------- ---------- ----------
Total redeemable convertible
preferred stock.................... 16,319 -- --
Stockholders' equity (deficit):
Preferred stock, $0.01 par value;
2,249,999 shares authorized and
undesignated actual; none issued and
outstanding actual; 4,999,999 shares
authorized and undesignated pro forma
and pro forma as adjusted; none
issued and outstanding pro forma and
pro forma as adjusted................. -- -- --
Series E special voting preferred
stock, $0.01 par value; one share
designated, issued and outstanding
actual, pro forma and pro forma as
adjusted.............................. -- -- --
Common stock, $0.01 par value;
30,000,000 shares authorized actual;
85,000,000 shares authorized pro
forma and pro forma as adjusted;
14,663,934 shares issued and
outstanding actual; 18,216,355 shares
issued and outstanding pro forma;
23,716,355 shares issued and
outstanding pro forma as adjusted..... 147 $ 182 $ 237
Additional paid-in capital.............. 75,667 91,951 156,391
Contribution receivable................. (66,243) (66,243) (66,243)
Accumulated other comprehensive
income................................ 1,856 1,856 1,856
Accumulated deficit..................... (21,015) (21,015) (21,015)
---------- ---------- ----------
Total stockholders' equity
(deficit).......................... (9,588) 6,731 71,226
---------- ---------- ----------
Total capitalization................. $ 6,731 $ 6,731 $ 71,226
========== ========== ==========
</TABLE>
23
<PAGE>
The number of shares of common stock outstanding is based on the number of
shares of our common stock outstanding on December 31, 1999 and does not
include:
. an aggregate of 2,951,600 shares subject to outstanding options as of
December 31, 1999, at a weighted average exercise price of $6.23;
. an aggregate of 1,751,937 shares subject to outstanding warrants as of
December 31, 1999 at a weighted average exercise price of $2.71 per
share, assuming these warrants are all exercised in full; and
. an aggregate of 1,793,026 shares reserved for issuance under our 1996
stock incentive plan, our 1999 stock incentive plan and our 1999
employee stock purchase plan as of December 31, 1999.
You should read this table together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes included elsewhere in this prospectus.
24
<PAGE>
DILUTION
Our pro forma net tangible book value at December 31, 1999 was
approximately $5,954,000, or $0.33 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the amount of our total
tangible assets less total liabilities by the pro forma number of shares of
stock outstanding at that date, assuming conversion of all outstanding shares
of our series A, C, and D convertible preferred stock into common stock.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of common stock in this
offering and the net tangible book value per share of common stock immediately
after the completion of this offering.
After giving effect to our sale of 5,500,000 shares of common stock in this
offering at an assumed initial public offering price of $13.00 per share and
our receipt of the net proceeds (after deducting the estimated underwriting
discounts and our estimated offering expenses), our pro forma net tangible book
value as of December 31, 1999 would have been approximately $70,449,000, or
$2.97 per share. This represents an immediate increase in pro forma net
tangible book value of $2.64 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $10.03 per share to
new investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $13.00
Pro forma net tangible book value per share as of December
31, 1999................................................... $0.33
Increase per share attributable to this offering............. 2.64
-----
Pro forma net tangible book value per share after this
offering..................................................... 2.97
------
Dilution per share to new investors............................ $10.03
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, the total
cash consideration paid and the average cash consideration paid per share by
our existing stockholders and by the new investors (at an assumed initial
public offering price of $13.00 per share for shares purchased in this
offering, before deducting estimated underwriting discounts and our estimated
offering expenses).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 18,216,356 76.8% $20,496,731 22.3% $ 1.13
New investors................. 5,500,000 23.2 71,500,000 77.7% 13.00
---------- ----- ----------- -----
Total....................... 23,716,356 100.0% $91,996,731 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table and calculation assumes no exercise of outstanding
stock options and warrants exercisable as of December 31, 1999. As of December
31, 1999, there were:
. outstanding stock options to purchase 2,951,600 shares of common stock
at a weighted average exercise price of $6.23 per share; and
. outstanding warrants to purchase 1,751,937 shares of common stock at a
weighted average exercise price of $2.71 per share.
To the extent that all of these options and warrants are exercised, pro
forma net tangible book value per share after this offering would be $3.29 and
total dilution per share to new investors would be $9.71.
If the underwriters' over-allotment option is exercised in full, pro forma
net tangible book value per share after this offering would be $3.28 and total
dilution per share to new investors would be $9.72.
25
<PAGE>
SELECTED FINANCIAL DATA
The selected historical and pro forma financial data should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and related notes included
elsewhere in this prospectus.
The selected financial data set forth below as of December 31, 1998 and
1999 and for the years ended December 31, 1997, 1998 and 1999 are derived from
the financial statements of Switchboard included elsewhere in this prospectus
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
The balance sheet data as of December 31, 1997 and the statement of operations
data for the period from inception (February 19, 1996) through December 31,
1996 are derived from audited financial statements of Switchboard not included
in this prospectus. The balance sheet data as of December 31, 1996 is derived
from unaudited financial statements not included in this prospectus. The
historical results are not necessarily indicative of the results of operations
to be expected in the future.
<TABLE>
<CAPTION>
Period from Year Ended-
Inception to December 31,
December 31, --------------------------
1996 1997 1998 1999
------------ ------- -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue.............................. $ 170 $ 650 $ 6,536 $ 8,304
Cost of revenue...................... 29 793 1,307 1,970
------- ------- -------- -------
Gross profit......................... 141 (143) 5,229 6,334
Operating expenses:
Sales and marketing................. 342 2,307 5,872 11,237
Product development................. 1,329 2,107 3,188 1,923
General and administrative.......... -- 776 1,130 1,830
------- ------- -------- -------
Total operating expenses........... 1,671 5,190 10,190 14,990
------- ------- -------- -------
Loss from operations................. (1,530) (5,333) (4,961) (8,656)
Interest income (expense), net....... 15 4 (404) (149)
------- ------- -------- -------
Net loss............................. $(1,515) $(5,329) $ (5,365) $(8,805)
------- ------- -------- -------
Accrued dividends for preferred
stockholders....................... 58 308 293 939
------- ------- -------- -------
Net loss attributable to common
stockholders....................... $(1,573) $(5,637) $ (5,658) $(9,744)
======= ======= ======== =======
Basic and diluted net loss per
share.............................. $ (0.22) $ (0.81) $ (0.81) $ (0.89)
Shares used in computing basic and
diluted net loss per share......... 7,000 7,000 7,011 10,915
Unaudited pro forma basic and diluted
net loss per share................. $ (0.67)
Shares used in computing unaudited
pro forma basic and diluted net
loss per share..................... 13,078
<CAPTION>
December 31,
---------------------------------------
1996 1997 1998 1999
------------ ------- -------- -------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 3,115 $ 404 $ 387 $ 3,605
Working capital...................... 3,152 (6) 449 4,310
Total assets......................... 3,792 1,491 3,565 12,195
Note payable......................... -- -- 600 --
Convertible promissory notes--related
party.............................. 960 2,984 7,000 --
Redeemable convertible preferred
stock.............................. 3,058 3,366 3,658 16,320
Total stockholders' deficit.......... (330) (5,774) (11,419) (9,588)
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements and related notes appearing elsewhere in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those indicated in
forward-looking statements. See "Forward-Looking Statements."
Overview
Since commencing operations in February 1996, we have derived our revenue
principally from the sale of national advertising. We have also derived revenue
from the licensing of our directory technology content and related services to
third party Web sites, which we refer to as syndication, and from our merchant
aggregation program.
Our revenue from the sale of advertising consists of banner advertisements,
sponsorships, promotions and other forms of national advertising that are sold
on either a fixed fee, cost per thousand impressions or cost per click basis on
our Web pages. We recognize revenue from national advertising upon delivery of
services. As a result of America Online's termination of its marketing
agreements with us in November and December 1998, we experienced a significant
decrease in the number of page views to our Web site and the associated
advertising revenue. Page views decreased approximately 33% from a pre-
termination high in the third quarter of 1998 to the first quarter of 1999.
Revenue in the first quarter of 1999 was approximately 43% lower than revenue
in the fourth quarter of 1998. Approximately 54% of our total revenue in 1997
and 1998 was derived as a result of our relationship with America Online. While
growing quarter-to-quarter since December 1998, our quarterly advertising
revenue has not yet reached the levels experienced when our agreements with
America Online were in effect. During 1999, approximately 45% of our total
revenue was derived from the sale of national advertising.
We also derive revenue from various syndication and licensing agreements
with corporate customers which typically involve engineering work to integrate
our products and services with the customer's site and brand, as well as
license fees. We recognize these fees ratably over the term of the contract.
During 1999, approximately 34% of our total revenue was derived from
syndication.
We also generate revenue from building Web sites for local merchants,
running display ads in our yellow pages directory and hosting Web sites on our
servers. In February 1999, we implemented what we refer to as our merchant
aggregation program through a strategic alliance with Discover Financial
Services. This program is aimed at companies that have existing relationships
with small businesses in order to sell our Web site creation, hosting and
advertising services to local merchants. We expect the amount of revenue
generated from the sale of these services to increase as a result of this
program. We recognize customer acquisition fees from this program when the Web
site construction is complete. We recognize revenue on a monthly basis from the
creation and hosting of display ads and Web sites as services are provided.
During 1999, approximately 21% of our total revenue was derived from our
merchant aggregation program.
Our cost of revenue consists primarily of expenses paid to third parties
under data licensing agreements, as well as other direct expenses incurred to
maintain the operations of our Web site. These direct expenses consist of data
communications expenses related to Internet connectivity charges, salaries and
benefits for operations personnel, equipment costs and related depreciation,
and the costs to run our data center, which include rent and utilities. We
anticipate that our cost of revenue will increase in absolute dollars in the
future as a result of hiring additional employees and purchasing additional
equipment and outside services. Cost of revenue as a percentage of revenue has
varied in the past, primarily as a result of fluctuations in our Web site
traffic and, to a lesser extent, the cost of third-party content and
technology.
Our sales and marketing expense consists primarily of costs associated with
Web site promotion, third-party revenue share costs, advertising and creative
production expenses, employee salaries and benefits, public
27
<PAGE>
relations, market research and a pro rata share of occupancy and information
system expenses. We expect sales and marketing expense to increase in absolute
dollars as we continue to expand our marketing programs and our sales force and
incur advertising expenditures associated with our CBS-related promotion and
branding, carriage fees, and other marketing expenses associated with building
our merchant aggregation program. We expect to record the net present value of
the $95.0 million of advertising and promotion services from CBS as sales and
marketing expense as incurred through June 2006.
Our product development expense consists primarily of employee salaries and
benefits, fees for outside consultants and related costs associated with the
development of new services and features on our Web site, the enhancement of
existing products, quality assurance, testing and documentation and a pro rata
share of occupancy and information system expenses. We expect product
development expense to increase in absolute dollars in the future as we
maintain and upgrade our Web site.
Our general and administrative expense consists primarily of employee
salaries and benefits and other personnel-related costs for executive and
financial personnel, as well as legal, accounting and insurance costs and a pro
rata share of occupancy and information system expenses. We expect that our
general and administrative expense will increase in absolute dollars as we
continue to expand our staffing to support growing operations and facilities,
and incur expenses relating to our new responsibilities as a public company.
We have experienced substantial net losses since our inception. As of
December 31, 1999, we had an accumulated deficit of $21.0 million. To date, we
have made no provision for income taxes. These net losses and accumulated
deficit resulted from our lack of substantial revenue and the significant costs
incurred in the development of our Web site and the establishment of our
corporate infrastructure and organization. We expect to increase our
expenditures in all areas in order to execute our business plan, particularly
in sales and marketing and in product development.
Results of Operations
The following table sets forth for the periods indicated our results of
operations expressed as a percentage of revenue:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1997 1998 1999
------ ----- ------
<S> <C> <C> <C>
Revenue.............................................. 100.0% 100.0% 100.0%
Cost of revenue...................................... 122.0 20.0 23.7
------ ----- ------
Gross profit....................................... (22.0) 80.0 76.3
Operating expenses:
Sales and marketing................................ 354.8 89.8 135.3
Product development................................ 324.2 48.8 23.2
General and administrative......................... 119.4 17.3 22.0
------ ----- ------
Total operating expenses.......................... 798.4 155.9 180.5
Loss from operations................................. (820.4) (75.9) (104.2)
Interest income (expense), net....................... 0.6 (6.2) (1.8)
------ ----- ------
Net loss............................................. (819.8)% (82.1)% (106.0)%
====== ===== ======
</TABLE>
Years ended December 31, 1999 and 1998
Revenue. Revenue increased to $8.3 million for the year ended December 31,
1999 from $6.5 million for the year ended December 31, 1998. This $1.8 million
increase consisted primarily of an increase of $309,000 in syndication and
license revenue, primarily due to new customer agreements and an increase of
$1.7 million due to the launch of our merchant aggregation program and the
commencement of our strategic
28
<PAGE>
alliance with Discover Financial Services in February 1999, offset in part by a
$275,000 decrease in advertising revenue due primarily to the termination of
the America Online agreements. In 1999, one customer, Discover Financial
Services, accounted for 22.7% of our revenue. In 1998, QuikPage, Inc. accounted
for 10.2% of our revenue and two other customers accounted for 11.9% and 10.5%
of our revenue.
Cost of revenue. Cost of revenue increased to $2.0 million, or 23.7% of
revenue, for the year ended December 31, 1999 from $1.3 million, or 20.0% of
revenue, for the year ended December 31, 1998. The dollar increase and
resulting percentage increase were primarily due to amortization expense
related to a software license of $306,000 and Web site maintenance expenses of
$330,000 incurred in connection with our merchant aggregation program.
Gross profit increased to $6.3 million for the year ended December 31, 1999
from $5.2 million for the year ended December 31, 1998. Gross profit dollars
increased primarily due to higher revenue. Due to the increased costs, as a
percentage of revenue, gross profit percentage for the year ended December 31,
1999 decreased to 76.3% from 80.0% for the year ended December 31, 1998.
Sales and marketing. Sales and marketing expense increased to $11.2
million, or 135.3% of revenue, for the year ended December 31, 1999 from $5.9
million, or 89.8% of revenue, for the year ended December 31, 1998. The
increase in 1999 of $5.3 million was primarily related to the CBS non-cash
advertising expense of $4.0 million, along with increased telemarketing fees of
$1.0 million, other advertising expenses of $897,000, and program expenses of
$616,000 related to our merchant aggregation program, offset by decreased
carriage fees of $1.4 million resulting from the termination of the America
Online agreements in 1998.
Product development. Product development expense decreased to $1.9 million,
or 23.2% of revenue, for the year ended December 31, 1999 from $3.2 million, or
48.8% of revenue, for the year ended December 31, 1998. This decrease was
primarily due to the fact that product development expense for the year ended
December 31, 1998 included $1.4 million we expensed as incomplete technology
related to the Maps On Us technology acquisition.
General and administrative. General and administrative expense increased to
$1.8 million, or 22.0% of revenue, for the year ended December 31, 1999 from
$1.1 million or 17.3% of revenue, for the year ended December 31, 1998. The
increase was primarily due to salaries associated with newly hired personnel
and related costs of $575,000 required to manage our growth and facilities
expansion, as well as increased legal, accounting, and consulting fees of
$215,000.
Interest income (expense), net. Interest expense decreased to $149,000, or
1.8% of revenue, for the year ended December 31, 1999 from $404,000, or 6.2% of
revenue, for the year ended December 31, 1998. The dollar decrease in expense
was primarily due to increased interest income of $129,000 earned on the funds
available from the CBS investment in June 1999.
Years ended December 31, 1998 and 1997
Revenue. Revenue increased to $6.5 million for the year ended December 31,
1998 from $650,000 for the year ended December 31, 1997. The $5.9 million
increase in 1998 was primarily due to increased advertising revenue of $3.6
million due to the growth in traffic primarily related to our agreements with
America Online and increased syndication and license revenue of $2.3 million
due to various new customer agreements obtained in 1998. For the year ended
December 31, 1998, QuikPage, Inc. accounted for 10.2% of our revenue and two
other customers accounted for 11.9% and 10.5% of our revenue. For the year
ended December 31, 1997, one customer accounted for 13.7% of our revenue.
29
<PAGE>
Cost of revenue. Cost of revenue increased to $1.3 million, or 20.0% of
revenue, for the year ended December 31, 1998 from $793,000, or 122.0% of
revenue, for the year ended December 31, 1997. The dollar increase was
primarily due to increases in depreciation and amortization and data licensing
fees.
Gross profits were $5.2 million, or 80.0% of revenue, for the year ended
December 31, 1998, compared to ($143,000), or (22.0)% of revenue, for the year
ended December 31, 1997.
Sales and marketing. Sales and marketing expense increased to $5.9 million,
or 89.8% of revenue, for the year ended December 31, 1998 from $2.3 million, or
354.8% of revenue, for the year ended December 31, 1997. The increase of $3.6
million in 1998 was primarily attributable to increased America Online-related
carriage fees of $2.5 million, as well as revenue sharing expenses relating to
our strategic alliances of $907,000.
Product development. Product development expense increased to $3.2 million,
or 48.8% of revenue, for the year ended December 31, 1998 from $2.1 million, or
324.2% of revenue, for the year ended December 31, 1997. The increase in 1998
of $1.1 million primarily resulted from expenses related to our purchase of the
Maps On Us technology in May 1998.
General and administrative. General and administrative expense increased to
$1.1 million, or 17.3% of revenue, for the year ended December 31, 1998 from
$776,000, or 119.4% of revenue, for the year ended December 31, 1997. The
increase in 1998 of $354,000 was primarily due to an increase in the allowance
for doubtful accounts of $263,000 related to the increase in revenue and
accounts receivable, as well as increased personnel expenses of $206,000,
offset in part by decreases in outside services of $151,000.
Interest income (expense), net. Interest expense increased to $404,000 for
the year ended December 31, 1998, from interest income of $4,000 for the year
ended December 31, 1997. The increase in 1998 in expense was primarily due to
increased interest expense of $350,000 in 1998 on increased borrowings from
Banyan Worldwide to fund working capital for operations, as well as reduced
interest income resulting from decreased cash balances available for investing.
30
<PAGE>
Quarterly Results of Operations
The following tables set forth our unaudited quarterly results of
operations for each of the eight fiscal quarters in the period ended December
31, 1999. This information has been derived from unaudited interim financial
statements, that, in our opinion, have been prepared on a basis consistent with
the financial statements contained elsewhere in this prospectus and include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of the information when read in conjunction with our financial
statements and notes thereto. Our results of operations for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Revenue................. $ 1,081 $ 1,680 $ 1,783 $1,992 $1,128 $1,850 $ 2,286 $ 3,040
Cost of revenue......... 241 381 354 331 77 329 614 950
------- ------- ------- ------ ------ ------ ------- -------
Gross profit........... 840 1,299 1,429 1,661 1,051 1,521 1,672 2,090
Operating expenses:
Sales and marketing.... 1,826 1,208 1,612 1,226 690 1,414 2,403 6,730
Product development.... 459 1,880 489 360 435 441 471 576
General and
administrative....... 237 266 227 400 394 303 509 624
------- ------- ------- ------ ------ ------ ------- -------
Total operating
expenses: 2,522 3,354 2,328 1,986 1,519 2,158 3,383 7,930
Loss from operations.... (1,682) (2,055) (899) (325) (468) (637) (1,711) (5,840)
Interest income
(expense), net........ (69) (93) (124) (118) (118) (96) 28 37
------- ------- ------- ------ ------ ------ ------- -------
Net loss................ $(1,751) $(2,148) $(1,023) $ (443) $ (586) $ (733) $(1,683) $(5,803)
======= ======= ======= ====== ====== ====== ======= =======
As a Percentage of
Revenue:
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 22.3 22.7 19.9 16.6 6.8 17.8 26.9 31.3
------- ------- ------- ------ ------ ------ ------- -------
Gross profit........... 77.7 77.3 80.1 83.4 93.2 82.2 73.1 68.7
Operating expenses:
Sales and marketing.... 168.9 71.9 90.4 61.5 61.2 76.4 105.1 221.4
Product development.... 42.4 111.9 27.4 18.1 38.5 23.8 20.6 18.9
General and
administrative....... 20.2 17.0 12.7 20.1 34.9 16.4 22.2 20.5
------- ------- ------- ------ ------ ------ ------- -------
Total operating
expenses........... 231.5 200.8 130.5 99.7 134.6 116.6 147.9 260.8
Loss from operations.... (153.8) (123.5) (50.4) (16.3) (41.4) (34.4) (74.8) (192.1)
Interest income
(expense), net........ (6.4) (5.5) (7.0) (5.9) (10.5) (5.2) 1.2 1.2
------- ------- ------- ------ ------ ------ ------- -------
Net loss................ (160.2)% (129.0)% (57.4)% (22.2)% (51.9)% (39.6)% (73.6)% (190.9)%
======= ======= ======= ====== ====== ====== ======= =======
</TABLE>
We have experienced significant fluctuations in revenue, expenses and
results of operations from quarter to quarter. Although we do not believe our
business is seasonal, we do experience fluctuations in the traffic to our Web
site during various times during the year, most notably around certain holiday
periods, which may impact our revenue. We expect these fluctuations to
continue. A significant portion of our revenue has been generated from a
limited number of customers. We anticipate that our results of operations in
any given period will continue to depend to a significant extent upon sales to
a small number of customers. It is difficult to predict the timing of future
contracts to these and other customers due to the length of our sales cycle in
syndication and advertising.
Our agreements with America Online terminated in the fourth quarter of
1998. This termination adversely affected our results in the first two quarters
of 1999 because America Online had previously been responsible for a large
portion of our traffic and associated revenue.
We have also experienced significant variations in our quarterly gross
profits. Our gross profit has varied due to the volume of traffic to our Web
site, which causes fluctuation in our revenue, direct costs and sales and
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marketing expenses. Our product development and general and administrative
expenses have fluctuated on a quarterly basis primarily as a result of the
timing and number of additions in personnel and compensation and related costs.
We believe that period-to-period comparisons of our historical results of
operations are not meaningful and should not be relied upon as an indication of
future performance.
Incomplete Technology Write-Off
On May 18, 1998, we acquired the Maps On Us Internet mapping technology
from Lucent Technologies Incorporated for $1.6 million. The technology was
acquired to integrate it into our directory Web site.
A significant portion of the technology acquired was deemed incomplete as
it did not meet the criteria for capitalization. The technology was incomplete
because the technology required a substantial development effort by us in order
to successfully integrate the Maps On Us technology into our Web site. The
technology had no alternative future use to us inasmuch as we had acquired the
technology to improve and integrate it into our Web site and not to market it
as a standalone product. Further, we had no other product, line of business or
product development project that could use the technology. Therefore, we
recorded a charge to product development of $1.4 million for the purchase of
incomplete technology in 1998.
We valued the acquired incomplete technology using a risk adjusted
discounted cash flow approach including stage of completion assumptions. We
evaluated the Maps On Us technology using extensive interviews and analysis of
data concerning the state of the technology and the required development work.
The evaluation assumed an average growth of Maps On Us related advertising
revenue of 54% based on expectations in the industry at the time, a gross
profit of 70% to 80% and sales marketing and administrative expenses of 27% to
36% of revenue. These assumptions should not be construed as forecasts of the
Maps On Us related future operating results. We used a discount rate of 25% in
the evaluation, reflecting the difficulties and uncertainties in completing the
development effort and the inherent uncertainty of predicting cash flows in the
Internet industry. We estimated the technology's stage-of-completion at the
date of acquisition to be 80% based on estimated costs incurred by Lucent prior
to the acquisition of the technology of $1.0 million and our estimated cost to
complete of $250,000. Our estimate of costs incurred prior to the purchase is
based on our understanding of the technology. No development cost data was made
available by Lucent.
The acquired technology was incomplete because a significant amount of
coding, testing and integration was required before the technology would be
viable for use on our Web site. The components of the technology which required
significant development work included the integration of our business data with
the Maps On Us geocoding approach, the development of new tools for the
management and online modification of geocoding information, the design and
integration of the user interface and the cross linkage of the technology with
our advertising technology. The ability to integrate the technology with our
Web site was critical to achieving technological feasibility and was uncertain
at the time of acquisition. We have now completed the design and integration of
the Maps On Us technology on our Web site. The cost of completing the
development effort was $200,000.
Liquidity and Capital Resources
Since our inception, we have been funded primarily by Banyan Worldwide
under our convertible preferred note facilities and through sales of capital
stock. In 1999, Banyan Worldwide converted approximately $11.7 million of the
outstanding principal and interest under our convertible preferred note
facilities into preferred stock. The outstanding amount of principal and
interest under this facility is convertible at the option of Banyan Worldwide
into shares of series D preferred stock at a rate of $11.00 per share.
The interest rate in effect at December 31, 1999 was 5.74%. As of December 31,
1999, we had approximately $3.9 million available and there was no outstanding
balance under this facility. Upon completion of this offering, this facility
will automatically terminate in full and any outstanding principal and interest
will be
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converted into shares of our series D preferred stock at the then-applicable
conversion rate. Any shares of our Series D preferred stock which are issued
will convert automatically into shares of common stock upon completion of this
offering.
In November 1996, we received a $3.0 million equity investment from America
Online and Digital City Inc. We used these funds for working capital to fund
our operations. On June 30, 1999, we received $5.0 million in cash as part of
an equity investment from CBS.
As of December 31, 1999, we had cash and cash equivalents totaling $3.6
million.
Net cash used for operating activities for the year ended December 31, 1999
was $2.8 million, primarily due to a net loss of $8.8 million and increases in
accounts receivable and other current assets, offset in part by the increases
in accounts payable and accrued expenses.
Net cash used for investing activities for the year ended December 31, 1999
was $942,000. Investing activities for the periods were primarily purchases of
equipment, consisting largely of computer equipment.
Net cash provided by financing activities for the year ended December 31,
1999 was $6.9 million, primarily due to the CBS transaction and funds provided
to us by Banyan Worldwide.
Our other financial commitments consisted of a note payable related to the
purchase of the Maps On Us technology of $600,000 as of December 31, 1999.
As of December 31, 1999, we had net operating loss carryforwards of
approximately $14.2 million available for federal, state and foreign purposes
to reduce future taxable income expiring on various dates beginning in 2001.
Under the provisions of the Internal Revenue Code, some substantial changes in
our ownership may have limited, or may limit in the future, the amount of net
operating loss carryforwards which could be utilized annually to offset future
taxable income. Based on our current financial status, realization of our
deferred tax assets is uncertain. Accordingly, a valuation allowance for the
entire deferred tax asset amount has been recorded.
Since our inception, we have significantly increased our operating
expenses. We anticipate that we will continue to experience significant
increases in our operating expenses through at least 2001, and that our
operating expenses and capital expenditures will constitute a material use of
our cash resources. We expect to incur significant expense increases as we
attempt to brand our name and increase the traffic to our Web site. These
increases are expected to result from substantial advertising expenses and
increased marketing expenses associated with our merchant aggregation program.
Additionally, we expect to add personnel in all departments, which will
increase salaries and benefits and other personnel-related expenses. In
addition, we may utilize cash resources to fund acquisitions or investments in
businesses, technologies, products or services that are complementary to our
business. Due to the fact that our primary marketing expense will be the use of
our non-cash CBS-related advertising, we believe that the funds currently
available along with support from Banyan Worldwide will be sufficient to meet
our anticipated cash requirements for at least the next 12 months. Including
the proceeds of this offering, we expect to have sufficient funds to meet our
anticipated cash requirements for at least the next 24 months. If cash
generated from operations is insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity or debt securities, or
obtain additional credit facilities. However, there can be no assurance that we
would be successful in obtaining this additional funding. The issuance of
additional equity or convertible debt securities could result in additional
dilution to our stockholders.
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Market Risk
To date we have not utilized derivative financial instruments or derivative
commodity instruments. We invest our cash in money market funds, which are
subject to minimal credit and market risk. We believe the market risk
associated with these financial instruments is immaterial.
Year 2000 Readiness Disclosure
Many existing computer programs and systems include computer code in which
calendar year data is abbreviated to only two digits. As a result, some of
these programs and systems could fail to operate or fail to produce correct
results if "00" is interpreted to mean 1900, rather than 2000. We refer to this
as the year 2000 problem. We use software, computer technology and services
that are internally developed or provided by third parties that may fail due to
the year 2000 problem.
In April 1999 we initiated our formal year 2000 project to assess our year
2000 risks and to develop any necessary corrective action plans. To date, we
have taken the following actions under our year 2000 project:
. we have reviewed all hardware and software used in the operation of our
Web site, including internally developed software and third-party
hardware and software that is used in the operation of our Web site;
. we have upgraded the hardware and software which require modifications
to be year 2000 ready;
. we have obtained publicly available year 2000 readiness statements from
third parties who provide hardware, embedded software or packaged
software used in the operation of our Web site and from Exodus
Communications, which provides us with Web hosting facilities for our
Web site; and
. we have completed an assessment of the potential effects and costs of
remediating the year 2000 problem on our office and facilities
equipment.
In general, we have not contacted third parties regarding year 2000 readiness
other than to obtain publicly available year 2000 readiness statements
described above.
Our employees performed all significant work related to our year 2000
project. We did not hire any additional employees or incur significant
consulting expenses to perform this work. We purchased approximately $1,000 of
software upgrades and expended $50,000 on hardware, infrastructure and desktop
upgrades. Although we likely would have incurred these costs in the normal
course of our business activities, the upgrades replaced non-year 2000 ready
software and hardware. We do not expect to incur significant additional
expenses in connection with our year 2000 readiness project.
Our business depends upon the ability of consumers and local merchants to
access our Web site from their computers. Consumers who visit our Web site and
the local merchants in our network may not be able to access our Web site due
to their own year 2000 problems. Our users and our local merchant customers are
diverse and highly fragmented, and we have not attempted to contact them to
assess their year 2000 readiness. Many consumers and local merchants may not
have the internal capability or other resources necessary to assure their year
2000 readiness.
We also depend on the integrity and stability of the Internet. Our ability
to assess the year 2000 readiness of the general Internet infrastructure
necessary to support our operations is limited and relies solely on generally
available news reports, surveys and comparable industry data. Based on these
sources, we believe that most entities and individuals that rely significantly
on the Internet are reviewing and attempting to address issues relating to year
2000 compliance. We cannot predict whether these efforts will be successful in
reducing or eliminating the potential negative impact of year 2000 issues. Our
business would suffer if there were a disruption in the ability of consumers
and local merchants to access the Internet or portions of it.
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In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, security systems and other common
devices, may be affected by the year 2000 problem. Banyan Worldwide supplies
some of our office and facilities equipment. Because we did not purchase that
equipment, we may be unable to cost-effectively remediate any year 2000 issues
relating to that equipment.
Banyan Worldwide also provides us with various administrative
telecommunications and other services. Our business relies on functional use of
Banyan Worldwide's internal computer systems to process dates after December
31, 1999. Based on Banyan Worldwide's publicly available year 2000 readiness
statements, we believe that Banyan Worldwide has taken steps to assure its year
2000 readiness. If these systems are compromised by year 2000 problems, Banyan
Worldwide's ability to provide us with services could be impaired.
In December 1999, we completed the transition of our primary hosting
facility for our Web site from our corporate headquarters to a third-party
hosting facility. Although this transition was not undertaken specifically to
address year 2000 compliance problems, we believe that this transition
mitigates our risk of facility- or Internet-related failures caused by the year
2000 problem.
At this time, we have not developed and do not expect to develop a
contingency plan to address situations that may result if we, or any third
parties on which we rely, experience problems relating to our or their failure
to achieve year 2000 readiness. The cost of developing and implementing a
contingency plan, if necessary, could be significant. Any failure of our
material systems, the systems of the consumers that visit our Web site, the
systems of the merchants participating in our network, the systems of third
parties supplying our products and services, the systems of Banyan Worldwide or
the Internet to be year 2000 compliant could have negative consequences for us.
We believe our most reasonably likely worst case scenarios related to year
2000 risks are:
. failure of internal software causing a shutdown of our Web site;
. corruption of data contained in our information systems;
. hardware failure; and
. the failure of infrastructure services provided by third parties, such
as electricity, phone service, etc.
As of the date of this prospectus, we have not experienced any material
year 2000 problems relating to our software, computer technology or services
nor are we aware of any material year 2000 problems relating to the software,
computer technology or services of any third parties on which we rely.
Recently Issued Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard established accounting
and reporting standards for derivative instruments, including some derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137, is effective for all quarters for fiscal years
beginning after June 15, 2000. We do not expect SFAS No. 133 to have material
effect on our financial position or results of operations.
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BUSINESS
Overview
We are a leading Internet-based local merchant network interconnecting
consumers, merchants and national advertisers. Through our Web site,
Switchboard.com, we offer our users local information about people and
businesses across the United States, including listings of over 96 million
individuals, 12 million businesses and four million e-mail addresses. Our Web
site provides a broad range of functions, content and services designed to
connect consumers and businesses on the Internet.
Industry Background
The Internet is fundamentally changing how millions of people and
businesses share information. The number of Internet users worldwide is
projected to increase to 500 million by the end of 2003 from approximately 195
million in 1999, according to International Data Corporation. IDC projects
total business-to-consumer online commerce will increase to $178 billion in
2003 from approximately $31 billion in 1999. Forrester Research estimates that
online advertising in the United States will increase to $17.2 billion in 2003
from approximately $1.3 billion in 1998.
Historically, consumers have used multiple methods to identify and seek out
businesses that provide specific products and services in their area.
Traditional printed materials for finding local information include yellow
pages directories and local maps. These sources, however, typically cover
narrowly defined geographic areas and some are updated only once per year.
Telephone directory assistance allows consumers to get updated information, but
is often more costly to use and only provides telephone numbers and addresses.
Recently, consumers have turned to online directories as an alternative
source of local information. These directories can provide more up-to-date
results, and can extend beyond limited geographic boundaries. Many of today's
online directories, however, are merely extensions of traditional printed
directories, offering repackaged content in a static "listings" style layout.
Consumers continue to encounter difficulties obtaining the relevant information
they seek because of the volume and fragmented nature of online local
information.
As the number of users online continues to grow, the Internet is becoming
an accepted and viable commercial and marketing medium. Local merchants are
increasingly recognizing the need to establish an online presence to remain
competitive. According to Forrester Research, the aggregate number of
businesses with 100 or fewer employees with a Web presence is projected to
increase to approximately 4.2 million by the end of 2003 from approximately 2.1
million in 1999. Forrester Research also predicts local online commerce will
increase to $6.1 billion in 2003 from approximately $680 million in 1998.
Creating an online presence, however, is often a difficult and costly task
for small businesses. Local merchants may struggle with the financial,
technical and administrative challenges associated with creating, maintaining
and promoting an effective Web site. To compete online and to meet evolving
consumer expectations, merchants need more convenient and cost-effective ways
to build, promote and enhance the functionality, services and content of their
Web sites.
We believe that consumers demand an online service where they can easily
find detailed information about local merchants and their products and
services. We also believe that merchants demand a convenient and cost-effective
approach to creating a Web presence that will reach large numbers of these
consumers. We believe an opportunity exists to satisfy both constituencies with
a single online destination.
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The Switchboard Solution
Our local merchant network is focused on bringing consumers, merchants and
national advertisers together at a single online destination. We connect
consumers searching for specific products and services with the merchants that
provide them. Our online network:
. provides consumers with detailed local information about people and
businesses across the United States;
. gives local merchants a fast, easy, cost-effective way to get their
businesses represented online;
. facilitates commerce by connecting them with consumers; and
. provides an effective online lead generation engine for these local
merchants and for national advertisers that reaches consumers motivated
to buy products and services in specific geographic locations.
Benefits to Consumers
Extensive information base. We provide consumers with detailed local
information, including listings of over approximately 96 million individuals,
12 million businesses and four million e-mail addresses. Switchboard allows
consumers to search for people and businesses beyond the geographic boundaries
of traditional print directories. We offer a free alternative to directory
assistance charges and eliminate the need for consumers to know a specific city
or area code information to obtain the desired results. Our powerful search
capabilities, interactive maps and driving directions allow consumers to locate
businesses based on proximity to their home, office or a planned travel
destination. We link to a growing base of over 350,000 business Web sites and
provide consumers with a powerful tool to research and compare competitive
offerings and to ultimately conduct business, both online and offline. In
addition, our patented ad serving technologies present consumers with multiple
merchant advertisements and allow them to rapidly screen and examine the
information they seek.
Powerful search capability. Our proprietary directory architecture,
combined with our intuitive screen displays, allows search results to be
delivered quickly with few page views. These search results can be organized
alphabetically or by geographical proximity. Our innovative "What's Nearby?"
service enables a consumer to input an address anywhere in the country and find
detailed information about nearby businesses, people, government and points of
interest and regional maps. This feature is ideal for travel planning, both
personal and business, as well as for people moving or changing job locations
who need to familiarize themselves with their new surroundings.
Integrated maps and driving directions. Our Maps On Us maps and driving
directions technology is fully integrated with our directory services. Once a
consumer identifies a desired address, Maps On Us allows the consumer to plot
the most effective route to that destination, including intermediate stopping
points. Consumers may also store previously accessed maps and directions in a
personal address book.
Personalized experience. We offer our registered users the ability to
personalize their online experience. Users can control their listings in our
white pages and can add information about their profession, education,
affiliations and other interests. Users can choose from a variety of privacy
options to shield various portions of their online identities, and can store
their bookmarks in Switchboard for easy access from any computer. We also offer
personal home pages and custom e-mail accounts.
Benefits to Merchants
Fast, cost-effective Web presence. Our robust system architecture and
sophisticated Web site building tools enable us to quickly and cost effectively
develop and deploy multi-page Web sites for local merchants. We provide local
merchants with a visible Web presence, while eliminating the technical,
administrative and financial challenges typically associated with creating and
maintaining an effective Web site.
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Participation in a leading online local merchant network. We provide local
merchants with access to our nationally recognized, highly trafficked merchant
network, Switchboard.com. Unlike traditional phone books and directory
services, our online directory service, maps and driving directions provide
merchants with exposure to customers beyond their immediate local area. We
acquire and aggregate local merchant customers into our branded directory and
our network of syndicated directories. We believe our alliance with CBS further
enhances our brand and offers the opportunity to generate additional traffic to
our merchant customers.
Lead generation. Our online merchant network attracts potential consumers
who provide information about the types of products and services they are
seeking in a particular location. Switchboard.com helps our merchant customers
to connect with consumers and facilitates their communications with their
customers through e-mail, fax or regular mail. We believe that this direct line
of communication fosters stronger relationships between local merchants and
consumers.
Benefits to National Advertisers
We offer advertisers a wide range of advertising options. Our patented ad
serving technologies allow advertisers to target specific types of consumers in
each of our white pages, yellow pages, maps and Web search offerings. A
national advertiser can buy a site-wide banner to re-enforce its brand, an in-
category sponsorship to drive traffic to specific offers on their site and a
yellow pages trademark ad to drive traffic to local outlets. These options give
advertisers significant flexibility to construct customized campaigns designed
to drive traffic at the local or national level to businesses both offline and
online.
Strategy
We intend to be the leading Internet-based network connecting customers
with local merchants and providing merchants with the content, services and
functionality they need to effectively compete online. We plan to enhance our
lead generation capabilities by building traffic on our Web site, increasing
the number of merchants we serve and expanding the breadth of our services. Key
elements of our strategy include:
Building brand. We believe that building greater awareness of the
Switchboard brand is critical to expanding our user base and to building our
local merchant network. We intend to expand our use of advertising, public
relations and other marketing programs designed to promote our brand and build
user and merchant loyalty. In October 1999, we launched our "Think Outside the
Book" national advertising campaign designed to attract new consumers to
Switchboard.com and build awareness among merchants in local markets. We intend
to build on our relationship with CBS by promoting our brand across multiple
media, including national television, outdoor advertising and radio. In
addition, we expect to pursue other public relations and marketing programs.
Expanding merchant aggregation programs. We have established strategic
alliances with companies that have existing relationships with numerous small
businesses. We refer to these companies as merchant aggregators. We believe we
can attract a larger base of merchants by working together with these merchant
aggregators to implement co-branded sales and marketing programs. In February
1999, we launched our merchant aggregation program through a strategic alliance
with Discover Financial Services. We plan to continue to work with Discover and
other companies to offer our products and services to their small business
customers. We believe that by expanding our merchant aggregation program we can
increase the number of merchants in our network and provide greater value to
consumers, existing merchants and national advertisers.
Creating specialized vertical directories. We are developing targeted
syndication packages designed to attract vertical content providers seeking to
enhance their sites by offering specialized directories of local merchants in
categories relating to their content. We believe that providing relevant
content for researching products and services will increase the frequency and
duration of visits to our Web site. By forming relationships with providers of
this content, we believe we will enhance the effectiveness of our site for
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consumers and for advertisers seeking targeted audiences. By syndicating these
specialized directories, we expect to deliver more highly qualified customer
leads to our local merchants. We anticipate that some of these vertical content
providers will also participate in our merchant aggregation program since they
may have merchant relationships of their own.
Extending technology leadership. We intend to update and enhance the
features and functionality of Switchboard.com to continue to improve the user's
experience and provide a comprehensive, cost-effective online presence for
merchants. We are developing service enhancements aimed at our users, including
increased personalization and customization features and expanded search
options. We plan to offer merchants a more sophisticated Web presence by
integrating online commerce applications into our local merchant services. We
are pursuing additional opportunities to expand network access and merchant
services across a variety of wireless devices and other Internet-enabled
appliances. We believe that technology leadership will continue to be important
to offer compelling services and functionality.
Expanding internationally. We intend to expand internationally as
opportunities arise. We expect to accomplish this expansion by entering into
strategic alliances with companies that are well-positioned to aggregate
merchants in local markets, internationally. In connection with our strategic
relationship to license our technology to Bell ActiMedia, Inc., a wholly owned
subsidiary of Bell Canada, we enhanced our technology infrastructure. We
believe this enhanced technology infrastructure will help us to take advantage
of other international opportunities.
Switchboard.com
The foundation of our local merchant network is our Web site,
Switchboard.com. The site provides a broad range of functions, content and
services designed to connect consumers and businesses on the Internet. Key
features of Switchboard.com include:
Directory Services
Our yellow pages, white pages and e-mail directory services provide
consumers with information about people and businesses and, in many cases,
detailed information about the products and services those businesses offer. In
addition to listing information found in traditional directories, our
directories include integrated maps and directions, information about nearby
businesses, display advertisements and links to merchant Web sites. Consumers
can use our directory services to search by category, geography and names.
We license yellow and white pages directory information under a non-
exclusive agreement with infoUSA. Based upon infoUSA's extensive listings and
verification procedures and our management's understanding of available
alternatives, we believe its database is the most comprehensive and accurate
available database of business and residential information in the United
States. infoUSA is obligated to provide us with updated data monthly. Under
this agreement, we pay infoUSA annual royalties. We recently extended our
agreement with infoUSA to December 30, 2002.
To increase our coverage to include Canada, we entered into a relationship
with Bell ActiMedia in September 1999. Under the terms of our three-year non-
exclusive agreement with Bell ActiMedia, we agreed to develop, customize, host
and license versions of our white pages, our yellow pages and other of our
services for use by Bell ActiMedia on its own Web sites and Web sites owned by
affiliates of Bell Canada Enterprises, the parent company of Bell Canada. Bell
ActiMedia pays us development and engineering fees, annual license fees and a
share of their revenue. We also agreed with Bell ActiMedia to include links to
each other's Web sites on our Web sites and to limited licenses of each other's
trademarks.
Our directories provide users, merchants and advertisers with powerful
tools to customize how they represent themselves on the Web. Users and
merchants can edit their listings in our directories by updating and
supplementing information about themselves. These tools help users and
merchants to be found and ensure that the information about them is accurate
and personalized.
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Our e-mail address database provides users with access to e-mail addresses
provided by our own users and a third-party source. Registered users can use
our patented "Knock Knock" technology to control access to their e-mail
address. As a privacy benefit to our users, this service functions as an e-mail
equivalent of caller ID, allowing users to screen e-mails while shielding their
e-mail address from the sender.
Localized Content
Our "What's Nearby?" service provides relevant information about the
surrounding local merchants and establishments related to a user search.
"What's Nearby?" provides links to local businesses in the entertainment,
travel, recreation, shopping, health and real estate sectors based on the
user's target search location. In addition, this service provides mapping
features and links to Web sites related to the region, government offices,
points of interest and other useful information. This information is integrated
into our white pages, yellow pages and mapping features allowing users to
access businesses, information and services in the context of their searches.
Maps and Directions
Our Maps On Us technology integrates maps and driving directions into many
areas of our Web site. Maps generated by Maps On Us provide users with
sophisticated viewing options including multiple levels of zoom, full and half
screen pans, map center selection, labeling of roads and other points of
interest, map size, color or monochrome rendering and latitude/longitude
display. Our technology provides users with a powerful tool to plan the
shortest or fastest route from a starting point to a destination including up
to five intermediate locations. They can also choose to avoid or use major
highways. Our "best tour" function lets users enter a number of locations in
any order and will designate the most efficient route from start to finish.
Maps are displayed with detailed turn-by-turn directions, all of which can be
forwarded to others by e-mail.
Users can also incorporate the "What's Nearby?" service to identify and
highlight local businesses that are in the vicinity of the mapped selection or
on the created route. In addition to the core features, registered users can
also save maps and routes previously generated by Maps On Us, and store a list
of addresses, markers or favorite places in an address book. Stored information
is highlighted on subsequent maps or route requests.
Web Searching Tools
Our Web searching technology provides users with a powerful search
alternative to existing key-word based search engines. Results are optimized to
deliver the most relevant Web sites instead of Web pages, making searching
easier and more efficient. These sites are linked in a way that allows users to
navigate through them based on their relationship to each other as well as find
them through keyword searches.
Our technology allows registered users to personalize bookmarks and access
these bookmarks from any computer though the Switchboard.com site. As an added
benefit, we can supplement these personalized bookmarks with related Web sites.
Users can also use our bookmark editing tools to add, delete and re-classify
links. Using this feature, our users can move from computer to computer but
still enjoy the same set of bookmarks when they access the Web.
Community
We provide the following services to enhance the user experience on our
site:
. Free e-mail. Users can get free e-mail with our comprehensive set of
e-mail options, including customized addresses, multiple accounts and
other enhanced services.
. Free homepages. With our personal home page builder, users can easily
create sophisticated personal Web sites by selecting from a gallery of
layouts, themes, colors and clip art. Users can also add original
text, favorite links or their own pictures.
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. Message boards. We offer users the ability to post and read messages
on message boards across a variety of topics including humor,
relationships, religion, sports, genealogy, politics, teens and
missing persons. In addition, we organize our message boards by city
or state, allowing regional users to interact and communicate.
. Shopping area. From our shopping area, users can purchase gifts and
merchandise, as well as electronic photos, greeting cards, flowers and
other items, and have them sent to relatives, friends and business
associates located through our directories.
Other Services
In December 1999, we announced plans to offer long distance calling over
the Internet to consumers using our Web site through a relationship with
Net2Phone, Inc. and plans to offer Web-based file delivery, handling and
storage services designed to make it easier for consumers using our Web site to
send and receive large files directly from their Web browsers through a
relationship with click2send.com, Inc.
Local Merchant Services
We provide local merchants with a broad range of services to help them
establish, manage and expand their online presence as their business evolves.
Using a variety of proprietary and licensed technologies and services, we
provide small businesses with solutions to reach qualified consumers. Current
services provided to local merchants include:
. construction and hosting of multi-page Web sites with detailed
business information;
. developing contact pages designed to connect potential consumers with
merchants;
. integrated mapping and directions functionality powered by Maps On Us;
and
. marketing services including display advertisements on Switchboard.com
and affiliated sites.
For those businesses seeking to construct their own Web site, we also offer
our Web site building tool, Ad Studio, which allows merchants to select from a
gallery of layouts and clip art, upload pictures and choose geographies and
categories in which their Web site will be seen.
Advertising
Banner and Sponsorship Advertising
We offer both site-wide banner and category-specific banner programs. We
provide standard run of site banner ad programs, which include full banners
across the top and bottom of pages and smaller banners on the navigation bar
that allow advertisers to take advantage of our high traffic volume.
Additionally, our patented banner ad serving technology enables us to place and
rotate category-specific banner ads of various sizes in targeted locations
throughout our site. We also sell sponsorship programs on a site-wide basis or
for various categories. Sponsorships are advertisements consistently and
prominently displayed on our Web site.
Display Advertising
We provide yellow pages-style display advertisements and ad management
tools to local merchants and national advertisers. We give advertisers a range
of location, category and ad size options at the local and national levels.
When shown on a computer screen, our display ads resemble traditional yellow
page advertisements. Our display ads rotate according to preset priority
placement rules which allow for each advertiser's display ad to be periodically
visible near the top of the page.
Display advertisements are sold on a monthly or annual basis, and are
generally not subject to guaranteed impression levels or click-throughs. We
price and sell advertisements on the basis of ad size, search locations and
priority placement. Display advertisements are category specific and
geographically targeted. When clicked, display ads link the user to a Web site
of the advertiser's choosing. Options available to these advertisers include:
. display priority options designed to allow advertisers to pay to have
their ads seen more frequently and prominently than others;
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. trademark ads designed to allow national advertisers to represent
outlets for their products based on their location in selected
categories, for example "Our Dealers Near You";
. ads designed to allow national businesses to advertise in local
category searches; and
. geographical options that allow merchants to place ads in a single zip
code, within a radius around a specific location or nationwide.
E-Commerce Advertising
We offer advertisements on various pages on our Web site for advertisers
engaged in e-commerce. These advertisements can be placed under specific
headings near a white pages search result. We also provide links to our
shopping area near our white pages search results. In our shopping area, we
offer e-commerce advertisers the opportunity to promote product specials, as
well as link to their Web sites.
Syndication
We license our products and services to other companies in order to
generate traffic on the Switchboard.com Web site. We refer to this as
syndication. Syndication extends the reach of our site and increases the value
proposition to our advertisers. As of December 31, 1999, we syndicated our
directories or maps on a variety of Web sites, including Ask Jeeves, the AtHand
Network, CBS.com and USATODAY.com.
We recently announced plans to expand the scope of our syndication
relationships to include distribution of Switchboard content to users of mobile
telephones, through relationships with Phone.com, Inc. and Roku Technologies,
and to users of interactive television, through a relationship with WorldGate
Communications, Inc.
Strategic Alliances
We have formed strategic alliances to:
. build our brand;
. increase the number of visitors to our Web site;
. support our expanding sales and marketing efforts; and
. develop compelling content, services and functionality for our Web
site and for Web sites that we create for our local merchant
customers.
CBS Corporation. In June 1999, we entered into a strategic relationship
with CBS under which CBS became a stockholder of Switchboard in exchange for
$95.0 million in advertising and promotion through June 2006 across the full
range of CBS media properties, including its majority-owned radio and outdoor
advertising subsidiary, Infinity Broadcasting Corporation, and $5.0 million in
cash. We also received a license from CBS to use the "CBS" and CBS "eye" device
trademarks. In addition, CBS has agreed to place links to our Web site on CBS-
controlled Web sites, including CBS.com, and to use good faith efforts to
obtain similar links on other Web sites in which CBS has a non-controlling
interest. Our alliance with CBS is helping us to expand our advertising sales
resources both locally and nationally and delivers the credibility and backing
of a major media company.
Discover Financial Services. In February 1999, we launched our merchant
aggregation partnership program with Discover Financial Services. The Discover
program provides us with access to Discover's merchant customer base. Discover
offers its merchant customers an online solution through Switchboard.com. This
relationship allows us to offer their base of merchants additional services and
functionality over time.
Bell ActiMedia. To expand our content offering and increase our geographic
coverage, we entered into a three-year agreement in September 1999 with Bell
ActiMedia to provide directory services in Canada. This relationship is
intended to increase Canadian traffic, help us grow our local merchant base
outside the United States and enable us to provide Canadian information to our
U.S. users.
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Technology
We have developed sophisticated technologies that enable rapid
dissemination of information requested by consumers using our Web site. These
technologies were conceived and developed by a staff of senior engineers
experienced in designing large-scale, distributed computer systems, a form of
computer architecture that divides system functionality over numerous
computers, each known as a server, to enhance overall system performance. We
also have particular strengths in the areas of database technologies,
advertising management and content customization.
Directory Technology
We have been affiliated with Banyan Worldwide, a pioneer of directory
technology, since our founding in 1996. Directories played a key role in the
large-scale, multiple-site distributed systems deployed by Banyan Worldwide
since 1983. Our founder, Dean Polnerow, designed and originally developed
StreetTalk, Banyan Worldwide's directory service. Building on this experience
to create our own proprietary directory technology, we created what we believe
to be the first national directory of U.S. residential information available on
the Internet, as well as our innovative and proprietary yellow pages business
directory.
Site Design
The Switchboard.com Web site was designed to provide high levels of
performance, scalability and reliability. The site is implemented as a set of
Windows NT servers which are organized into groups. Each group of servers
provides different parts of the overall site's functionality and each type of
functionality is provided by more than one group of servers. Individual servers
in a group can be added or removed without affecting the functional
capabilities of the site, and most changes required are managed automatically
by proprietary software that we developed. This distributed architecture is
designed to be highly scalable, which means that system capacity and
functionality can be easily and inexpensively increased, typically with minimal
or no time consuming software changes required. It is also designed to be
reliable, which means it is resistant to service interruptions and that the
unavailability of one or more servers does not necessarily affect the operation
of other servers or the site as a whole.
Database Technologies
We have developed technology designed to quickly exchange information
between the groups of servers that provide the interface consumers use to input
their requests for information with the groups of servers that store the
databases of information we use to respond to these requests. This technology
allows data from multiple databases to be accessed and combined, regardless of
its structure or content. This simplifies the development of new user
interfaces and facilitates database updates. Our database technology helps to
maximize our Web site performance through caching capabilities, which seek to
reduce response time by storing frequently requested information and predicting
which information will next be requested, and by automatically balancing the
tasks being performed by individual servers.
Our database technology includes sophisticated query management techniques,
which enable requests for large amounts of data to be retrieved in segments
while reducing the computer processing time typically associated with these
operations using conventional design techniques. This enables ready access to a
large amount of data stored in any of the databases and results in faster
response to the user. Conventional databases often access previous results in
order to display successive results to a given query which increases response
time by performing redundant operations.
Advertising Management
Our ad placement technology is used primarily to control the frequency and
positioning of advertisements displayed on our Web site. This technology
rotates merchant ad displays in and out of prime locations on our yellow pages
screens according to priorities specifically purchased by our merchant
customers. We use an automated chain of software programs to securely
facilitate the addition and removal of both individual ads and large,
aggregated volumes of merchant advertising into the Switchboard.com yellow
pages.
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We have also developed a proprietary ad placement methodology which
provides a simple way for us to allow a merchant to focus its advertisement to
the surrounding communities it desires to target. This technology uses the
physical location of a business and a distance measurement selected by the
merchant to automatically determine the appropriate location targets. These ad
management tools and processes enable our direct sales force and authorized ad
resellers to remotely manage and control national, regional and local ad
campaigns.
Content Customization
We can customize the look and feel of the content we deliver in response to
customer inquiries so that it is consistent with the look and feel of our
syndication customers' own Web sites. This customization process is based on
the modular organization of functional elements of our content, such as white
pages, yellow pages, e-mail search and user registration. These modules
separate the functional elements from the layout elements, such as site
appearance, thus facilitating rapid development of customized interfaces for
our syndication customers. As we enhance or build new functional elements, the
underlying architecture enables us to deploy them across all of the Web sites
of our syndication customers.
Production, Computer and Communications Equipment
The production, computer and communications equipment used to operate the
Switchboard Web site and the Maps On Us Web site is located at Exodus
Communications, Inc.'s data center in Waltham, Massachusetts. The Exodus
facility offers physical security, full power failure protection and redundant
communications links. We operate a back-up of the Switchboard Web site in
Westboro, Massachusetts with automatic fail-over in the event of a catastrophic
facilities or communications failure at the Exodus location.
Marketing, Merchant Aggregation and Sales
Marketing
We have generated our traffic and merchant participation to date with
limited marketing. In October 1999, we launched an advertising campaign
designed to generate increased awareness of our site among consumers and
merchants. The cornerstone of this campaign is $95.0 million of advertising on
the CBS properties that we will receive through our strategic alliance with
CBS. This alliance allows us to take advantage of CBS's strong presence across
a variety of advertising media, including:
. radio networks;
. outdoor advertising; and
. the CBS television network.
As part of the CBS initiative, in October 1999 we unveiled two 30 second
television commercials for broadcast in Boston, Chicago, Los Angeles, New York,
Philadelphia and San Francisco. These commercials challenge consumers and
businesses to "Think Outside the Book," and use our online directory service
instead of traditional ones.
We employ a variety of online and offline advertising to promote our
service and generate additional traffic. Prior to our relationship with CBS, we
primarily relied upon promoting and marketing our service through syndication
relationships with telecommunications companies, Internet destination sites and
other companies. We plan to utilize a variety of media to market our online
services including online, print, direct mail, radio, television and outdoor
advertising. We have an ongoing public relations program and participate in
industry conferences and tradeshows.
Merchant Aggregation
To attract new merchants to our network, we have established strategic
affiliations with a number of organizations which have existing relationships
with, or databases of, local merchants. These relationships are designed to
help us cost-effectively reach the highly fragmented small business market.
Most of these relationships are with merchant aggregators. The merchant
aggregators contribute to the growth of our local merchant network by offering,
or allowing us to offer, our services to their merchant customers. In many
cases,
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we market our services on a co-branded basis and generate sales through
outsourced telesales agents, or through our merchant aggregators' direct sales
forces. The other relationships are with companies that have compiled databases
of information about local merchants. These relationships provide us with
information enabling us to supplement basic listing information with links to
merchant Web sites.
We currently have relationships with Bell ActiMedia, Discover Financial
Services, QuikPage, Inc., and several other companies. Under these
arrangements, we typically receive payments from these parties for yellow pages
advertisements on our Web site they sell to their customers, development fees
and/or license fees. In some cases, we receive payment directly from merchants
for services and then share this revenue with the merchant aggregator. Discover
is currently our primary merchant aggregator. Under our arrangement with
Discover, we co-market our local merchant services to Discover merchant
customers and share the resulting revenue and marketing expenses.
Sales
Our internal sales force coordinates our national sales efforts. They are
dedicated to selling advertisements and sponsorships across our Web site. As of
December 31, 1999, our sales organization was comprised of six employees and
one consultant engaged in direct selling efforts.
Competition
Our competitors fall into four primary categories:
. traditional and online white and yellow pages information providers;
. companies providing Web-enabled solutions for small businesses;
. companies targeting consumers seeking local information; and
. companies targeting the consumer Internet services market.
We compete in the markets for Internet content, services and advertising.
These markets are highly competitive and we expect competition to increase in
the future with the entrance of new competitors. Currently, the number of
companies aggregating small businesses and providing them with a similar
comprehensive solution and scale is small. However, the market is rapidly
developing. Barriers to entry in these markets are not significant and current
and new competitors may be able to launch new Web sites at a relatively low
cost.
We believe our ability to compete successfully depends on many factors,
several of which are outside of our control. These factors include the quality
of content we provide relative to our competitors, the cost-effectiveness and
reliability of our services relative to our competitors and our ability to
generate leads for merchants.
We also compete with traditional advertising media, including television,
radio and print, for a share of advertisers' total advertising budgets. If
advertisers consider the Internet, or our site, to be a limited or ineffective
advertising medium, advertisers may be reluctant to devote a significant amount
of their advertising dollars to advertising on our Web site.
Intellectual Property
We regard our patents, copyrights, service marks, trademarks, trade dress,
trade secrets and other intellectual property as critical to our success. We
rely on a combination of patent, trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
consultants, customers, partners and others to protect our proprietary rights.
All of our employees have executed confidentiality and assignment of invention
agreements. Prior to disclosing confidential information to third parties, we
generally require them to sign confidentiality or other agreements restricting
the use and disclosure of our confidential information.
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As of December 31, 1999, we had four patents issued by the U.S. Patent and
Trademark Office and three patent applications pending before the Canadian
Intellectual Property Office, all of which relate to the operation, features or
performance of our Web site. We pursue registration of our key trademarks and
service marks in the United States and, in some cases, internationally.
However, effective trademark, service mark, copyright and trade secret
protection may not be available or sought by us in every country in which our
services are made available online. Our patents, trademarks, or other
intellectual property rights may be successfully challenged by others or
invalidated through administrative process or litigation. Further, the
validity, enforceability and scope of protection of proprietary rights in
Internet-related industries is uncertain and still evolving.
We license our proprietary rights, such as patents, trademarks and
copyrighted material, to third parties. Despite our efforts to protect our
proprietary rights, third parties may infringe or misappropriate our rights or
diminish the quality or reputation associated with our brand, which could have
a material adverse affect on our business, results of operations, or financial
condition.
In addition, we license software, content and other intellectual property,
including trademarks, patents, and copyrighted material, from third parties. In
particular, we license the rights to use the "CBS" trademark and "eye" device
under a license with CBS which expires by its terms in June 2009. We also
license residential and business listing data from infoUSA, Inc. under an
agreement that expires in December 2002, and maps and driving directions data
and related software from Etak, Inc. under an agreement that expires in
November 2000. Further, the software code underlying Switchboard.com contains
software code which is licensed to us by third parties. If any of these
licenses are terminated or expire, it could have a material adverse effect on
our business, results of operations or financial condition.
We currently own a number of Internet domain names, including
Switchboard.com, MapsOnUs.com and SideClick.com. In addition, we co-own with
CBS the domain names CBS.Switchboard.com and CBSSwitchboard.com. Domain names
generally are regulated by Internet regulatory bodies. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. We therefore, could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademarks and other proprietary rights.
Employees
As of December 31, 1999, we had 52 full-time employees. None of our
employees is represented by a labor union. We believe our relations with our
employees are good.
Facilities
Our headquarters are located in Westboro, Massachusetts, where we occupy
approximately 8,000 square feet under an agreement with Banyan Worldwide. Since
our inception through December 31, 1999 we have incurred expenses of $552,121
under an agreement with Banyan Worldwide relating to facilities fees, which
cover rent and costs of furnishings, equipment, telephone service, security in
our building, the fitness center, shared cafeteria costs and building
maintenance.
Our agreement with Banyan Worldwide continues in effect until November 2000
and renews on a year-to-year basis each November unless we or Banyan Worldwide
terminate the agreement upon 90 days' written notice. Upon the completion of
this offering, we intend to enter into a new sublease with Banyan Worldwide
which, together with a new services agreement we intend to enter into with
Banyan Worldwide, will replace our existing agreement with Banyan Worldwide.
The new sublease will terminate on December 31, 2002, but we will have the
option to extend the term to September 30, 2005. Our monthly rent under the new
sublease will be $25,551. We believe our facilities will be adequate for our
anticipated growth and that we will be able to obtain additional space as
needed on commercially reasonable terms.
Legal Proceedings
We are not currently subject to any material legal proceedings. From time
to time, we are involved in various legal proceedings incidental to the conduct
of our business.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors as of January 31, 2000, are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Douglas J. Greenlaw............ 55 Chief Executive Officer and Director
Dean Polnerow.................. 43 President and Director
John P. Jewett................. 56 Vice President and Chief Financial Officer,
Treasurer and Secretary
James M. Canon................. 48 Vice President, Business Development
William P. Ferry (1)........... 47 Chairman of the Board of Directors
Daniel R. Mason (1)............ 48 Director
Russell I. Pillar.............. 34 Director
Richard M. Spaulding (2)....... 40 Director
David N. Strohm (1)(2)......... 51 Director
Robert M. Wadsworth (2)........ 39 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
There is currently one vacancy on our board of directors. Following this
offering, it is expected that our board of directors will fill this vacancy
with a new director who is not an officer or employee of Switchboard, Banyan
Worldwide or CBS or any of our or their affiliates. As of the date of this
prospectus, the identity of this new director has not been determined.
Douglas J. Greenlaw has served as our Chief Executive Officer since October
1999 and as a director since January 2000. Prior to joining Switchboard, from
January 1997 to October 1999, Mr. Greenlaw served as an independent management
consultant. From January 1994 to December 1996, Mr. Greenlaw served as
President and Chief Operating Officer of Multimedia, Inc., a publisher of
newspapers and operator of television and radio stations.
Dean Polnerow founded Switchboard and has served as our President since
March 1998 and as a director since September 1998. Prior to his appointment as
our President, from April 1996 to March 1998, Mr. Polnerow served as our Vice
President, Product and Business Development. From September 1983 to April 1996,
Mr. Polnerow served in various capacities, including as Vice President,
Advanced Development, at Banyan Worldwide.
John P. Jewett has served as our Vice President and Chief Financial Officer
since October 1998, as our Treasurer since April 1999 and as our Secretary
since October 1999. Prior to joining Switchboard, from July 1997 to October
1998, Mr. Jewett served as an independent financial consultant to early stage
Internet companies. From March 1995 to July 1997, Mr. Jewett served in various
capacities, including, Vice President, Finance and Operations and Chief
Financial Officer, at PointCast, Inc., an Internet news and content provider.
From 1991 to December 1994, Mr. Jewett served as President and Chief Executive
Officer of Calidus Systems, Inc., a logistics software application developer.
James M. Canon has served as our Vice President, Business Development since
March 1998. Prior to his appointment as our Vice President, Business
Development, from January 1997 to March 1998, Mr. Canon served in various
capacities at Switchboard, most recently as Director, Product Management. From
1991 to January 1997 Mr. Canon served in various capacities, including as
Information Products Architect, at Banyan Worldwide.
William P. Ferry has served as a director since March 1997 and as our
Chairman of the Board of Directors since February 1998. Mr. Ferry has served as
Chairman of the Board of Banyan Worldwide since October 1997 and as President,
Chief Executive Officer and a director of Banyan Worldwide since February
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1997. From 1990 to February 1997, Mr. Ferry served in various capacities, most
recently as President, Services Division, at Wang Laboratories, Inc., an
information technology service provider.
Daniel R. Mason has served as a director since September 1999. Mr. Mason is
Executive Vice President of Infinity Broadcasting Corporation, a majority-owned
subsidiary of CBS, and has served as President of the Infinity Radio Group, an
operator of radio stations, since November 1995. From 1992 to November 1995,
Mr. Mason served as President of Group W. Radio, a division of Westinghouse
Broadcasting Company. Mr. Mason is also a director of MarketWatch.com, Inc., a
Web-based provider of business news, financial programming and analytic tools.
Russell I. Pillar has served as a director since January 2000. Mr. Pillar
has served as President and Chief Executive Officer of CBS Internet Group, a
division of CBS, since January 2000. Prior to joining CBS, from November 1998
to December 1999, Mr. Pillar served as President and Chief Executive Officer of
Virgin Entertainment Group, Inc., an operator of retail music stores throughout
North America. Since October 1996, Mr. Pillar has served as a director, and
from September 1997 to August 1998 he served as President and Chief Executive
Officer, of Prodigy Communications Corporation, an Internet service provider.
From 1993 to September 1996, Mr. Pillar served as President and Chief Executive
Officer of Precision Systems, Inc., an international telecommunications
software provider. In addition, since October 1991, he also has served as
Managing Partner of Critical Mass Ventures LLC, an Internet-focused technology
incubator/venture capital firm. In addition to his service on the boards of
directors of Switchboard and Prodigy, Mr. Pillar is also a director of Virgin
Entertainment Group Ltd., Telescan, Inc. and uBid, Inc.
Richard M. Spaulding has served as a director since April 1996. Mr.
Spaulding is Senior Vice President and Chief Financial Officer of Banyan
Worldwide, where he has served in various capacities since September 1990.
David N. Strohm has served as a director since February 1998. He has been a
general partner of Greylock Management Corporation, a venture capital group,
since 1980, and he is a general partner of several venture capital funds
affiliated with Greylock. Mr. Strohm served as a director of Banyan Worldwide
from 1983 until November 1999. He is also a director of DoubleClick Inc.,
Legato Systems, Inc. and Internet Security Systems, Inc.
Robert M. Wadsworth has served as a director since September 1999. He has
been a managing director and Vice President of HarbourVest Partners, LLC, a
venture capital management company, since February 1997. He joined Hancock
Venture Partners, the predecessor of HarbourVest Partners, LLC, in July 1986.
Mr. Wadsworth is a general partner of several private equity funds managed by
HarbourVest. Since March 1998, Mr. Wadsworth has been a director of Banyan
Worldwide. He is a director of Concord Communications, Inc., GSS Holdings, Inc.
and Outsourcing Services Group, Inc.
Executive Officers
Each officer serves at the discretion of our Board of Directors and holds
office until his successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
Election of Directors
Series E directors. CBS is the holder of the one outstanding share of our
series E special voting preferred stock. As the holder of that share, CBS is
presently entitled under our certificate of incorporation to elect the number
of directors to our board of directors, rounded down, that equals CBS's fully
diluted ownership percentage in Switchboard. After this offering, CBS will be
entitled to designate two of our nine directors. Directors elected pursuant to
CBS's special voting rights may be removed by CBS at any time without cause.
See "Certain Transactions" and "Description of Capital Stock". CBS elected
Messrs. Mason and Pillar to our board of directors pursuant to its special
voting rights.
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Other directors. The remainder of our board of directors is divided into
three classes. At each annual meeting of stockholders, beginning in 2001, the
terms of the directors serving in one of the three classes will expire and
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are expiring. Mr. Ferry and Mr. Wadsworth are Class I
Directors, with terms expiring at the 2001 annual meeting of stockholders. Mr.
Strohm and Mr. Spaulding are Class II Directors, with terms expiring at the
2002 annual meeting of stockholders. Mr. Greenlaw and Mr. Polnerow are Class
III Directors, with terms expiring at the 2003 annual meeting of stockholders.
The director expected to be named after this offering will be assigned to a
class by the board of directors upon his or her election.
Board Committees
The audit committee reports to the board of directors regarding the
appointment of our independent public accountants, the scope and results of our
annual audits, compliance with our accounting and financial policies and
management's procedures and policies relative to the adequacy of our internal
accounting controls. The audit committee currently consists of Messrs.
Spaulding, Strohm and Wadsworth.
The compensation committee reviews and makes recommendations to the board
of directors regarding our compensation policies and all forms of compensation
to be provided to our executive officers and directors. In addition, the
compensation committee reviews stock compensation arrangements for all of our
other employees. The current members of the compensation committee are Messrs.
Ferry, Mason and Strohm.
Compensation Committee Interlocks and Insider Participation
In September 1999, our board of directors established a compensation
committee. Messrs. Ferry, Mason and Strohm served as members of the
compensation committee during the fiscal year ended December 31, 1999. From
January 1999 to September 1999, compensation decisions with respect to our
executive officers were made by our full board of directors, which included Mr.
Ferry, our Chairman of the Board, and Mr. Polnerow, our President. Mr. Ferry is
also Chairman of the Board of Directors, President and Chief Executive Officer
of Banyan Worldwide.
Director Compensation
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and any meetings of its
committees. From time to time, in our discretion, we grant equity awards to our
non-employee directors under our stock incentive plans. We have granted our
non-employee directors the following stock options under our 1996 stock
incentive plan:
. In January 1997, we granted Mr. Spaulding an option to purchase up to
5,000 shares of our common stock at a per share exercise price of
$1.00. This option vests in four equal annual installments beginning
one year after the date of grant.
. In September 1999, we granted to each of Messrs. Ferry, Mason,
Spaulding, Strohm and Wadsworth an option to purchase up to 40,000
shares of our common stock at a per share exercise price of $8.50.
These options vest in four equal annual installments beginning one year
after the date of grant.
. In October 1999, we granted to Mr. Ferry an option to purchase up to
60,000 shares of our common stock at a per share exercise price of
$9.00. This option vests in two equal annual installments beginning one
year after the date of grant.
. In January 2000, we granted to Mr. Pillar an option to purchase up to
40,000 shares of our common stock at a per share exercise price of
$11.00. This option vests in four equal annual installments beginning
one year after the date of grant.
Directors who have received options have the right to exercise such options
prior to the time they become vested. Upon such early exercise, directors
receive shares of restricted stock which are subject to the same vesting
schedule as the original options.
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Executive Compensation
The following table sets forth the total compensation paid or accrued for
the years ended December 31, 1998 and 1999 to our:
. Chief Executive Officer;
. President; and
. two other executive officers who were serving as executive officers on
December 31, 1999 and whose individual total salary and bonus exceeded
$100,000.
We refer to these officers collectively as our Named Executive Officers.
In accordance with the rules of the SEC the compensation set forth in the
table below does not include medical, group life or other benefits which are
available to all of our salaried employees, and perquisites and other benefits,
securities or property which do not exceed the lesser of $50,000 or 10% of the
person's salary and bonus shown in the table. In the table below, columns
required by the regulations of the SEC have been omitted where no information
was required to be disclosed under those columns.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------- ---------------------
Shares of Common
Stock All Other
Name and Principal Position Year Salary Bonus(1) Underlying Options Compensation(2)
- --------------------------- ---- -------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Douglas J. Greenlaw(3).... 1999 $ 43,569 $18,268 900,000 $ --
Chief Executive Officer
Dean Polnerow............. 1999 $164,769 $75,952 185,000 $3,851(4)
President 1998 155,769 57,003 70,000 2,978
John P. Jewett(5)......... 1999 $124,997 $61,999 50,000 $2,493
Vice President and Chief 1998 20,673 -- 100,000 --
Financial Officer,
Treasurer and
Secretary
James M. Canon............ 1999 $113,154 $28,102 70,000 $ --
Vice President, Business 1998 103,846 20,969 30,000 --
Development
</TABLE>
- --------
(1)Represents amounts awarded as annual incentive bonuses.
(2)Unless otherwise specified, represents matching 401(k) plan contributions.
(3)Mr. Greenlaw joined Switchboard in October 1999.
(4)Includes $683 of insurance premiums for term life insurance.
(5)Mr. Jewett joined Switchboard in October 1998.
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<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers in 1999. Unless otherwise noted,
each stock option grant vests in four equal installments beginning one year
after the date of grant and has a term of ten years. The per share exercise
price of all options granted to our Named Executive Officers represents the
fair market value of our common stock on the grant date.
Amounts described in the following table under the heading "Potential
Realizable Value at Assumed Rates of Stock Price Appreciation for Option Term"
represent hypothetical gains that could be achieved for the options if
exercised at the end of the option term. These gains are based on assumed rates
of stock appreciation of 5% and 10% compounded annually from the date the
options were granted to their expiration date. Actual gains, if any, on stock
option exercises will depend on the future performance of the common stock and
the date on which the options are exercised. No gain to the optionees is
possible without an appreciation in stock price, which will benefit all
stockholders commensurately.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Shares Total Options Stock Price Appreciation
of Common Stock Granted to Exercise for Option Term
Underlying Employees in Price Per Expiration ------------------------
Name Options Granted Fiscal Year Share Date 5% 10%
- ---- ---------------- ------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Greenlaw..... 900,000 45.62% $9.00 10/13/09 $ 5,094,046 $ 12,909,314
Dean Polnerow........... 40,000 2.03% $7.50 4/22/09 $ 188,668 $ 478,123
145,000 7.35% $9.00 10/13/09 $ 820,707 $ 2,079,834
John P. Jewett.......... 50,000 2.53% $9.00 10/13/09 $ 283,003 $ 717,184
James M. Canon.......... 20,000 1.01% $7.50 4/22/09 $ 94,334 $ 239,061
50,000 2.53% $9.00 10/13/09 $ 283,003 $ 717,184
</TABLE>
For information relating to the acceleration of options granted to the
Named Executive Officers, see "Employment Arrangements."
Fiscal Year-End Option Values
None of our Named Executive Officers exercised stock options in the fiscal
year ended December 31, 1999. The following table sets forth information
concerning the number and value of unexercised options held by each of our
Named Executive Officers on December 31, 1999. There was no public market for
our common stock as of December 31, 1999. Accordingly, the fair market value on
December 31, 1999 is based on an assumed initial public offering price of
$13.00 per share.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Value of Unexercised
Underlying Unexercised In-the-Money
Options at Year End Options at Year End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas J. Greenlaw......... 0 900,000 $ 0 $3,600,000
Dean Polnerow............... 152,500 282,500 $1,812,500 $1,917,500
John P. Jewett.............. 45,000 105,000 $ 472,500 $ 777,500
James M. Canon.............. 120,000 130,000 $1,432,500 $1,007,500
</TABLE>
51
<PAGE>
Benefit Plans
1996 Stock Incentive Plan
Our 1996 stock incentive plan was adopted by our board of directors and
approved by our stockholders in September 1996. The 1996 plan authorizes the
issuance of up to 3,000,000 shares of our common stock. As of December 31,
1999, options to purchase an aggregate of 2,944,600 shares of our common stock
at a weighted average exercise price of $6.22 per share were outstanding under
the 1996 plan. Upon the closing of this offering, no additional grants of stock
options or other awards will be made under the 1996 plan.
Employees who have received options under the 1996 stock incentive plan
have the right to exercise such options prior to the time they become vested.
Upon such early exercise, the employee receives shares of restricted stock
which are subject to the same vesting schedule as the original options.
1999 Stock Incentive Plan
Up to 1,875,000 shares of our common stock (subject to adjustment in the
event of stock splits and other similar events) may be issued pursuant to
awards granted under our 1999 stock incentive plan. The 1999 plan is intended
to replace our 1996 plan. The 1999 plan provides for the grant of incentive
stock options intended to qualify under Section 422 of the Internal Revenue
Code, nonstatutory stock options, restricted stock awards and other stock-based
awards. The granting of awards under the 1999 plan is discretionary. As of
December 31, 1999, options to purchase an aggregate of 7,000 shares of our
common stock at a weighted average exercise price of $9.00 per share were
outstanding under the 1999 plan.
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1999 plan. Under
present law, however, incentive stock options may only be granted to employees.
No participant may receive any award for more than 1,000,000 shares in any
calendar year. As of December 31, 1999, approximately 59 persons would have
been eligible to receive awards under the 1999 plan, including three executive
officers and six non-employee directors.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price and subject to other terms and
conditions specified in connection with the option grant. We may grant options
at an exercise price less than, equal to or greater than the fair market value
of our common stock on the date of grant. Under present law, incentive stock
options and options intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code may not be granted at an exercise
price less than the fair market value of the common stock on the date of grant
or less than 110% of the fair market value in the case of incentive stock
options granted to optionees holding more than 10% of the voting power of
Switchboard. The 1999 plan permits our board of directors to determine how
optionees may pay the exercise price of their options, including by cash, check
or in connection with a "cashless exercise" through a broker, by surrender to
us of shares of common stock, by delivery to us of a promissory note, or by any
combination of the permitted forms of payment.
Our board of directors administers the 1999 plan. Our board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the 1999 plan to one or more committees of the
board of directors. Subject to any applicable limitations contained in the 1999
plan, our board of directors or a committee of the board of directors or
executive officer to whom our board of directors delegates authority, as the
case may be, selects the recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which options become exercisable;
. the exercise price of options;
. the duration of options; and
52
<PAGE>
. the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of the awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror. If the acquiror
refuses to assume or substitute for outstanding options, they will accelerate
in part, becoming exercisable with respect to 50% of the unvested portion of
the options, prior to consummation of the acquisition event.
No award may be granted under the 1999 plan after October 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. Our board of directors may at any time amend, suspend or terminate the
1999 plan, except that no award granted after an amendment of the 1999 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by our
board of directors shall become exercisable, realizable or vested, to the
extent the amendment was required to grant the award, unless and until the
amendment is approved by our stockholders.
Employees who have received options under the 1999 stock incentive plan
have the right to exercise such options prior to the time they become vested.
Upon such early exercise, the employee receives shares of restricted stock
which are subject to the same vesting schedule as the original options.
1999 Employee Stock Purchase Plan
Under our 1999 employee stock purchase plan, up to a total of 300,000
shares of our common stock may be issued to participating employees.
The following employees, including our directors who are employees and
employees of any participating subsidiaries, are eligible to participate in the
purchase plan:
. Employees who are customarily employed for more than 20 hours per week
and for more than five months per year; and
. Employees employed for at least three months prior to enrolling in the
purchase plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of December 31, 1999, approximately 43 of our employees
would have been eligible to participate in the purchase plan.
On the first day of a designated payroll deduction period, or "offering
period", we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize between 1% to 10% of his or her base pay to
be deducted by us from his or her base pay during the offering period. On the
last day of this offering period, the employee is deemed to have exercised the
option, at the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the purchase plan, the option price is an amount
equal to 85% of the per share closing price of our common stock on either the
first day or the last day of the offering period, whichever is lower. No
employee may be granted an option which would allow their rights to purchase
our common stock to accrue at a rate which exceeds $25,000 of the fair market
value of that stock, determined on the first day of the offering period, for
each calendar year in which the option is outstanding. The board of directors
will choose the timing and length of offering periods under the purchase plan.
53
<PAGE>
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason.
Employment Agreements
Douglas J. Greenlaw
In October 1999, we entered into an employment agreement with Douglas J.
Greenlaw, our Chief Executive Officer. Mr. Greenlaw will receive an annual base
salary of $225,000 and is eligible to receive an annual performance bonus
targeted at $75,000, based upon a combination of our performance and Mr.
Greenlaw's achievement of individual objectives. In addition, we provide Mr.
Greenlaw with executive life insurance at a value equal to five times his base
salary. Mr. Greenlaw also received non-qualified options to purchase up to
900,000 shares of our common stock at an exercise price of $9.00 per share
which will vest according to the following schedule:
. 150,000 will vest after each of the first, second, third and fourth
years of employment; and
. 300,000 will vest after the fifth year of employment.
The vesting of the 150,000 shares to vest after each of the third and fourth
years of Mr. Greenlaw's employment and the vesting of 200,000 shares to vest
after the fifth year of Mr. Greenlaw's employment will accelerate if and when
Switchboard achieves a market capitalization for 90 consecutive days of $1.0
billion with respect to the third year options, for 90 consecutive days of $1.5
billion for the fourth year options and for 180 consecutive days of $2.0
billion for the fifth year options. In addition, the vesting of the remaining
100,000 shares to vest after the fifth year of Mr. Greenlaw's employment
accelerates upon the completion of this offering.
If a change in control of Switchboard occurs, the vesting of 50% of any
unvested portion of Mr. Greenlaw's options acclerates. One year after a change
in control of Switchboard, the vesting of 100% of the then unvested portion of
Mr. Greenlaw's options accelerates. If we terminate Mr. Greenlaw's employment
within one year of a change in control or if we materially reduce his
responsibilities from those in effect immediately prior to a change in control,
the vesting of 100% of the then unvested portion of his options accelerates. If
we terminate Mr. Greenlaw's employment for any reason, except for cause, Mr.
Greenlaw will be entitled to:
. his base salary and bonus, pro rated for assumed on-target achievement
of performance objectives, for six months from the date of termination;
and
. continued employee benefits coverage for six months.
Dean Polnerow
In December 1999, we entered into an employment agreement with Dean
Polnerow, our President, under which Mr. Polnerow will receive an annual salary
of $165,000 and is eligible to receive an annual performance bonus targeted at
$60,000. Mr. Polnerow may earn an additional $35,000 for overachievement of
specified goals. In addition, we provide Mr. Polnerow with executive life
insurance at a value equal to five times his base salary. The term of Mr.
Polnerow's agreement is for one year and renews automatically for successive
one year periods unless either party provides 60 days' written notice of its
intent not to renew.
Since January 1997, we have granted options to Mr. Polnerow to purchase up
to an aggregate of 435,000 shares of our common stock at a weighted average
exercise price of $4.42 per share. Of these options:
. 250,000 of these options vest over a four-year period of continuous
employment, with 25% vesting each year;
54
<PAGE>
. 40,000 of these options vest over a four-year period of continuous
employment, with zero vesting after the first year, 25% vesting after
the second year, 25% vesting after the third year and 50% vesting after
the fourth year; and
. 145,000 of these options vest over a five-year period of continuous
employment, with 35,000 vesting after the second year, 35,000 vesting
after the third year, 50,000 vesting after the fourth year and 25,000
shares vesting after the fifth year; provided, that, the vesting of the
35,000 shares to vest after the second and third years and the 50,000
shares to vest after the fourth year will accelerate if and when
Switchboard achieves a market capitalization for 90 consecutive days of
$1.0 billion with respect to the second year options, for 90
consecutive days of $1.5 billion with respect to the third year
options, and for 180 consecutive days of $2.0 billion with respect to
the fourth year options, and the vesting of the 25,000 shares to vest
after the fifth year accelerates upon the completion of this offering.
If Mr. Polnerow remains employed by us for six months after a change in
control, or if within six months after a change in control Mr. Polnerow resigns
because we have relocated him to an office more than 35 miles from Westboro,
Massachusetts or because we have materially reduced his compensation or
responsibilities from those in effect immediately prior to the change in
control, 50% of any unvested portion of his options accelerates. If we
terminate Mr. Polnerow's employment within one year of a change in control of
Switchboard other than for cause, the vesting of 100% of the then unvested
portion of his options accelerates. If we terminate Mr. Polnerow's employment
for any reason, except for cause, or if Mr. Polnerow resigns within 90 days
after we relocate Mr. Polnerow to an office more than 35 miles from Westboro,
Massachusetts or after we materially reduce his job title and/or overall
targeted cash compensation from those in effect at the beginning of his
employment agreement, Mr. Polnerow will be entitled to:
. his base salary and bonus, pro rated for assumed on-target achievement
of performance objectives, for six months from the date of termination;
and
. continued employee benefits coverage for six months.
John P. Jewett
In January 2000, we entered into an employment agreement with
John P. Jewett, our Vice President, Finance and Administration and Chief
Financial Officer, under which Mr. Jewett will receive an annual salary of
$125,000 and is eligible to receive an annual performance bonus targeted at
$55,000, each as may be adjusted from time to time in the discretion of our
board of directors. The term of Mr. Jewett's agreement is for one year and
renews automatically for successive one year periods unless either party
provides 60 days' written notice of its intent not to renew.
Since October 1998, we have granted options to Mr. Jewett to purchase up to
an aggregate of 150,000 shares of our common stock at a weighted average
exercise price of $4.66 per share. Of these options, 100,000 vest over a four-
year period, with 25% vesting after each year of employment. 20,000 of these
options vested on an accelerated basis in June 1999 upon the achievement of
specified objectives. The remaining 50,000 of Mr. Jewett's options vest
according to the following schedule:
. 12,500 of these options will vest after each of the second and third
years of continuous employment;
. 15,000 of these options will vest after the fourth year of continuous
employment; and
. 10,000 of these options will vest after the fifth year of continuous
employment.
The vesting of the 12,500 shares to vest after each of the second and third
years of continuous employment and the vesting of the 15,000 shares after the
fourth year of continuous employment will accelerate if and when Switchboard
achieves a market capitalization for 90 consecutive days of $1.0 billion with
respect to the second year options, for 90 consecutive days of $1.5 billion
with respect to the third year options and for
55
<PAGE>
180 consecutive days of $2.0 billion with respect to the fourth year options.
In addition, the vesting of the 10,000 shares to vest after the fifth year of
continuous employment accelerates upon the completion of this offering.
If Mr. Jewett remains employed by us for six months after a change in
control, or if within six months after a change in control Mr. Jewett resigns
because we have materially reduced his job title and/or overall targeted cash
compensation from those in effect immediately prior to the change in control,
50% of any unvested portion of his options accelerate. If we terminate Mr.
Jewett's employment for any reason, except for cause, or if Mr. Jewett resigns
within 90 days after we materially reduce his job title and/or overall targeted
cash compensation from those in effect at the beginning of his employment
agreement, Mr. Jewett will be entitled to:
. his base salary for six months from the date of termination, or, if he
obtains employment elsewhere at a lower salary, he will receive the
difference in salary for six months; and
. continued employee benefits coverage for six months.
James M. Canon
In December 1999, we entered into an employment agreement with James M.
Canon, our Vice President, Business Development, under which Mr. Canon receives
an annual salary of $130,000 and is eligible to receive an annual performance
bonus targeted at $32,500. The term of Mr. Canon's agreement is for one year
and renews automatically for successive one year periods unless either party
provides 60 days' written notice of its intent not to renew.
Since June 1996, we have granted options to Mr. Canon to purchase up to an
aggregate of 250,000 shares of our common stock, at a weighted average exercise
price of $3.24 per share. These options vest according to the following
schedule:
. 180,000 vest over a four-year period of continuous employment, with 25%
vesting after each year;
. 20,000 of these options vest over a four-year period of continuous
employment, with zero vesting after the first year, 25% vesting after
the second year, 25% vesting after the third year and 50% vesting after
the fourth year; and
. 50,000 of these options vest over a five-year period of continuous
employment, with 12,500 vesting after the second year, 12,500 vesting
after the third year, 15,000 vesting after the fourth year and 10,000
vesting after the fifth year; provided, that, the vesting of the 12,500
shares to vest after the second and third years and the 15,000 shares
to vest after the fourth year will accelerate if and when Switchboard
achieves a market capitalization for 90 consecutive days of $1.0
billion with respect to the second year options, for 90 consecutive
days of $1.5 billion with respect to the third year options, and for
180 consecutive days of $2.0 billion with respect to the fourth year
options and the vesting of the 10,000 shares after the fifth year
accelerates upon the completion of this offering.
If Mr. Canon remains employed by us for six months after a change in
control, or if within six months after a change in control Mr. Canon resigns
because we have relocated him to an office more than 35 miles from Westboro,
Massachusetts or because we have materially reduced his compensation or
responsibilities from those in effect immediately prior to the change in
control, 50% of any unvested portion of his options accelerates. If we
terminate Mr. Canon's employment for any reason, except for cause, or if Mr.
Canon resigns within 90 days after we relocate Mr. Canon to an office more than
35 miles from Westboro, Massachusetts or after we materially reduce his job
title and/or overall targeted cash compensation from those in effect at the
beginning of his employment agreement, Mr. Canon will be entitled to:
. his base salary for six months from the date of termination, or, if he
obtains employment elsewhere at a lower salary, he will receive the
difference in salary for six months; and
. continued employee benefits coverage for six months.
56
<PAGE>
CERTAIN TRANSACTIONS
Banyan Worldwide
Formation and Initial Issuances of Securities
We were incorporated in April 1996 as a wholly owned subsidiary of Banyan
Worldwide. In connection with our formation, we issued ten shares of our common
stock to Banyan Worldwide for nominal consideration. In November 1996, we
issued 6,999,990 shares of our common stock to Banyan Worldwide, our sole
stockholder at the time, in consideration for the transfer by Banyan Worldwide
to us of our core technologies and net assets valued at approximately $546,000
and in settlement of advances from Banyan Worldwide of approximately $697,000.
Secured Convertible Note Facilities
1997 Note Facility. On August 29, 1997, we entered into a secured
convertible note facility with Banyan Worldwide. The facility was initially for
$3.0 million, and was increased on February 20, 1998 to $7.0 million and on May
3, 1999 to $10.0 million. Outstanding amounts under the facility bore interest
at the applicable federal rate under Section 1274 of the Internal Revenue Code
for short-term loans with annual compounding of interest for the month in which
a loan was made. The outstanding amount of principal and interest was
convertible at the option of Banyan Worldwide into shares of our series C
preferred stock at a rate of $4.00 per share at any time. On June 30, 1999, we
issued 2,655,916 shares of our series C convertible preferred stock to Banyan
Worldwide upon the conversion of principal and interest of $10,623,664 under
this note. The dollar amount converted represented all of the principal and
interest outstanding as of June 30, 1999, the date on which we first issued our
securities to CBS. This conversion was made by Banyan Worldwide to satisfy a
condition to completing the transactions with CBS that required Banyan
Worldwide to convert all outstanding indebtedness under convertible secured
notes. After this conversion, we are no longer able to borrow any amounts under
this facility.
1999 Note Facility. On May 3, 1999, we entered into a second secured
convertible note facility with Banyan Worldwide. This facility was subsequently
amended and restated in its entirety on January 26, 2000. This facility was
originally for $5.0 million. Outstanding amounts bear interest at the
applicable federal rate under Section 1274 of the Internal Revenue Code for
short-term loans with annual compounding of interest for the month in which
such loan is made. The outstanding amount of principal and interest is
convertible at the option of Banyan Worldwide into shares of our series D
preferred stock at any time prior to this offering. Outstanding amounts are
convertible at a rate of $11.00 per share. That conversion rate is subject to
adjustment in the event Switchboard sells equity securities or engages in a
capital raising transaction, including this offering, or any other transaction
material to the Company, based upon the per share fair market value of the
series D preferred stock immediately following that transaction, as determined
in good faith by Switchboard and Banyan Worldwide. The conversion rate is also
subject to adjustment in the event of stock dividends, reclassifications, stock
splits and other similar transactions on the series D preferred stock.
On June 30, 1999, we issued 87,345 shares of our series D preferred stock
to Banyan Worldwide upon the conversion by Banyan Worldwide of principal and
interest of $655,089 under this note. The dollar amount converted represented
an estimate of all of the principal and interest outstanding as of June 30,
1999. As of July 1, 1999, we issued 59,160 additional shares of our series D
preferred stock to Banyan Worldwide upon the conversion by Banyan Worldwide of
principal and interest of $443,699 under this note. The dollar amount converted
represented the actual amount of all of the principal and interest outstanding
as of June 30, 1999, after giving effect to the estimate we made on June 30,
1999. This conversion was made by Banyan Worldwide to put Banyan Worldwide and
CBS in the equity ownership position they would have been in had the actual
amount of outstanding principal and interest at June 30, 1999 been known on
June 30, 1999. The conversion rate at the time of these conversions was $7.50
per share.
This facility remains in place and the maximum remaining amount we may
borrow under the facility was approximately $3.9 million, as of December 31,
1999. As of December 31, 1999 there were no amounts
57
<PAGE>
outstanding under the facility. Upon the completion of this offering, this
facility will automatically terminate in full and any outstanding principal and
interest will be converted into shares of our series D preferred stock at the
then-applicable conversion rate. Any shares of our Series D preferred stock
which are issued will convert automatically into shares of common stock upon
completion of this offering.
Officers and Directors
Our Chairman of the Board of Directors, William P. Ferry, is Chairman of
the Board of Directors, President and Chief Executive Officer of Banyan
Worldwide. Our director Robert M. Wadsworth is also a director of Banyan
Worldwide. David N. Strohm, another of our directors, served as a director of
Banyan Worldwide from 1983 until November 1999. Our director Richard M.
Spaulding is Vice President and Chief Financial Officer of Banyan Worldwide.
Corporate Services Agreements
We are party to a corporate services agreement with Banyan Worldwide. Under
this agreement, we currently pay Banyan Worldwide a fixed monthly fee of
approximately $41,000 for facilities, utilities, maintenance and various
administrative and other services. These services include:
. financial and accounting advice;
. human resources advice and routine related services;
. payroll advice and routine related services;
. treasury, insurance and tax services; and
. routine data processing, technical support and equipment maintenance
services.
At our request, Banyan Worldwide will also provide us with other services
for an additional charge based on Banyan Worldwide's labor costs, including
benefits, for the applicable Banyan Worldwide employee performing the services.
These services include:
. development of data processing systems and programs;
. legal support, including patent prosecution;
. support in financing and acquisition transactions;
. general executive and management services; and
. support for contract bidding and other proposals.
In addition, we reimburse Banyan Worldwide for our pro rata share of telephone,
photocopying and postage expenses and our pro rata share of Banyan Worldwide's
expenses relating to our participation in its employee benefits plans.
Beginning in November 1999, this corporate services agreement renews
annually unless either party terminates the agreement with 90 days' notice to
the other. Our total expense to Banyan Worldwide under the corporate services
agreement through December 31, 1999 was approximately $1,382,990.
Upon the completion of this offering, we intend to enter into a new
services agreement with Banyan Worldwide which will replace our current
services agreement. Under the new services agreement, we will pay Banyan
Worldwide an aggregate annual fee of $175,000 in 12 monthly installments, and
Banyan Worldwide will provide us with information technology services,
including physical infrastructure, workstation and applications support,
communications and other consulting services. The agreement will have an
initial term of one year.
In connection with the new services agreement, and also upon completion of
this offering, we intend to enter into a new sublease with Banyan Worldwide of
our facilities in Westboro, Massachusetts. Under the new sublease, we will pay
monthly rent to Banyan Worldwide in the amount of $25,551. The sublease will
terminate on December 31, 2002 and we will have the option to extend the term
of the sublease to September 30, 2005.
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<PAGE>
Indemnification
Banyan Worldwide is a party to our advertising and promotion agreement with
CBS. As part of the advertising and promotion agreement, Banyan Worldwide
agreed to indemnify CBS for any breach by us of our representations, warranties
or covenants in the agreement. Banyan Worldwide's indemnification obligations
with respect to our covenants will expire upon the first to occur of:
. the first business day after June 30, 2001 when Banyan Worldwide owns
or controls less than a majority of our voting power; and
. the first business day after any person owns or controls more of our
voting power than Banyan Worldwide does.
We have agreed to indemnify Banyan Worldwide for amounts that Banyan
Worldwide may be required to pay to CBS pursuant to Banyan Worldwide's
indemnification obligations to CBS.
CBS Corporation
Issuances of Securities
We have issued the following securities to CBS:
. 7,468,560 shares of our common stock;
. one share of our series E special voting preferred stock; and
. warrants to purchase 1,066,937 shares of our common stock.
The warrants are exercisable from the date of the closing of this offering
until the second anniversary of that date at an exercise price of $1.00 per
share. The exercise price and number of shares for which the warrants may be
exercised are subject to adjustment if we issue shares of our common stock at
less than $16.00 per share other than pursuant to the following:
. the conversion, exchange or exercise of securities that were
outstanding on June 30, 1999;
. a dividend, stock split, split-up or other distribution on shares of
common stock which results in an adjustment of the exercise price under
the provisions of the warrant addressing recapitalizations, mergers or
other such events;
. this offering; and
. any lending or line of credit arrangement with Banyan Worldwide that
existed on June 30, 1999.
In addition, we are permitted to issue at less than $16.00 per share up to
4,000,000 shares of our common stock to our employees, directors, consultants
or advisors and up to 100,000 shares of our common stock in connection with
future borrowings or financings, or for any other purpose, in each case without
adjusting the exercise price of the warrant. The exercise price and the number
of shares for which the warrants may be exercised and the $16.00 per share
amount referred to in the two prior sentences are also subject to adjustment in
the event of a stock split, stock dividend, reverse stock split, capital
reorganization or reclassification, consolidation or merger of Switchboard into
another corporation or a transfer of our assets.
The number of shares of common stock and warrants issued to CBS was
calculated so that CBS would acquire shares of common stock equaling 35% of our
fully diluted common stock and warrants to acquire another 5% of our fully
diluted common stock. We made assumptions in determining what our fully diluted
capital stock was and agreed to increase the number of shares and warrants
issued to CBS if those assumptions turn out to be incorrect. If we issue any
shares pursuant to the series B convertible preferred stock purchase warrant
originally issued to America Online, which we believe has expired pursuant to
its terms, we are required to issue to CBS, within ten business days and for no
additional consideration, the additional number of shares of common stock and
warrants to purchase common stock that would have been issued to CBS on
June 30, 1999 had we included the series B convertible preferred stock warrant
in our calculations.
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Voting Rights and Directors
We issued one share of our series E special voting preferred stock to CBS.
This share, which will remain outstanding after this offering, entitles CBS to
elect that number of members of our board of directors, rounded down to the
nearest whole number, as equals CBS's fully diluted ownership percentage of
our securities. Currently, this means that CBS can designate two of our nine
director positions. The number of directors determined by this formula may not
be less than one at any time when the license agreement is in effect and may
not be greater than the maximum number which would constitute a minority of
our board of directors. In addition, even if CBS does not own any other of our
securities, they are entitled to elect one director so long as the license
agreement is in effect. The special voting rights of the series E preferred
stock terminate upon the first to occur of:
. the date on which CBS no longer owns any of our securities and the
license agreement is no longer in effect;
. the date on which a competitor of Switchboard owns more than 30% of the
common stock or securities representing more than 30% of the voting
power of CBS; and
. the date on which the share of series E preferred stock is owned by a
person other than CBS or an entity controlling, controlled by or under
common control with CBS.
Our directors, Daniel Mason, Executive Vice President of Infinity
Broadcasting Corporation, a majority-owned subsidiary of CBS, and Russell I.
Pillar, President and Chief Executive Officer of CBS Internet Group, a
division of CBS, were elected to our board of directors under the rights of
the series E preferred stock described above.
License Agreement
On June 30, 1999, we entered into a license agreement with CBS. Under the
license agreement, CBS granted us a non-exclusive license to use the "CBS"
trademark and "eye" device together with the Switchboard mark to identify,
market and promote our Web site. Under the agreement, CBS will retain approval
rights over the use and presentation of its trademarks. For example:
. our use of the CBS trademarks must conform to CBS's guidelines, which
may be changed from time to time by CBS;
. each use of the CBS trademarks in connection with our marketing or
promotional materials requires obtaining CBS's prior written approval;
and
. CBS may require us to remove from our Web site any content that CBS
determines conflicts with, or interferes with or is detrimental to
CBS's interests, reputation or business or which might subject CBS to
legal liability or regulatory action.
The license agreement also places restrictions on our rights to accept
advertising from competitors of CBS.
During the term of the license agreement, CBS may not license the CBS
trademarks in connection with naming or promoting in the United States any
Internet site that has as its primary function and theme the delivery of
directory information for residential listings, business listings, email
addresses or Web sites. This restriction does not apply to:
. any activity conducted by CBS as of June 30, 1999;
. any activity conducted by CBS television or radio affiliates that are
not CBS owned or operated;
. any Internet services or Web sites in which CBS had an equity interest
as of June 30, 1999; and
. the use of any CBS trademarks to identify CBS as the source of any
content.
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The license agreement expires on June 30, 2009. CBS may terminate the
agreement before the end of its term if:
. we breach any material term of the license agreement;
. we or Banyan Worldwide breach any material term of the advertising and
promotion agreement, the common stock and warrant purchase agreement,
the right of first refusal agreement, the stockholders' voting
agreement, or the registration rights agreement that we entered into
with CBS;
. we become insolvent or commence or become subject to bankruptcy or
similar proceedings;
. we issue to a CBS competitor or assist a CBS competitor in acquiring 9%
or more of our common stock or total voting power; or
. any CBS competitor owns or controls 15% or more of our common stock or
total voting power.
In the event of a breach by CBS of a material term of the license agreement
or the advertising and promotion agreement, we may terminate the license
agreement. If we so terminate the license agreement, CBS will pay us $3.5
million for each year that was remaining under the term of the agreement, pro
rated for any partial year.
The agreement provides for the joint ownership of domain names for the
Switchboard Web site featuring both the "CBS" and "Switchboard" trademarks and
contains provisions governing the use of those domain names following any
termination or expiration of the license agreement.
Advertising and Promotion Agreement
On June 30, 1999, we entered into an advertising and promotion agreement
with CBS. Over the term of the advertising and promotion agreement, CBS will
arrange for the placement of up to $95.0 million worth of advertising and
promotion of our Web site.
CBS's advertising and promotion commitment is divided into seven one-year
periods during the term of the agreement. CBS's commitment during the first
three years of the agreement is $13.0 million per year and during the last four
years of the agreement is $14.0 million per year. We may carry forward to a
subsequent period up to 35% of the advertising value to which we are entitled
during any one-year period. However, CBS is not obligated to provide
advertising value aggregating more than $18.9 million during any one-year
period. The value of advertising and promotion services provided by CBS is
generally determined by reference to the average price paid by others to CBS
for comparable advertising and promotion.
All our advertising is subject to CBS's advertising guidelines and
preemption policies and CBS is not required to make any ad placements if the
exigencies of time or contractual obligations prevent or restrict CBS from
doing so. CBS may suspend advertising for us:
. if at any time in the future a claim arises regarding our right to use
the Switchboard trademark; or
. in the event our Web site is not operational for a 48-hour period,
until it becomes operational again consistent with operations prior to
the disruption.
Under the agreement, CBS has the right to sell advertising on our Web site
and co-branded Web pages. We will pay CBS a commission for any sales by CBS.
In addition, CBS has agreed to place links to our Web site on CBS
controlled Web sites and to use good faith efforts to obtain similar links on
other Web sites in which CBS has a non-controlling interest. We will pay CBS a
percentage of net revenue derived from Web pages displayed through those links
which include both CBS and Switchboard trademarks. We and CBS have also agreed
to work together in good faith during the term of the agreement to identify
other opportunities to integrate our directory features into CBS's Web sites
and to integrate local content from CBS's Web site into our Web site.
The advertising and promotion agreement expires on June 30, 2006. CBS may
terminate the agreement before the end of its term if:
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. we or Banyan Worldwide breach any material term of the advertising and
promotion agreement, the license agreement, the common stock and
warrant purchase agreement, the right of first refusal agreement, the
stockholders' voting agreement, or the registration rights agreement
that we entered into with CBS;
. we become insolvent or commence or become subject to bankruptcy or
similar proceedings;
. we issue to a CBS competitor or assist a CBS competitor in acquiring 9%
or more of our common stock or total voting power;
. any CBS competitor owns or controls 15% or more of our common stock or
total voting power;
. we discontinue using the "Switchboard" trademark and fail to establish
a substitute mark acceptable to CBS;
. our license agreement with CBS is terminated or expires; or
. our Web site ceases to operate for specified periods of time.
In the event of a breach by CBS of a material term of the advertising and
promotion agreement or the license agreement that is not cured within 30 days
after receipt of our notice, we may terminate the advertising and promotion
agreement. If we so terminate the advertising and promotion agreement, CBS's
obligation to provide advertising and promotion would continue unless CBS
elects to pay us, over the remaining scheduled term of the agreement or in a
lump sum payment, the present value cash equivalent of the difference between
$95.0 million and the value of advertising and promotion already provided to
us.
The advertising and promotion agreement also provides that, if a CBS
competitor acquires a 30% or more interest in Banyan Worldwide or all or
substantially all of Banyan Worldwide's assets at a time when Banyan Worldwide
owns 10% or more of our common stock, then CBS has the right to purchase Banyan
Worldwide's shares of our capital stock or require that those shares be
transferred to an independent trustee for sale to a third party. If CBS were to
exercise this right, a change of control of Switchboard may occur.
We have agreed with CBS that we will use our reasonable best efforts to
adhere to performance standards for our Web site, including to:
. maintain availability of our Web site seven days a week, 24 hours a
day, other than during periods of scheduled maintenance;
. maintain 97% uptime over a 12 month period for our Web site and the co-
branded interfaces we display to users, barring events that are beyond
our control;
. maintain competitive standards of quality and ease of use with those
offered by other leading Internet-based directory services; and
. achieve specified response times to user inquiries.
Common Stock and Warrant Purchase Agreement and Other Equity Agreements
The common stock, series E preferred stock and warrants described above
were issued to CBS pursuant to a purchase agreement dated June 1, 1999. We and
Banyan Worldwide indemnify CBS for breaches of representations and warranties
under the purchase agreement.
On June 30, 1999, we entered into a series of equity-related agreements
with CBS:
. Right of First Refusal Agreement. This agreement restricts CBS's right
to transfer its shares of our common stock. Under this agreement:
. prior to the first anniversary of this offering, if CBS wishes to
sell any of its shares of our common stock it must first offer them
to us and then to Banyan Worldwide; and
. prior to June 30, 2001, if the license agreement or the advertising
and promotion agreement has terminated for any reason and CBS
wishes to sell any of its shares of our common stock, we have a
right of first refusal to buy those shares on the same terms that a
third party identified by CBS has offered to buy the shares and
Banyan Worldwide has a right of first refusal if we do not first
exercise our right.
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. Participation Agreement. Under this agreement we agreed to use our
reasonable best efforts to issue and sell to CBS and Banyan Worldwide,
simultaneously with the closing of this offering, additional shares of
our common stock so that each of CBS and Banyan Worldwide could own
37.5% of our common stock on a fully diluted basis after the offering.
In December 1999, we entered into an agreement with Banyan Worldwide
and CBS terminating this agreement.
. Stockholders' Voting Agreement. Under this agreement CBS has agreed to
vote all of its shares of our common stock to elect to our board of
directors a number of persons designated by Banyan Worldwide as would
represent a majority of our board of directors. This agreement
terminates on the first to occur of:
. July 2, 2001;
. the date on which CBS has required Banyan Worldwide to transfer its
shares of our common stock to a trustee pursuant to the mandatory
transfer provisions contained in the advertising and promotion
agreement; and
. the first business day after any person beneficially owns or
controls more of our voting power than Banyan Worldwide does.
CBS has agreed that any transfer by it of shares of our common stock
will require the person receiving the shares to be bound by this
agreement, except that CBS may transfer shares free of the obligations
imposed by this agreement if, after giving effect to such transfer, CBS
would continue to own shares subject to this agreement that represent
at least 25% of our outstanding common stock. Banyan Worldwide has
agreed, during the term of this agreement, to retain shares of our
common stock that represent at least 25% of our outstanding common
stock.
. Registration Rights Agreement. Under this agreement, we granted demand
and incidental registration rights to CBS. The demand registration
rights, which allow CBS to require us to file a registration statement
on their behalf, may be exercised beginning after the first anniversary
of the closing of this offering. The incidental registration rights,
which allow CBS to include shares in registration statements we file on
our own initiative or at the request of other stockholders, are
effective following the closing of this offering.
Financial Reporting Agreement
On January 28, 2000, we entered into a financial reporting agreement with
Banyan Worldwide and CBS pursuant to which we agreed to provide Banyan
Worldwide and CBS with financial information to enable them to comply with
financial reporting requirements relating to their investments in Switchboard.
We also agreed to provide Banyan Worldwide and CBS projections of our financial
information, if requested in order to estimate consolidated financial
information or for tax planning or other similar planning purposes.
Other Transactions and Relationships
Issuances of Securities
In November 1996, we issued to each of America Online, Inc. and Digital
City Inc. 375,000 shares of our series A preferred stock at a purchase price of
$4.00 per share. In addition, we issued to each of America Online and Digital
City a warrant to purchase shares of our series B preferred stock equal to
3.75% of our capital stock on the date of exercise, on a fully diluted basis.
The per share exercise price of the warrants is equal to $60.0 million divided
by the number of fully diluted shares of our capital stock on the date of
exercise, and is subject to appropriate adjustment upon the occurrence of any
stock split, stock dividend, reorganization, recapitalization,
reclassification, merger or other similar event. Digital City's warrant to
purchase shares of our series B preferred stock expired prior to the exercise
of any shares under the warrant. We believe that America Online's warrant to
purchase shares of our series B preferred stock has also expired pursuant to
its terms prior to the exercise of the warrant to purchase any shares. See
"Risk Factors--Risks Relating to this Offering--We
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may become subject to an equity ownership claim from America Online which, if
successful, would result in substantial additional dilution to investors in
this offering."
Business Agreements
In November 1996, in connection with our securities issuances to America
Online and Digital City described above, we entered into an agreement with
America Online and Digital City under which America Online agreed to integrate
Switchboard into its interactive services, and we granted America Online and
Digital City exclusive sales licenses for specified types of advertisements on
our Web site.
The November 1996 agreement was replaced by two agreements entered into
between us and America Online in December 1997:
. an interactive yellow pages marketing agreement under which America
Online agreed to promote and distribute our yellow pages directory
services; and
. an interactive white pages marketing agreement under which America
Online agreed to promote and distribute our white pages directory
services.
The yellow pages agreement terminated in December 1998, and the white pages
agreement terminated in November 1998. Since November 1996, we have received an
aggregate of approximately $810,000 in license and advertising fees from
America Online and paid America Online an aggregate of approximately $3.0
million in revenue share, carriage fees and sales commissions.
Since January 1, 1998, we and Digital City have conducted local advertising
sales and distribution activities. Under both the November 1996 agreement
described above, and those local advertising activities, we have received an
aggregate of approximately $506,000 in license and advertising fees from
Digital City, and paid to Digital City an aggregate of approximately $72,000.
In December 1998, we agreed to resolve a number of outstanding intercompany
balances between us and America Online and Digital City under our prior
agreements, resulting in a net payment by us in March 1999 to America Online of
$423,000. In addition, we agreed to provide America Online with 100 million
impressions on our Web site over a two year term, and America Online granted us
the right to receive up to $200,000 in advertising on America Online properties
over a two year term. If we do not receive the full $200,000 in advertising
during that term, America Online agreed to pay us the difference between
$200,000 and the value of the advertising we actually received. In connection
with these transactions, we amended a number of the rights of America Online
and Digital City as preferred stockholders and pursuant to their investment
agreements with Switchboard, Banyan Worldwide and Continuum Software, Inc. We
also granted to America Online and its affiliates a royalty-free nonexclusive
license to any service or product of America Online which is covered by any
claim of specified patents owned by Switchboard.
Investor Rights Agreements
In connection with our issuances of securities to America Online, Digital
City and Banyan Worldwide we granted to America Online, Digital City and Banyan
Worldwide demand and incidental registration rights and a right of first
refusal on future issuances of securities by Switchboard. This right of first
refusal was later terminated in March 1999. Banyan Worldwide, America Online
and Digital City also agreed to grant rights of first refusal and co-sale
rights on transfers of their shares. These agreements have been amended from
time to time, including to add parties. These agreements, as amended to date,
will provide for registration rights after the offering. See "Description of
Capital Stock--Registration Rights."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, and as adjusted to
reflect the sale of the shares of common stock in this offering, by:
. each person or entity we know to own beneficially more than 5% of our
common stock;
. each of our directors;
. each of the Named Executive Officers; and
. all directors and executive officers as a group.
Except as indicated below, none of these persons or entities has a
relationship with us or, to our knowledge, any of the underwriters or their
respective affiliates. Unless otherwise indicated, each person or entity named
in the table has sole voting power and investment power, or shares voting
and/or investment power with his or her spouse, with respect to all shares of
capital stock listed as owned by that person or entity. The address of each of
our employees, officers and directors is c/o Switchboard Incorporated, 115
Flanders Road, Westboro, Massachusetts 01581.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission and assumes
the underwriters do not exercise their over-allotment option. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and any shares
as to which the individual has the right to acquire beneficial ownership within
60 days after December 31, 1999 through the exercise of any stock option,
warrant or other right. The inclusion in the following table of those shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of those shares.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering After the Offering
----------------------------- -----------------------------
Name and Address Number Percent Number Percent
- ---------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
5% Stockholders
Banyan Worldwide (1).... 9,802,421 53.8% 9,802,421 41.3%
120 Flanders Road
Westboro, MA 01581
CBS Corporation (2)..... 7,468,561 41.0% 8,535,498 34.4%
51 West 52nd Street
New York, NY 10019
Directors and Named
Executive Officers
Douglas J. Greenlaw
(3)..................... 0 * 100,000 *
Dean Polnerow (4)....... 152,500 * 177,500 *
John P. Jewett (5)...... 45,000 * 55,000 *
James M. Canon (6)...... 120,000 * 130,000 *
William P. Ferry........ 0 * 0 *
Daniel R. Mason......... 0 * 0 *
Russell I. Pillar....... 0 * 0 *
Richard M. Spaulding
(7)................... 3,750 * 3,750 *
David N. Strohm......... 0 * 0 *
Robert M. Wadsworth..... 0 * 0 *
All directors and
executive officers as
a group
(10 persons) (8)...... 321,250 1.7% 466,250 1.9%
</TABLE>
- --------
* Less than 1%
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(1) The number of shares Banyan Worldwide beneficially owns prior to this
offering includes 2,655,916 and 146,505 shares of common stock issuable
upon the conversion of 2,655,916 shares of series C preferred stock and
146,505 shares of series D preferred stock. All shares of our capital stock
owned by Banyan Worldwide have been pledged to Foothill Capital Corporation
in connection with a Loan and Security Agreement dated September 4, 1997.
The number of shares does not include shares owned by CBS which CBS has
agreed to vote in favor of Banyan's designees in elections for our board of
directors.
(2) The number of shares CBS beneficially owns prior to this offering includes
one share of common stock issuable upon the conversion of one outstanding
share of series E special voting preferred stock. The number of shares CBS
beneficially owns after this offering includes 1,066,937 shares of common
stock issuable upon the exercise of a warrant, which becomes exercisable
upon the closing of this offering, and one share of common stock issuable
upon the conversion of one outstanding share of series E special voting
preferred stock.
(3) The number of shares Douglas J. Greenlaw beneficially owns after this
offering consists of 100,000 shares of common stock issuable upon the
exercise of stock options which vest upon the completion of this offering.
(4) The number of shares Dean Polnerow beneficially owns prior to and after
this offering includes 152,500 shares of common stock issuable upon the
exercise of stock options which were exercisable as of December 31, 1999.
The number of shares Mr. Polnerow beneficially owns after this offering
includes 25,000 shares of common stock issuable upon the exercise of stock
options which vest upon the completion of this offering.
(5) The number of shares John P. Jewett beneficially owns prior to and after
this offering includes 45,000 shares of common stock issuable upon the
exercise of stock options which were exercisable as of December 31, 1999.
The number of shares Mr. Jewett beneficially owns after this offering
includes 10,000 shares of common stock issuable upon the exercise of stock
options which vest upon the completion of this offering.
(6) The number of shares James M. Canon beneficially owns prior to and after
this offering includes 120,000 shares of common stock issuable upon the
exercise of stock options which were exercisable as of December 31, 1999.
The number of shares Mr. Canon beneficially owns after this offering
includes 10,000 shares of common stock issuable upon the exercise of stock
options which vest upon the completion of this offering.
(7) The number of shares Richard M. Spaulding beneficially owns prior to and
after this offering consists of 2,500 shares of common stock issuable upon
the exercise of stock options which were exercisable as of December 31,
1999 and 1,250 shares which will vest within 60 days after December 31,
1999.
(8) The number of shares beneficially owned prior to this offering consists of
320,000 shares of common stock issuable upon the exercise of stock options
which were exercisable as of December 31, 1999 and 1,250 shares which will
vest within 60 days after December 31, 1999. The number of shares
beneficially owned after this offering includes a total of 145,000 shares
of common stock issuable upon the exercise of stock options which vest upon
the completion of this offering.
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DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 85,000,000 shares of common stock, $.01 par
value per share, and 5,000,000 shares of preferred stock, $0.01 par value per
share. As of December 31, 1999, we had outstanding 18,216,355 shares of common
stock held by 21 stockholders of record, options to purchase an aggregate of
2,951,600 shares of our common stock, warrants to purchase 1,751,937 shares of
our common stock and one share of series E special voting preferred stock.
The following summary of provisions of our common stock, preferred stock,
certificate of incorporation and by-laws is not intended to be complete. It is
qualified by reference to the provisions of applicable law and to our
certificate of incorporation and by-laws included as exhibits to the
registration statement of which this prospectus is a part. See "Where Can You
Find More Information."
Common Stock
Under our certificate of incorporation, 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. Accordingly, holders of
a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election, other than
those directors who may be elected by the holder of our series E special voting
preferred stock. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock.
Upon our liquidation, dissolution or winding up, the holders of common stock
are entitled to receive proportionately our net assets available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, 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 we may designate and issue in the future.
Common Stock Warrants
On December 31, 1997, we issued to Continuum Software Inc. a warrant to
purchase 300,000 shares of our common stock. The warrant is exercisable, in
whole or in part, until the earlier of December 31, 2000 or the termination of
a technology development and marketing agreement between Switchboard and
Continuum. The exercise price is $2.00 per share. This exercise price is
subject to appropriate adjustment upon the occurrence of any stock split, stock
dividend, reorganization, recapitalization, reclassification, merger or other
similar event.
On March 31, 1999, we issued warrants to purchase an aggregate of 385,000
shares of our common stock. Warrants were issued in connection with a co-
branded Web site and linking agreement among Switchboard and the warrant
holders. The warrants are exercisable, in whole or in part, until the later of
March 31, 2002 or until the date one year subsequent to the effective date of
the termination of the co-branded Web site and linking agreement. The exercise
price is $8.00 per share. This exercise price is subject to appropriate
adjustment upon the occurrence of any stock split, stock dividend,
reorganization, recapitalization, reclassification, merger or other similar
event.
We have issued to CBS warrants to purchase 1,066,937 shares of our common
stock. A description of these warrants appears above under the heading "Certain
Transactions--CBS Corporation--Issuances of Securities."
Preferred Stock
Series E Special Voting Preferred Stock
Under our certificate of incorporation, our board of directors is
authorized to issue one share of our series E special voting preferred stock.
On June 30, 1999 that share was issued to CBS.
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Other than the special voting rights described in the next paragraph, the
series E share has the rights, preferences, powers, privileges and restrictions
of one share of our common stock. The series E preferred stock is junior to any
other series of preferred stock we may issue with respect to redemption rights
and the right to receive dividends or amounts distributable upon our
liquidation, dissolution or winding up.
The series E share entitles CBS to elect that number of directors to our
board of directors, rounded down, which equals CBS's fully diluted percentage
ownership of us, up to a maximum of the number of directors which would
constitute a minority of the authorized number of members of the board. If
CBS's ownership percentage is zero, it may still elect one director, so long as
the license agreement which we entered into with CBS on June 30, 1999 remains
in effect.
CBS's right to elect directors will terminate upon the first to occur of:
. the date on which CBS no longer owns any of our securities and the
license agreement is no longer in effect;
. the date on which a competitor of Switchboard owns more than 30% of the
common stock or securities representing more than 30% of the voting
power of CBS; and
. the date on which the series E share is owned by a person other than
CBS or an entity controlling, controlled by or under common control
with CBS.
Upon the termination of CBS's special voting right, the series E share will
automatically convert into one share of common stock. Upon written request at
any time prior to the termination of this voting right, CBS may convert its
series E share to one share of common stock.
Blank Check Preferred Stock
Under our certificate of incorporation, our board of directors is
authorized to issue shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion to determine
the rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or could discourage a third party from acquiring,
a majority of our outstanding voting stock. Besides our one outstanding share
of series E special voting preferred, we have no present plans to issue any
shares of preferred stock.
Delaware Law and Charter and By-Law Provisions
We are 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 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 voting stock.
Our certificate of incorporation divides our board of directors, other than
directors elected by the holder of the series E share, into three classes
serving staggered three-year terms. In addition, our certificate of
incorporation provides that, after July 2, 2001, or, if earlier, the expiration
or termination of the stockholders' voting agreement among CBS, Banyan
Worldwide and Switchboard, directors may be removed only for cause by the
affirmative vote of at least 75% of our shares of capital stock entitled to
vote. Except for series E
68
<PAGE>
directors, any vacancy on our board of directors may only be filled by vote of
a majority of our directors then in office, or by a sole remaining director.
The classification of our board of directors and the limitations on the removal
of directors and filling of vacancies could make it more difficult for a third
party to acquire or discourage a third party from acquiring, control of us.
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before the
meeting and may not be taken by written action in lieu of a meeting. Our
certificate of incorporation further provides that special meetings of the
stockholders may only be called by our chairman of the board, chief executive
officer or board of directors. Under our by-laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
advance notice requirements. These provisions could have the effect of
delaying, until the next stockholders' meeting, stockholder actions which are
favored by the holders of a majority of our outstanding voting securities.
These provisions may also discourage a third party from making a tender offer
for our common stock, because even if it acquired a majority of our outstanding
voting securities, the third party would be able to take action as a
stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders' meeting, and not 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. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least 75% of the shares of
our capital stock issued and outstanding and entitled to vote to amend or
repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains provisions permitted under the
General Corporation Law of Delaware relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach
of fiduciary duty as a director, except in some circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
Further, our certificate of incorporation contains provisions to indemnify our
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. We believe that these provisions will assist us in
attracting and retaining qualified individuals to serve as directors.
Registration Rights
After this offering, the holders of approximately 19,387,918 shares of
common stock, including shares which the holders have rights to acquire, have
the right to cause us to register their shares of common stock for public sale
pursuant to various registration rights agreements as follows:
Demand Registration Rights
. CBS holds 8,535,497 shares of our common stock, including shares which
CBS has rights to acquire, and may request, in writing on up to two
occasions, any time after the first anniversary of the closing of this
offering, that we register shares having an aggregate value of at least
$10.0 million. Our obligation to register these shares terminates five
years after the closing of this offering.
. America Online and Digital City together hold 750,000 shares of common
stock and may request in writing any time after the date six months
after the closing of this offering but prior to the time we become
eligible to file a registration statement on Form S-3, that we register
their registrable shares by filing a registration statement on Form S-
1. Banyan Worldwide may include in this registration up to 2,802,421
shares of our common stock. Our obligation to register these shares
terminates five years after the closing of this offering.
. America Online and Digital City may also request in writing any time
after we become eligible to file a registration statement on Form S-3,
that we register their shares by filing a registration statement on
Form S-3. Banyan Worldwide may include in this registration up to
2,802,421 shares of our common stock. Our obligation to register these
shares terminates five years after the closing of this offering.
69
<PAGE>
. Upon the completion of this offering, we intend to enter into an
agreement with Banyan Worldwide under which Banyan Worldwide may, with
respect solely to its 7,000,000 shares of our common stock originally
issued as common stock and not upon conversion of preferred stock,
request on one occasion per year beginning one year after the date of
this prospectus, that we register shares having an aggregate value of
at least $10.0 million by filing a registration statement on Form S-3.
Our obligation to register shares under this proposed agreement would
terminate five years after the closing of this offering.
Under the terms of the registration rights agreement with America Online and
Digital City, we are not required to effect more than one registration on
Form S-1 and in the aggregate, not more than two registrations on Forms S-1
and S-3.
Incidental Registration Rights
If we propose to register any of our securities under the Securities Act,
either for our own account or for the account of other security holders
exercising registration rights, the remaining holders of 19,387,918
registrable shares of common stock and rights to acquire common stock, are
entitled to notice of and to include shares of common stock in the
registration. We are required to use our best efforts to effect that
registration. The holders of these incidental rights are as follows:
. CBS holds 7,468,560 registrable shares of our common stock and the
right to purchase 1,066,937 registrable shares pursuant to a warrant;
. America Online and Digital City Inc. together hold 750,000 registrable
shares of our common stock;
. Banyan Worldwide holds 9,802,421 registrable shares of our common
stock; and
. one other stockholder holds the right to purchase 300,000 registrable
shares pursuant to a warrant.
All of the demand and incidental registration rights are subject to
various conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in a registration and
our right not to effect a requested registration within six months after the
effective date of any other registration statement.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Equiserve.
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After we complete this offering, based upon the number of shares outstanding
at December 31, 1999, there will be 23,716,355 shares of our common stock
outstanding (assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants to purchase common stock).
Of these outstanding shares, the 5,500,000 shares sold in this offering will
be freely tradeable without restriction or further registration under the
Securities Act of 1933, except that any shares purchased by our "affiliates",
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 18,216,355 shares of common stock outstanding after this
offering are deemed "restricted securities" under Rule 144.
All of these shares are subject to lock-up arrangements which expire 180
days after the date of this prospectus. Upon expiration of the 180-day lock-up
period, all of these shares will be eligible for sale in the public market
subject to the provisions of Rule 144 or Rule 701 under the Securities Act.
Holders of our securities, including all of our directors and executive
officers, who in the aggregate hold:
. 18,216,355 shares of our common stock of record;
. options to purchase 2,951,600 shares of our common stock;
. warrants to purchase 1,751,937 shares of our common stock; and
. one share of our series E preferred stock which is convertible into one
share of our common stock
on the date of this prospectus, have agreed that, for a period of 180 days
after the date of this prospectus, they will not sell, contract to sell or
otherwise dispose of any shares of our common stock, or any shares convertible
into or exchangeable for shares of our common stock, owned directly by them or
with respect to which they have the power of disposition, without the prior
written consent of FleetBoston Robertson Stephens Inc., acting on behalf of
the representatives of the underwriters.
In general, under Rule 144 a stockholder, including one of our affiliates,
who has beneficially owned his or her restricted securities for at least one
year is entitled to sell, within any three-month period commencing 90 days
after the date of this prospectus, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of our common stock
(approximately 237,164 shares immediately after this offering) or the average
weekly trading volume in our common stock during the four calendar weeks
preceding the date on which notice of the sale was filed under Rule 144,
provided requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, a stockholder that is not
one of our affiliates at any time during the three months preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two
years is entitled to sell the shares immediately under Rule 144(k) without
compliance with the above described requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of our common
stock acquired pursuant to the exercise of options granted under our stock
plans) are also restricted securities and, beginning 90 days after the date of
this prospectus, may be sold by stockholders other than our affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its one-year holding period requirement.
Stock Options
We intend to file registration statements on Form S-8 under the Securities
Act to register an aggregate of approximately 5,020,000 shares of common stock
issuable under the 1996 plan, the 1999 plan and the employee stock purchase
plan. Shares issued upon the exercise of stock options after the effective
date of the Form S-8 registration statements will be eligible for resale in
the public market without restriction, subject to Rule 144 limitations
applicable to affiliates and the lock-up agreements noted above, if
applicable.
71
<PAGE>
Effect of Sales of Shares
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares for sale will
have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of our common stock in the
public market could adversely affect the market price of the common stock and
could impair our future ability to raise capital through an offering of our
equity securities.
72
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., J.P. Morgan Securities Inc., The Robinson-
Humphrey Company, LLC and SoundView Technology Group, Inc., have severally
agreed with us, subject to the terms and conditions of the underwriting
agreement, to purchase from us the number of shares of common stock set forth
below opposite their respective names. The underwriters are committed to
purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ..............................
J.P. Morgan Securities Inc. ......................................
The Robinson-Humphrey Company, LLC................................
SoundView Technology Group, Inc. .................................
---------
Total........................................................... 5,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price located
on the cover page of this prospectus and to certain dealers at that price less
a concession of not in excess of $ per share, of which $ may be reallowed to
other dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated in this prospectus, subject to receipt and acceptance by
them of the common stock and subject to their right to reject any order in
whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus will be determined through negotiations among the
representatives and us. Among the factors considered in those negotiations will
be prevailing market conditions, our financial information, market valuations
of other companies that we and the representatives believe to be comparable to
us, estimates of our business potential, the present state of our development
and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the 30-
day period after the date of this prospectus, to purchase up to 825,000
additional shares of common stock, to cover over-allotments, if any, at the
public offering price less the underwriting discount located on the cover page
of this prospectus. If the underwriters exercise their over-allotment option to
purchase any of the 825,000 additional shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage of these additional shares as the number of shares to be
purchased by each of them bears to the total number of shares of common stock
offered in this offering. If purchased, these additional shares will be sold by
the underwriters on the same terms as those on which the shares offered by this
prospectus are being sold. We will be obligated, pursuant to the over-allotment
option, to sell shares to the underwriters to the extent the over-allotment
option is exercised. The underwriters may exercise the over-allotment option
only to cover over-allotments made in connection with the sale of the shares of
common stock offered in this offering.
73
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Over- Over-
Per allotment allotment
Share Option Option
----- --------- ---------
<S> <C> <C> <C>
Underwriting Discounts and Commissions payable
by Switchboard................................
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $2,000,000.
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters and us against some civil liabilities, including liabilities under
the Securities Act, and liabilities arising from breaches of representations
and warranties contained in the underwriting agreement.
Lock-Up Agreements
Each executive officer and director of Switchboard and substantially all
other holders of our securities have agreed during the period of 180 days after
the effective date of this prospectus, subject to specified exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens
Inc. may, in its sole discretion and at any time or from time to time, without
notice, release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the representatives and
any of our stockholders who have executed a lock-up agreement providing consent
to the sale of shares prior to the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to limited exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the lock-
up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, the issuance of our common stock upon the exercise of outstanding
options or warrants, and the issuance of options under existing stock option
and incentive plans provided that those options do not vest prior to the
expiration of the lock-up period. See "Shares Eligible for Future Sale."
Listing
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "SWBD."
Stabilization
The representatives have advised us that, pursuant to Regulation M under
the Securities Act of 1933, some persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining
74
<PAGE>
the market price of the shares of common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of shares of common stock on behalf of the underwriters for the
purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by that underwriter or syndicate member. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Directed Share Program
The underwriters have reserved up to ten percent of the common stock to be
issued by us and offered for sale in this offering, at the initial public
offering price, to directors, officers, employees, business associates and
persons otherwise connected to Switchboard. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these individuals purchase reserved shares. Any reserved shares which are not
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered in this offering.
Other
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital Corporation, an affiliate of SoundView
Technology Group, Inc. In addition, other dealers purchasing shares from
SoundView Technology Group, Inc. in this offering have agreed to make a
prospectus in electronic format available on Web sites maintained by each of
these dealers. Other than the prospectus in electronic format, the information
on Wit Capital Corporation's Web site and any information contained on any
other Web site maintained by any dealer is not part of this prospectus or the
registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter in its capacity as
underwriter and should not be relied upon by investors.
VALIDITY OF COMMON STOCK
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts, will pass upon legal matters in
connection with this offering for the underwriters.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the years
ended December 31, 1997, 1998 and 1999 included in this prospectus and the
registration statement of which this prospectus is a part have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
75
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock being offered by this prospectus. This
prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete. You should refer to the exhibits
attached to the registration statement for copies of material contracts,
agreements or other documents referred to in this prospectus. When we complete
this offering, we will also be required to file annual, quarterly and special
reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement, over
the Internet at the SEC's Web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's following locations:
. Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549;
. New York Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048; and
. Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511.
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, 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 this
prospectus or of any sale of our common stock.
76
<PAGE>
SWITCHBOARD INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets as of December 31, 1998 and 1999.......................... F-3
Statements of Operations for the years ended December 31, 1997, 1998 and
1999................................................................... F-4
Statements of Stockholders' Deficit for the years ended December 31,
1997, 1998 and 1999.................................................... F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999................................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Switchboard Incorporated:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Switchboard Incorporated at
December 31, 1998 and 1999 and the results of its operations and its cash flows
for the years ended December 31, 1997, 1998 and 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Switchboard'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
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 14, 2000 except
for paragraph 2 of
Note F and Note P
for which the date is
February 4, 2000
F-2
<PAGE>
SWITCHBOARD INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, Pro Forma
------------------------- December 31,
1998 1999 1999
----------- ------------ ------------
(Note B)
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 386,590 $ 3,604,551 $ 3,604,551
Accounts receivable, net of
allowance for doubtful accounts of
$300,000 at December 31, 1998, and
$162,183 at December 31, 1999
actual and pro forma (unaudited).. 2,390,045 3,060,249 3,060,249
Other current assets................ 10,360 477,876 477,876
Investment.......................... -- 2,630,850 2,630,850
----------- ------------ ------------
Total current assets............ 2,786,995 9,773,526 9,773,526
Property and equipment, net.......... 638,301 1,202,578 1,202,578
Other assets, net.................... 139,779 1,219,274 1,219,274
----------- ------------ ------------
Total assets.................... $ 3,565,075 $ 12,195,378 $ 12,195,378
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................... 25,007 775,202 775,202
Accrued expenses.................... 1,363,960 2,739,665 2,739,665
Deferred revenue.................... 449,236 1,349,145 1,349,145
Note payable, current portion....... 500,000 600,000 600,000
----------- ------------ ------------
Total current liabilities....... 2,338,203 5,464,012 5,464,012
Note payable......................... 600,000 -- --
Convertible promissory notes --
related party...................... 7,000,000 -- --
Commitments and contingencies (Notes
J and M)
Redeemable convertible preferred
stock, $0.01 par value;
7,750,000 shares designated;
750,000 shares issued and
outstanding at December 31, 1998,
and 3,552,421 and no shares issued
and outstanding at December 31,
1999 actual and pro forma
(unaudited), respectively
(liquidation value $16,319,570 at
December 31, 1999)................. 3,658,386 16,319,570 --
Due to parent........................ 1,387,145 -- --
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value;
2,249,999 shares authorized and
undesignated at December 31, 1999
actual, none issued and
outstanding actual; 4,999,999
shares authorized and undesignated
at December 31, 1999 pro forma,
none issued and outstanding pro
forma (unaudited)................. -- -- --
Series E Special Voting Preferred
Stock; one share authorized and
designated; one share issued and
outstanding at December 31, 1999
actual and pro forma (unaudited).. -- -- --
Common stock, $0.01 par value;
30,000,000 shares authorized
actual and 85,000,000 shares
authorized pro forma (unaudited);
7,013,250 shares issued and
outstanding at December 31, 1998,
and 14,663,934 and 18,216,355
shares issued and outstanding at
December 31, 1999 actual and pro
forma (unaudited), respectively... 70,133 146,640 182,163
Additional paid-in capital.......... 720,902 75,666,634 91,950,681
Contribution receivable............. -- (66,242,838) (66,242,838)
Accumulated other comprehensive
income............................ -- 1,855,950 1,855,950
Accumulated deficit................. (12,209,694) (21,014,590) (21,014,590)
----------- ------------ ------------
Total stockholders' equity
(deficit)..................... (11,418,659) (9,588,204) 6,731,366
----------- ------------ ------------
Total liabilities and
stockholders' equity
(deficit).................... $ 3,565,075 $ 12,195,378 $ 12,195,378
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SWITCHBOARD INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenue.............................. $ 650,037 $ 6,536,024 $ 8,303,610
Cost of revenue...................... 793,157 1,307,208 1,969,823
------------ ------------ ------------
Gross profit.................... (143,120) 5,228,816 6,333,787
Operating expenses:
Sales and marketing................. 2,306,603 5,871,561 11,236,756
Product development................. 2,107,589 3,188,215 1,922,915
General and administrative.......... 776,272 1,129,829 1,829,999
------------ ------------ ------------
Total operating expenses........ 5,190,464 10,189,605 14,989,670
------------ ------------ ------------
Loss from operations................. (5,333,584) (4,960,789) (8,655,883)
Interest income (expense), net....... 4,172 (404,273) (149,013)
------------ ------------ ------------
Net loss............................. (5,329,412) (5,365,062) (8,804,896)
------------ ------------ ------------
Accrued dividends for preferred
stockholders....................... 307,500 292,500 938,732
------------ ------------ ------------
Net loss attributable to common
stockholders....................... $ (5,636,912) $ (5,657,562) $ (9,743,628)
============ ============ ============
Basic and diluted net loss per
share.............................. $ (0.81) $ (0.81) $ (0.89)
============ ============ ============
Shares used in computing basic and
diluted net loss per share......... 7,000,000 7,011,471 10,914,944
Unaudited pro forma basic and diluted
net loss per share................. $ (0.67)
============
Shares used in computing unaudited
pro forma basic and diluted net
loss per share..................... 13,077,911
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SWITCHBOARD INCORPORATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
for the years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Series E Special Voting
Preferred Stock Common Stock Accumulated
-------------------------- -------------------- Additional Other
Number of Number of Paid-in Contribution Comprehensive Accumulated
Shares Value Shares Value Capital Receivable Income Deficit
------------- ----------- ---------- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996.......... -- -- 7,000,000 70,000 1,115,185 -- -- (1,515,220)
Issuance of
warrants
related to
technology
development
and marketing
agreement..... -- -- -- -- 192,600 -- -- --
Accrued
dividends for
preferred
stockholders.. -- -- -- -- (307,500) -- -- --
Net loss........ -- -- -- -- -- -- -- (5,329,412)
---------- --------- ------------ -------------
Balance,
December 31,
1997.......... -- -- 7,000,000 70,000 1,000,285 -- -- (6,844,632)
Issuance of
common stock
under stock
option plans.. -- -- 13,250 133 13,117 -- -- --
Accrued
dividends for
preferred
stockholders.. -- -- -- -- (292,500) -- -- --
Net loss........ -- -- -- -- -- -- -- (5,365,062)
---------- --------- ------------ -------------
Balance,
December 31,
1998.......... -- -- 7,013,250 70,133 720,902 -- -- (12,209,694)
Issuance of
common stock
under stock
option plans.. -- -- 42,124 421 78,515 -- -- --
Issuance of
common stock
and common
stock warrants
to CBS
Corporation,
net of
issuance costs
of $977,120... -- -- 7,468,560 74,686 74,260,278 $ (70,312,084) -- --
Issuance of
common stock
under
technology
agreement..... -- -- 140,000 1,400 1,048,600 -- -- --
Issuance of
warrants
related to a
Web site
agreement..... -- -- -- -- 497,071 -- -- --
Accrued
dividends for
preferred
stockholders.. -- -- -- -- (938,732) -- -- --
Issuance of
preferred
stock to CBS
Corporation... 1 -- -- -- -- -- -- --
Non-cash
advertising
and promotion
expenses...... -- -- -- -- -- 4,069,246 -- --
Change in net
unrealized
gain on
investment.... -- -- -- -- -- -- 1,855,950 --
Net loss........ -- -- -- -- -- -- -- (8,804,896)
Comprehensive
loss.......... -- -- -- -- -- -- -- --
----------- ----------- ---------- --------- ------------ ------------- ---------- -------------
Balance,
December 31,
1999 ......... 1 -- 14,663,934 $ 146,640 $ 75,666,634 $ (66,242,838) $1,855,950 $ (21,014,590)
=========== =========== ========== ========= ============ ============= ========== =============
<CAPTION>
Total
Stockholders'
Deficit
--------------
<S> <C>
Balance,
December 31,
1996.......... (330,035)
Issuance of
warrants
related to
technology
development
and marketing
agreement..... 192,600
Accrued
dividends for
preferred
stockholders.. (307,500)
Net loss........ (5,329,412)
--------------
Balance,
December 31,
1997.......... (5,774,347)
Issuance of
common stock
under stock
option plans.. 13,250
Accrued
dividends for
preferred
stockholders.. (292,500)
Net loss........ (5,365,062)
--------------
Balance,
December 31,
1998.......... (11,418,659)
Issuance of
common stock
under stock
option plans.. 78,936
Issuance of
common stock
and common
stock warrants
to CBS
Corporation,
net of
issuance costs
of $977,120... 4,022,880
Issuance of
common stock
under
technology
agreement..... 1,050,000
Issuance of
warrants
related to a
Web site
agreement..... 497,071
Accrued
dividends for
preferred
stockholders.. (938,732)
Issuance of
preferred
stock to CBS
Corporation... --
Non-cash
advertising
and promotion
expenses...... 4,069,246
Change in net
unrealized
gain on
investment.... 1,855,950
Net loss........ (8,804,896)
--------------
Comprehensive
loss.......... (6,948,946)
--------------
Balance,
December 31,
1999 ......... $ (9,588,204)
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SWITCHBOARD INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $ (5,329,412) $ (5,365,062) $ (8,804,896)
Adjustments to reconcile net loss to
net cash used in operating
activities:.......................
Depreciation and amortization...... 259,144 464,434 790,574
Loss on disposal of property and
equipment........................ 3,450 2,936 --
Provision for doubtful accounts.... 18,619 281,381 117,702
Expense related to warrant grants.. 192,600 -- 497,071
Write-off of technology............ -- 1,400,000 --
Non-cash advertising and promotion
expenses......................... -- -- 4,069,246
Changes in operating assets and
liabilities:
Accounts receivable............... (369,077) (2,180,336) (787,906)
Other current assets.............. (14,658) 4,298 (467,516)
Other assets...................... -- -- (442,191)
Accounts payable.................. 128,379 (103,372) 750,195
Accrued expenses.................. 352,824 907,325 600,805
Deferred revenue.................. 330,902 118,334 899,909
------------ ------------ ------------
Net cash used in operating
activities.................... (4,427,229) (4,470,062) (2,777,007)
Cash flows from investing activities:
Purchase of property and equipment.. (295,953) (464,430) (942,155)
Purchase of technology.............. -- (500,000) --
Capitalized software costs.......... (10,764) -- --
------------ ------------ ------------
Net cash used in investing
activities.................... (306,717) (964,430) (942,155)
Cash flows from financing activities:
Due to parent....................... -- 1,387,145 --
Proceeds from convertible promissory
notes--related party.............. 4,603,543 6,646,900 3,335,307
Proceeds from issuance of common
stock, net........................ -- 13,250 4,101,816
Payments on convertible promissory
notes--related party.............. (2,580,054) (2,630,546) --
Payments on notes payable........... -- -- (500,000)
------------ ------------ ------------
Net cash provided by financing
activities.................... 2,023,489 5,416,749 6,937,123
Net increase (decrease) in cash and
cash equivalents................... (2,710,457) (17,743) 3,217,961
------------ ------------ ------------
Cash and cash equivalents at
beginning of period................ 3,114,790 404,333 386,590
------------ ------------ ------------
Cash and cash equivalents at end of
period............................. $ 404,333 $ 386,590 $ 3,604,551
============ ============ ============
Supplemental schedule of cash flow
information:
Interest paid....................... $ 48,948 $ 399,142 $ 117,084
============ ============ ============
Supplemental schedule of noncash
financing activity:
Issuance of note payable for
technology........................ $ 1,100,000
Settlement of convertible promissory
notes through issuance of
preferred stock................... $ 11,722,452
Issuance of common stock for
technology........................ $ 1,050,000
Non-cash issuance cost.............. $ 375,000
Warrant received in connection with
a Development, Access and License
agreement......................... $ 774,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS
A. Nature of Business:
Switchboard is an Internet-based local merchant network interconnecting
consumers, merchants and national advertisers. Switchboard connects consumers
searching for specific products and services with the merchants that provide
them. Switchboard offers its users local information about people and
businesses across the United States. Switchboard's online network gives local
merchants a way to get their businesses represented online and facilitates
commerce by connecting them with consumers. Switchboard provides an online lead
generation engine for these local merchants and for national advertisers that
reaches consumers motivated to buy products and services in specific geographic
locations. Switchboard operates in one business segment.
From Switchboard's inception (February 19, 1996) until December 31, 1999,
Switchboard has been a unit and later a subsidiary of Banyan Systems
Incorporated ("Banyan Worldwide").
Switchboard is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet, acceptance and effectiveness of Internet
advertising, dependence on principal products and third-party technology, new
product development, new product introductions and other activities of
competitors, dependence on key personnel, security and privacy issues,
dependence on strategic relationships, and limited operating history.
Switchboard has also experienced substantial net losses since its inception
and, as of December 31, 1999, had an accumulated deficit of $21.0 million. Such
losses and accumulated deficit resulted from Switchboard's lack of substantial
revenue and significantly increased costs incurred in the development of
Switchboard's products and services and in the preliminary establishment of
Switchboard's infrastructure. Switchboard expects to continue to experience
significant growth in its operating expenses in order to execute its current
business plan, particularly product development and sales and marketing
expenses. As a result, Switchboard's business plan indicates that additional
financing would be required to support its planned expenditures. In the event
that an initial public offering is not completed on a timely basis, Switchboard
believes that the funds currently available, together with the collateralized
convertible note facility from Banyan Worldwide (Note F), would be sufficient
to fund operations through at least the next 12 months.
B. Summary of Significant Accounting Policies:
Basis of Presentation
From inception, Switchboard has been a unit of and later a subsidiary of
Banyan Worldwide. The accompanying financial statements, which are derived from
the historical books and records of Banyan Worldwide, include the assets,
liabilities, revenues and expenses of Switchboard at historical cost.
These financial statements are intended to present management's estimates
of the results of operations and financial condition of Switchboard as if it
had operated as a stand-alone company since inception. Certain of the costs and
expenses are management estimates of the cost of services provided by Banyan
Worldwide and its subsidiaries. As a result, the financial statements presented
may not be indicative of the results that would have been achieved had
Switchboard operated as a nonaffiliated entity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent liabilities at the period end, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-7
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents and Investments
Switchboard considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
carried at amortized cost, which approximates market, and consist primarily of
interest bearing deposits with major financial institutions.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, Switchboard classifies all of its marketable equity securities as
available for sale securities. These securities are valued at fair value.
Unrealized holding gains and losses are reported as a component of accumulated
other comprehensive income.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the following estimated asset lives:
<TABLE>
<S> <C>
Computers, peripherals and servers............................. 3 years
Equipment...................................................... 2-5 years
Software....................................................... 3 years
</TABLE>
Maintenance and repairs are charged to expense when incurred, while
betterments are capitalized. When property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective
amounts and any gain or loss is reflected in operations.
Product Development
Costs incurred in the development of Switchboard's Web site are expensed as
incurred, except for certain software development costs. Costs associated with
the development of computer software are expensed prior to the establishment of
technological feasibility and capitalized thereafter. Amortization of
capitalized software costs is computed on an individual project basis and is
calculated using the straight-line method over the estimated economic life of
the software. Currently, Switchboard uses an estimated economic life of 12 to
36 months for capitalized software costs.
Switchboard evaluates the net realizable value of capitalized software on
an ongoing basis, relying on a number of factors including operating results,
business plans, budgets, economic projections and undiscounted cash flows. In
addition, Switchboard's evaluation considers nonfinancial data such as market
trends, project development cycles and changes in management's market emphasis.
In 1999, the Company adopted SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The adoption of SOP
98-1 did not have a material impact on Switchboard's financial position or
results of operations.
Advertising Expense
Advertising costs are expensed as incurred and totaled $202,195,
$3,296,431, and $6,611,694 in the years ended December 31, 1997, 1998 and 1999,
respectively. In 1999, the cost included $4,069,246 of non-cash advertising
related to the CBS relationship (Note I).
Revenue Recognition
Switchboard generates its revenue from Web site advertising, syndication
and licensing fees for its directory technologies, and its merchant aggregation
program.
Switchboard's advertising revenue is derived principally from short-term
advertising contracts and sponsorship agreements in which Switchboard receives
a fixed fee or earns a fee based on a per thousand impressions or per click
basis. Revenue from advertising is recognized as the services are delivered
provided
F-8
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
that no significant Switchboard obligations remain and collection of the
resulting receivable is probable. The duration of Switchboard's advertising
commitments from customers typically range from two weeks to one year. Revenue
from revenue-sharing agreements is recognized in the period following that in
which the services are provided and when the revenue amount can be determined.
Switchboard's syndication and licensing revenue consists of fees for
engineering work performed to integrate Switchboard's directory sites with a
customer's Web site, as well as for supplying access to Switchboard's directory
sites. The syndication and licensing fees are usually paid at the beginning of
the contract period and are typically nonrefundable. The fees and related costs
are recognized ratably over the term of the contract.
Switchboard's merchant aggregation program revenue consists of subscription
fees for merchant Web sites, which are linked to Switchboard's yellow pages
directory site, as well as customer acquisition fees paid by program partners
for the initiation and set-up of new local merchant Web sites. Subscription
fees are recognized over the period that the local merchant Web site is in
place, usually on a monthly basis. Customer acquisition fees are recognized
when the local merchant Web site construction is complete.
Deferred revenue is principally comprised of billings in excess of
recognized revenue relating to advertising agreements and licensing fees
received pursuant to advertising or services agreements in advance of revenue
recognition.
Risks and Uncertainties
Switchboard invests its cash and cash equivalents primarily in deposits and
money market funds with financial institutions. Switchboard has not experienced
any losses to date on its invested cash.
A potential exposure to Switchboard is a concentration of credit risk in
trade accounts receivable. Switchboard maintains reserves for credit losses
and, to date, such losses have been within management's expectations. As of
December 31, 1998, one customer accounted for 16.8% of accounts receivable
while three customers accounted for 16.7%, 12.0%, and 10.7% of accounts
receivable as of December 31, 1999. In addition, one customer accounted for
13.7% of revenue for the year ended December 31, 1997, while three customers
accounted for 11.9%, 10.5% and 10.2% of revenue for the year ended December 31,
1998. One customer accounted for 22.7% of revenue for the year ended December
31, 1999.
Income Taxes
Switchboard accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted rates in effect for the year in which those temporary differences
are expected to be recovered or settled. A deferred tax asset is established
for the expected future benefit of net operating loss and credit carryforwards.
A valuation reserve against net deferred tax assets is required if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Fair Value of Financial Instruments
The carrying amounts of Switchboard's financial instruments, which include
cash equivalents, accounts receivable, accounts payable, accrued expenses and a
note payable approximate their fair values.
F-9
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Accounting for Stock-Based Compensation
Switchboard accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB") No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of Switchboard's common stock at the date of grant.
Switchboard has adopted the provisions of Statement of Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," through disclosure
only (Note N). All stock-based awards to nonemployees are accounted for at
their fair value in accordance with SFAS No. 123.
Pro Forma Balance Sheet
Upon the closing of Switchboard's anticipated initial public offering, all
of the outstanding shares of Series A, B, C and D Convertible Preferred Stock
will automatically convert into 3,552,421 shares of common stock. These
conversions have been reflected in the pro forma balance sheet as of December
31, 1999. The one outstanding share of Series E Special Voting Preferred Stock
will not convert to common stock upon the closing of the anticipated initial
public offering (Note I and M).
In October 1999, the Board of Directors approved the amendment and
restatement of Switchboard's Certificate of Incorporation to authorize
capitalization of Switchboard of 85,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of preferred stock, $0.01 par value per
share. The amendment will be effective upon the closing of an initial public
offering and has been reflected in the pro forma balance sheet as of December
31, 1999.
Net Loss per Share and Pro Forma Net Loss per Share
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Net loss used in the calculation is
increased by the accrued dividends for the preferred stock outstanding in each
period. Diluted net loss per share does not differ from basic net loss per
share since potential common shares from conversion of preferred stock, stock
options and warrants are antidilutive for all periods presented and are
therefore excluded from the calculation. During the years ended December 31,
1997, 1998 and 1999, options to purchase 1,007,000, 1,162,875 and 2,951,600
shares of common stock, respectively, preferred stock convertible into 750,000,
750,000 and 3,552,422 shares of common stock, respectively, and warrants for
300,000, 300,000 and 1,751,937 shares of common stock, respectively, were not
included in the computation of diluted net loss per share since their inclusion
would be antidilutive. Pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding shares of preferred stock
into common stock, as if the shares had converted immediately upon their
issuance.
Derivative Instruments and Hedging
In June 1998, the FASB 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, as amended by SFAS 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Switchboard does not expect SFAS
No. 133 to have a material effect on its financial position or results of
operations.
Other Comprehensive Income
Comprehensive income (loss) consists of net loss and net unrealized gains
on investments and is presented in the Statement of Stockholders' Deficit.
Comprehensive loss is equal to net loss for the years ended December 31, 1997
and 1998.
F-10
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
C. Property and Equipment:
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Equipment............................................ $ 252,275 $ 246,199
Computers, peripherals and servers................... 1,144,050 1,436,605
Software............................................. 16,223 480,837
---------- ----------
1,412,548 2,163,641
Accumulated depreciation............................. (774,247) (961,063)
---------- ----------
Total........................................... $ 638,301 $1,202,578
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
was $218,348, $346,206 and $377,878, respectively.
D. Other Assets:
Other assets consist of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
--------- ----------
<S> <C> <C>
Capitalized software costs........................... $ 133,153 $ 122,389
Purchased technology................................. 200,000 200,000
Deferred project costs............................... -- 442,191
Software licenses.................................... -- 1,050,000
--------- ----------
333,153 1,814,580
Accumulated amortization............................. (193,374) (595,306)
--------- ----------
Total........................................... $ 139,779 $1,219,274
========= ==========
</TABLE>
During 1997, Switchboard capitalized $10,764 of software costs. There were
no costs eligible for capitalization in 1998 or 1999. Amortization expense for
other assets was $40,796, $118,228, and $412,696 for the years ended December
31, 1997, 1998 and 1999, respectively.
On May 18, 1998, Switchboard acquired the Maps On Us Internet mapping
technology from Lucent Technologies Incorporated. The technology was acquired
to integrate it into Switchboard's directory Web site. Switchboard paid Lucent
$500,000 in cash and executed a note payable of $1,100,000 to be paid over a
two-year period. The note bears interest at a rate of 6.75%. At December 31,
1999, $600,000 of principal is outstanding under the note.
A significant portion of the technology acquired was deemed incomplete as
it did not meet the criteria for capitalization. The technology was incomplete
because the technology required a substantial development effort by Switchboard
in order to successfully integrate the Maps On Us technology into Switchboard's
Web site. In addition, the technology had no alternative future use to
Switchboard inasmuch as Switchboard had acquired the technology to improve and
integrate it into the Switchboard Web site and not to market it as a standalone
product. Further, Switchboard had no other product, line of business or product
development project that could use the technology. Therefore, Switchboard
recorded a charge to product development of $1,400,000 for the purchase of
incomplete technology in 1998.
F-11
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
E. Accrued Expenses:
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
Payroll............................................. $ 7,695 $ 83,970
Commissions, bonus and other incentives............. 81,878 275,171
Vacation............................................ 79,124 111,180
Royalties........................................... 847,778 540,526
Professional services............................... 46,933 156,962
Accrued interest.................................... 48,125 27,958
Telemarketing....................................... -- 472,412
Deferred cost benefit............................... -- 774,900
Other............................................... 252,427 296,586
----------- -----------
Total............................................... $ 1,363,960 $ 2,739,665
=========== ===========
</TABLE>
F. Convertible Promissory Notes:
On August 29, 1997, Switchboard entered into a collateralized convertible
note facility with Banyan Worldwide. The facility was initially for $3,000,000,
and was increased on February 20, 1998 to $7,000,000 and on May 3, 1999 to
$10,000,000. Outstanding amounts under the facility bore interest at a rate
equal to the applicable federal rate under Section 1274 of the Internal Revenue
Code of 1986, as amended, for short-term loans with annual compounding interest
for the month in which such loan was made and were due and payable on June 30,
2000. At December 31, 1997, 1998 and 1999 the interest rate in effect was
5.68%, 4.33%, and 5.74%, respectively. The outstanding amount of principal and
interest was convertible at the option of Banyan Worldwide into shares of
Series C Convertible Preferred Stock at a rate of $4.00 per share, subject to
adjustment, at any time. The entire outstanding amount of principal and
interest was converted on June 30, 1999 (Note M). Switchboard may not borrow
any additional amounts under this facility.
On May 3, 1999, Switchboard entered into a second collateralized
convertible note facility with Banyan Worldwide. This facility was subsequently
amended and restated in its entirety on January 26, 2000. The facility was
originally for $5,000,000. Outstanding amounts bear interest at a rate equal to
the applicable federal rate under Section 1274 of the Internal Revenue Code of
1986, as amended, for short-term loans with annual compounding interest for the
month in which such loan was made and are due and payable on January 1, 2001.
At December 31, 1999, the interest rate in effect was 5.74%. The outstanding
amount of principal and interest is convertible at the option of Banyan
Worldwide into shares of Series D Convertible Preferred Stock at $11.00 per
share, subject to adjustment, at any time. The entire amount of principal and
interest shall automatically be converted immediately prior to the consummation
of an underwritten public offering in which Switchboard, prior to giving effect
to the proceeds of the offering, is valued at at least $135,000,000 and
resulting in at least $15,000,000 in net proceeds. Upon consummation of such a
qualified offering, this facility shall be deemed cancelled in full and no
further advances shall be made thereunder.
On June 30, 1999, Switchboard issued 87,345 shares of Series D Convertible
Preferred Stock to Banyan Worldwide upon the conversion by Banyan Worldwide of
principal and interest of $655,089 under this facility. The dollar amount
converted represented an estimate of all of the principal and interest
outstanding as of June 30, 1999. As of July 1, 1999, Switchboard issued 59,160
additional shares of Series D Convertible Preferred Stock to Banyan Worldwide
upon the conversion by Banyan Worldwide of principal and interest of $443,699
under this facility. The additional dollar amount converted represented the
actual amount of all of the principal and interest outstanding as of June 30,
1999, after giving effect to the estimate Switchboard made on
F-12
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 30, 1999. This conversion was made by Banyan Worldwide to put Banyan
Worldwide and CBS in the equity ownership position they would have been in had
the actual amount of outstanding principal and interest at June 30, 1999 been
known on June 30, 1999. The facility remains in place and the maximum remaining
amount available under the facility is $3,904,328.
Borrowings from Banyan Worldwide in excess of the amounts available under
the Convertible Promissory Notes are classified as due to parent on the balance
sheet. This amount bears interest at the same rate as the borrowings under the
Convertible Promissory Notes.
G. Related Parties:
Switchboard and Banyan Worldwide have entered into a corporate services
agreement dated November 1, 1996 under which Banyan Worldwide's corporate staff
provides certain administrative services, including financial and accounting,
human resources and payroll advice, treasury, tax and insurance services and
routine data processing, technical support and equipment maintenance services
for which Switchboard pays Banyan Worldwide a monthly fee based on
Switchboard's headcount and the level of services provided by Banyan Worldwide.
The fee is reviewed and adjusted periodically by mutual agreement of the
parties. For these services, Switchboard was charged $335,229, $199,852 and
$295,788 in 1997, 1998 and 1999, respectively. Management believes that the
service fees charged by Banyan Worldwide are reasonable and that such fees are
representative of the expenses Switchboard would have incurred on a stand-alone
basis. The corporate services agreement extends for a period of three years and
thereafter renews annually unless either party terminates the agreement with 90
days' notice to the other.
For additional items such as development of data processing systems and
programs, legal support, support in financing and acquisition transactions,
general executive and management services, and support for contract bidding,
Switchboard is charged based on Banyan Worldwide's labor costs for the employee
performing the services. Further, Switchboard reimburses Banyan Worldwide for
its pro rata share of telephone, photocopying, postage and employee benefit
plan expenses.
Switchboard leases the space it occupies under an agreement with Banyan
Worldwide. Switchboard pays Banyan Worldwide rent in an amount that is
approximately equal to its pro rata share of Banyan Worldwide's occupancy
costs. Switchboard's share of Banyan Worldwide's occupancy costs was $184,464,
$172,501, and $195,156 in 1997, 1998 and 1999, respectively.
Certain directors of Switchboard hold positions as officers or directors of
Banyan Worldwide. The Chairman of the Board of Directors of Switchboard is also
Chairman of the Board of Directors, President and Chief Executive Officer of
Banyan Worldwide. One director of Switchboard is Vice President and Chief
Financial Officer of Banyan Worldwide.
H. Strategic Alliance:
As of November 6, 1996, Switchboard entered into an agreement with America
Online, Inc. ("AOL") and Digital City Inc. ("DCI") whereby Switchboard provided
yellow pages and white pages services on the AOL service. Under the terms of
the agreement, Switchboard derived advertising revenue based on the sale of
advertising by Switchboard, AOL and DCI. The agreement was to extend until
December 31, 1997. As of December 31, 1997, the November 1996 agreement was
replaced by two agreements, one for the promotion of Switchboard's yellow pages
service on certain AOL properties and the other for similar promotion of
Switchboard's white pages service. These agreements were to extend until
December 31, 1998.
F-13
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
In 1998, AOL terminated each agreement, and removed Switchboard from its
Web site in November and December 1998. On December 31, 1998, Switchboard, AOL
and DCI agreed to a settlement to resolve the amounts due between the parties.
Under the terms of the settlement, Switchboard was required to pay AOL $839,194
for certain carriage payments and other amounts due, and DCI was required to
pay Switchboard $116,064 for publication fees. Additionally, AOL was required
to pay Switchboard $500,000, of which $200,000 is to be paid in the form of
advertising inventory on certain AOL properties or, to the extent that such
advertising inventory has not been provided by the end of a two-year period, in
cash. The amounts due from AOL were recorded as revenue in 1998. As of December
31, 1999, the $200,000 has not yet been paid.
I. CBS Advertising, Promotion and License Agreement:
In 1999, Switchboard and CBS Corporation ("CBS") consummated a number of
agreements under which CBS acquired a 35% equity stake in Switchboard, through
the issuance of 7,468,560 shares of Switchboard common stock and one share of
Series E Special Voting Preferred Stock (Notes L and M). In exchange,
Switchboard received $5,000,000 in cash and will receive advertising and
promotional value over a term of seven years, across the full range of CBS
media properties, as well as those of its radio and outdoor subsidiary,
Infinity Broadcasting Corporation. As part of the transactions, CBS was also
issued warrants to purchase up to an additional 1,066,937 shares of Switchboard
common stock at a per share exercise price of $1.00, which would increase its
ownership position in Switchboard to 40%. The warrants are not exercisable by
CBS until the earlier of (i) June 30, 2001 or (ii) the closing of an initial
public offering of Switchboard's common stock and are not exercisable after the
earlier of (i) the second anniversary of an initial public offering of
Switchboard's common stock or (ii) June 30, 2004. The number of shares of
common stock and warrants issued to CBS are subject to adjustment in the event
of certain future issuances of securities by Switchboard.
The Advertising and Promotion Agreement dated as of June 30, 1999 and among
Switchboard, Banyan Worldwide and CBS provides advertising with a future value
of $95 million to Switchboard over a seven-year period, subject to one year
renewals upon the mutual written agreement of Switchboard, Banyan and CBS. The
net present value of the advertising has been recorded as a contribution
receivable for the common stock issued. The contribution receivable will be
reduced as Switchboard utilizes advertising based on the proportion of
advertising provided to the total amount to be provided over the seven-year
term. CBS is required to provide advertising and promotion services on an
annual basis as follows:
<TABLE>
<CAPTION>
Contract Year Ended June 30,
----------------------------
<S> <C>
2000..................................................... $13 million
2001..................................................... $13 million
2002..................................................... $13 million
2003..................................................... $14 million
2004..................................................... $14 million
2005..................................................... $14 million
2006..................................................... $14 million
</TABLE>
The value of advertising provided will be based on the average paid unit
price, excluding barter, for similar services provided to third parties during
the month prior to the delivery of the advertising services. Switchboard may
elect to defer to a subsequent contract year up to 35% of the advertising and
promotional value, provided, however, that CBS not be required to provide
advertising and promotional value in excess of $18,900,000 in any given
contract year.
Switchboard is required to pay CBS a 25% revenue share on the net
advertising revenues derived from the sale of advertising displayed to CBS
users through the co-branded interfaces or vertical guides during the
F-14
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
term of the agreement. Additionally, Switchboard is required to pay a 12% sales
commission for advertising sold by CBS on the Switchboard Web site, or on
advertisements displayed to CBS users through co-branded interfaces or vertical
guides. Furthermore, after the expiration of the term of the license agreement,
Switchboard will be required to pay CBS a royalty of 25% of certain net revenue
recognized by Switchboard during each calendar quarter after the expiration.
The net revenue with respect to which a royalty is due will be calculated as
gross operating revenue derived by Switchboard from the CBS.Switchboard.com and
CBSSwitchboard.com Web site addresses, or traffic derived from such Web site
addresses, reduced by royalties, commissions and fees paid to CBS and other
third parties and applicable taxes and other expenses in generating that
operating revenue. These costs will be accounted for as sales and marketing
expense when incurred.
In the event that the agreement is terminated by Switchboard for cause, as
defined in the agreement, in lieu of performing the advertising and promotional
obligations CBS may elect to pay in cash the difference between $95 million and
the amount of promotional value provided to date. CBS may pay the cash over the
original term of the agreement or in a lump sum payment equal to the net
present value of the amount due.
Banyan Worldwide has agreed to indemnify CBS for breaches by Switchboard of
representations, warranties and covenants in the Advertising and Promotion
Agreement. The indemnification obligations with respect to the covenants will
expire upon the first to occur of: (i) the first business day after June 30,
2001 when Banyan Worldwide owns or controls less than a majority of
Switchboard's voting power; and (ii) the first business day after any person
owns or controls more of Switchboard's voting power than Banyan Worldwide does.
Switchboard has agreed to indemnify Banyan Worldwide for amounts that Banyan
Worldwide may be required to pay to CBS pursuant to Banyan Worldwide's
indemnification obligations to CBS.
CBS and Switchboard also entered into a License Agreement dated as of June
30, 1999 which provides a ten-year license, subject to extension, to
Switchboard for the utilization of the CBS trademarks in identifying, marketing
and promoting the Switchboard Web site. If Switchboard terminates the agreement
for cause, as defined in the agreement, CBS must pay $3.5 million to
Switchboard for each year remaining in the agreement at the date of
termination.
Additionally, Banyan Worldwide issued a common stock purchase warrant to
CBS on June 30, 1999, whereby CBS received warrants to purchase 250,000 shares
of Banyan Worldwide's common stock at $11.27 per share. Switchboard has
recorded the fair value of the Banyan Worldwide warrants based on the Black-
Scholes model as a common stock issuance cost of $375,000.
J. Commitments and Contingencies:
Switchboard's facilities are provided by Banyan Worldwide as part of the
corporate services agreement, which is renegotiated on a periodic basis (Note
G).
Under a licensing agreement, Switchboard is obligated to pay minimum
royalties of $400,000, $450,000, and $500,000 in the years 2000, 2001, and
2002, respectively.
K. Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1998 1999
----------- --------- -----------
<S> <C> <C> <C>
Deferred tax benefit.................... $(2,087,000) $(772,000) $(2,926,000)
Valuation allowance..................... 2,087,000 772,000 2,926,000
----------- --------- -----------
-- -- --
=========== ========= ===========
</TABLE>
F-15
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Switchboard's effective tax rate varied from the statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Federal income tax
rate.................. (34.0)% (34.0)% (34.0)%
State taxes............. (6.1)% (2.2)% (5.0)%
Use of net operating
losses by Banyan
Worldwide............. 0.9 % 21.9 % 5.8 %
Valuation allowance..... 39.2 % 14.3 % 33.2 %
----- ----- -----
0.0 % 0.0 % 0.0 %
===== ===== =====
</TABLE>
Based on Switchboard's current financial status, realization of
Switchboard's deferred tax assets is uncertain and, accordingly, a valuation
allowance for the entire deferred tax asset amount has been recorded. The
components of the net deferred tax asset (liability) and the related valuation
allowance are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 2,935,000 $ 5,718,000
Writeoff of technology............................ 562,000 668,000
Allowance for doubtful accounts................... 121,000 65,000
Accrued compensation.............................. 60,000 82,000
Deferred revenue.................................. -- 66,000
Other............................................. -- 3,000
----------- -----------
3,678,000 6,602,000
Deferred tax liability:
Capitalized software.............................. (3,000) --
----------- -----------
(3,000) --
Less valuation allowance........................... (3,675,000) (6,602,000)
----------- -----------
Net deferred tax assets.......................... -- --
=========== ===========
</TABLE>
Of the $6,602,000 valuation allowance at December 31, 1999, $226,000
relating to deductions for nonqualified stock options will be credited to paid-
in capital, if realized.
As of December 31, 1999, Switchboard has federal and state net operating
loss carryforwards of approximately $14,200,000, which begin to expire in 2011
and 2001, respectively. Switchboard's available net operating loss
carryforwards have been reduced by approximately $5,137,000 due to the
utilization of the net operating losses in Banyan Worldwide's consolidated tax
return.
Ownership changes resulting from Switchboard's issuance of capital stock
may limit the amount of net operating loss carryforwards that can be utilized
annually to offset future taxable income. The amount of the annual limitation
is determined based upon the Switchboard's value immediately prior to the
ownership change. Subsequent significant changes in ownership could further
affect the limitation in the future.
F-16
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
L. Common Stock and Common Stock Warrants:
In 1996, Banyan Worldwide assigned all of its right, title and interest in
the Switchboard software to Switchboard, transferred net assets including
accounts receivable, property and equipment, capitalized software costs, and
deferred revenue, valued at $546,478 and settled advances of $697,093 from
Banyan Worldwide in exchange for 7,000,000 shares of Switchboard common stock.
In November 1997, Switchboard entered into a technology development and
marketing agreement with a software provider. Under the terms of the agreement,
Switchboard received certain rights in the technology of the software provider
and certain services from the software provider to further develop the
technology. Upon the initial delivery of the technology, Switchboard issued a
warrant to purchase 300,000 shares of common stock at $2.00 per share. The
warrants were fully vested at the issue date. The fair value of the warrant at
the time of issuance was estimated to be $192,600 using the Black-Scholes
model. The fair value was recorded as product development expense at the date
of issuance, because the technology had not reached technological feasibility.
The software provider agreement provided for an additional issuance of
equity in Switchboard upon delivery of the next release of the technology in
accordance with jointly developed specifications, either in the form of a
warrant for or shares of common stock. In May 1999, Switchboard issued 140,000
shares of common stock to the software provider upon acceptance of the
technology by Switchboard. Switchboard capitalized $1,050,000, the fair value
of Switchboard common stock on the date of issuance, as the technology had
reached technological feasibility, and is amortizing that value over a two-year
period.
In March 1999, in connection with a co-branded website and linking
agreement ("Web site Agreement") with a joint venture customer, Switchboard
issued a series of warrants for 385,000 shares of common stock at $8.00 per
share. The Web site Agreement expires on October 31, 2000, except in the event
of the dissolution of the joint venture. In that case, the Web site Agreement
will terminate at the time of the joint venture dissolution, provided that the
customer informs Switchboard of the joint venture dissolution before December
1, 1999. No notification of dissolution was received by Switchboard. If the
customer terminates the agreement for any reason other than cause or the
dissolution of the joint venture, the customer will be required to pay $200,000
to Switchboard.
At the execution of the Web site Agreement, warrants to purchase up to an
aggregate of 233,750 shares of common stock vested immediately ("Initial
Warrants"). The warrants for the remaining shares ("Additional Warrants")
vested on December 31, 1999. The value of the Initial Warrants was estimated to
be $200,558 on the date of issuance using the Black-Scholes model and is being
amortized as sales and marketing expense over the nineteen-month term of the
Web site Agreement. The value of the Additional Warrants was estimated to be
$129,773 on the date of issuance using the Black-Scholes model. The value of
the Additional Warrants was adjusted to market at each balance sheet date until
December 31, 1999 and is being amortized as sales and marketing expense over
the nineteen-month term of the Web site Agreement. On December 31, 1999, the
total value of the Additional Warrants was $848,815.
In 1999, Switchboard issued 7,468,560 shares of common stock and a warrant
to purchase up to 1,066,937 shares of common stock to CBS Corporation (Note I).
F-17
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
M. Preferred Stock and Preferred Stock Warrants:
A summary of redeemable convertible preferred stock activity for the years
ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Series A Series C Series D
Redeemable Redeemable Redeemable
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
------------------ --------------------- ------------------
Shares Amount Shares Amount Shares Amount Total
------- ---------- --------- ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 750,000 $3,058,386 $ 3,058,386
Accrued dividends for
preferred
stockholders.......... 307,500 307,500
------- ---------- -----------
Balance at December 31,
1997.................. 750,000 3,365,886 3,365,886
Accrued dividends for
preferred
stockholders.......... 292,500 292,500
------- ---------- -----------
Balance at December 31,
1998.................. 750,000 3,658,386 3,658,386
Conversion of amounts
due to parent and
convertible promissory
notes.................. 2,655,916 $10,623,664 146,505 $1,098,788 $11,722,452
Accrued dividends for
preferred
stockholders.......... 315,000 565,383 58,349 938,732
------- ---------- --------- ----------- ------- ---------- -----------
Balance at December 31,
1999.................. 750,000 $3,973,386 2,655,916 $11,189,047 146,505 $1,157,137 $16,319,570
======= ========== ========= =========== ======= ========== ===========
</TABLE>
Switchboard is authorized to issue 10,000,000 shares of preferred stock,
$0.01 par value, 750,000 of which are designated as Series A Convertible
Preferred Stock ("Series A Preferred Stock"), 1,500,000 of which are designated
as Series B Convertible Preferred Stock ("Series B Preferred Stock"), 4,000,000
of which are designated as Series C Convertible Preferred Stock ("Series C
Preferred Stock"), 1,500,000 of which are designated as Series D Convertible
Preferred Stock ("Series D Preferred Stock") and one of which is designated as
Series E Special Voting Preferred Stock ("Series E Preferred Stock").
At December 31, 1999, Switchboard had 3,552,422 shares of common stock
reserved for conversion of the preferred stock.
Series A, B, C and D Preferred Stock
The Series A, B, C and D Preferred Stock is voting. Dividends may be
declared and paid when determined by the Board of Directors. The Series A, B, C
and D Preferred Stock is convertible at any time by the holders, at the then
applicable conversion rate adjusted from time to time (one to one on the date
of issuance). Upon liquidation, the holders of the Series A, B, C and D
Preferred Stock are entitled to receive, out of funds then generally available,
an amount equal to $4.00 per share in the case of Series A Preferred Stock and
Series C Preferred Stock, $6.00 per share in the case of Series B Preferred
Stock and $7.50 per share in the case of Series D Preferred Stock, plus any
declared and unpaid dividends. Following payment to holders of all other
classes of preferred stock, the Series A, B, C and D Preferred Stock holders
are then entitled to share in the remaining available funds on an "as if
converted" basis.
Shares of the Series A, B, C and D Preferred Stock automatically convert
into common stock upon the closing of a qualified public offering, which is
defined as an offering in which Switchboard is valued at at least $135,000,000
(determined by multiplying the number of outstanding shares of capital stock of
Switchboard on a fully diluted basis by the initial offering price) and
resulting in at least $15,000,000 of net proceeds (determined by subtracting
underwriters' discounts and commissions from gross proceeds).
In the case of a liquidation due to a consolidation or merger of
Switchboard with or into another company in which Switchboard is not the
surviving entity, the holders of Series A, B, C and D Preferred Stock can elect
to convert their shares of preferred stock into the shares of stock or other
securities of the surviving entity in lieu of receiving cash payments.
F-18
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
At the option of the holders of preferred stock, Switchboard is required to
redeem the Series A, B, C and D Preferred Stock at a price equal to $4.00,
$6.00, $4.00 and $7.50, respectively, plus accrued interest at the prime rate
plus 2% (10.50% on December 31, 1999), plus any declared and unpaid dividends,
in three equal annual payments, plus interest thereon, beginning June 30, 2000.
The accrued interest is recorded as accrued dividends to preferred stockholders
in the statement of operations.
In November 1996, Switchboard issued 750,000 shares of Series A Preferred
Stock at $4.00 per share to American Online, Inc. ("AOL") and Digital City Inc.
("DCI") for total consideration of $3,000,000. In connection with this
transaction, Switchboard issued warrants to each of AOL and DCI to purchase
shares of Series B Preferred Stock equal to 3.75% of Switchboard's capital
stock on the date of exercise, on a fully diluted basis. The per share exercise
price is equal to $60 million divided by the number of fully diluted shares of
Switchboard's capital stock on the date of exercise, and is subject to
adjustment. The warrant expires at the earlier of (i) the date on which AOL
ceases to promote Switchboard through a link to the Switchboard Web site
through the AOL service or AOL.com or (ii) November 5, 2000. The warrant to DCI
expired unexercised on December 31, 1997. AOL has indicated in the past that
its warrant is still outstanding; however, management believes that the warrant
to AOL expired, pursuant to its terms. If the warrants were deemed outstanding
at December 31, 1999, the exercise price would be $2.56 per share. Assuming
consummation of this offering, the exercise price would be $2.07, based on
fully diluted shares at December 31, 1999, including the assumed issuance of
5,500,000 shares in this offering. For the purposes of these calculations fully
diluted shares includes 18,216,355 shares of common stock on a pro forma basis,
options to purchase 2,951,600 shares of common stock, warrants for 1,751,937
shares of common stock, and 466,785 shares of common stock and warrants to
purchase 66,683 additional shares of common stock that would be issued in
accordance with anti-dilution provisions of the CBS agreement.
No shares of Series B Preferred Stock have been issued to date.
In 1999, Switchboard issued 2,655,916 shares of Series C Preferred Stock
and 146,505 shares of Series D Preferred Stock to Banyan Worldwide upon the
conversion of outstanding convertible promissory notes outstanding (Note F).
Series E Preferred Stock
On June 30, 1999, Switchboard issued one share of Series E Preferred Stock
to CBS Corporation ("CBS") in connection with the Advertising and Promotion and
License Agreements (Note I).
The Series E Preferred Stock is voting. Additionally, the holder of the
Series E Preferred Stock, voting as a separate class, shall be entitled to
elect a certain number directors, depending on whether the license agreement
between CBS and Switchboard remains in effect and the percentage ownership in
Switchboard that CBS holds. The Series E Preferred Stock is convertible at any
time by CBS. The share of Series E Preferred Stock will automatically be
converted to one share of common stock (i) on the date both the license
agreement is no longer in effect and CBS's fully diluted ownership interest in
Switchboard equals zero; (ii) on the date a competitor of Switchboard acquires
a direct or indirect beneficial ownership interest of more than 30% of the
outstanding shares of common stock, or securities representing, in the
aggregate of more than 30% of the voting power of CBS, or all or substantially
all of CBS's assets; or (iii) the date on which the outstanding share of Series
E Preferred Stock is held by any person or entity other than CBS or its
affiliates. The Series E Preferred Stock is junior to the Series A, B, C and D
Preferred Stock with respect to redemption rights and the right to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of Switchboard.
F-19
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
N. Stock Option Plans:
In October 1999, Switchboard adopted the 1999 Stock Incentive Plan (the
"1999 Option Plan"). A total of 1,500,000 shares of common stock have been
reserved for issuance under the 1999 Option Plan. As of December 31, 1999,
options to purchase 7,000 shares have been granted under the 1999 Option Plan.
Switchboard also has the 1996 Stock Incentive Plan (the "1996 Option Plan")
which provides for the issuance of options to purchase 3,000,000 shares of
Switchboard's common stock. As of December 31, 1999, options to purchase
2,999,974 have been issued under the 1996 Option Plan.
Generally, options under the 1996 and 1999 Option Plans vest over four
years.
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding at December 31, 1996......................... 837,000 $1.00
Granted.................................................. 336,000 1.44
Canceled................................................. (166,000) 1.00
--------- -----
Outstanding at December 31, 1997......................... 1,007,000 1.15
Granted.................................................. 522,875 2.17
Exercised................................................ (13,250) 1.00
Canceled................................................. (353,750) 1.53
--------- -----
Outstanding at December 31, 1998......................... 1,162,875 1.49
Granted.................................................. 1,972,950 8.67
Exercised................................................ (42,124) 1.87
Canceled................................................. (142,101) 2.66
--------- -----
Outstanding at December 31, 1999......................... 2,951,600 $6.23
========= =====
</TABLE>
As of December 31, 1999, 1,493,026 shares were available for grant under
the 1996 and 1999 Option Plans.
The following table summarizes information about the stock options at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00--1.50............. 638,000 7.0 $1.00 475,000 $1.00
$2.00--2.50............. 361,000 8.4 $2.19 112,124 $2.25
$7.50--9.00............. 1,952,600 9.7 $8.68 31,250 $7.54
</TABLE>
Had compensation cost for Switchboard's stock option plan been determined
based on the fair value at the grant date for awards in 1997, 1998 and 1999,
consistent with the provisions of SFAS 123, Switchboard's net loss and basic
and diluted net loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1997 1998 1999
-------------------------- ------------------------- --------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
------------ ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net loss attributed to
common stockholders.... $ (5,636,912) $ (5,779,334) $(5,657,562) $ (5,944,629) $(9,743,628) $ (11,775,751)
Basic and diluted loss
per share.............. $ (0.81) $ (0.83) $ (0.81) $ (0.85) $ (0.89) $ (1.08)
</TABLE>
F-20
<PAGE>
SWITCHBOARD INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in each of the following periods:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Dividend yield....................................... 0% 0% 0%
Expected volatility.................................. 90% 90% 90%
Risk free interest rate.............................. 6.16% 5.48% 5.72%
Expected lives....................................... 7 years 6 years 5 years
</TABLE>
The weighted average grant date fair values using the Black-Scholes option
pricing model were $1.17, $1.66 and $6.87 during the years ended December 31,
1997, 1998, and 1999, respectively. The effects of applying SFAS 123 in this
disclosure were not indicative of future amounts. Additional grants in future
years are anticipated.
In 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "Purchase Plan"). The Purchase Plan allows for the issuance of
300,000 shares of Switchboard's common stock to eligible employees. Under the
Purchase Plan, Switchboard is authorized to make a series of offerings during
which employees may purchase shares of common stock through payroll deductions
made over the term of the offering. The per-share purchase price at the end of
each offering is equal to 85% of the fair market value of the common stock at
the beginning or end of the offering period (as defined by the Purchase Plan),
whichever is lower.
O. Investment:
In August 1999, in connection with a Development, Access and License
agreement with a third party, Switchboard was issued a warrant for 150,000
shares of common stock, with an exercise price of $9.19 per share. The
underlying common stock of the third party is publicly traded and can be
registered at the demand of Switchboard any time after June 16, 2000. The
warrant expires on June 30, 2002.
Switchboard has recorded the warrant at its fair value of $774,900
determined using the Black-Scholes model. Switchboard has also recorded a
corresponding deferred cost benefit which will be amortized in relation to the
costs incurred over the three-year term of the agreement. No costs were
incurred in 1999.
P. Subsequent Event:
On January 28, 2000, the stockholders of Switchboard approved an amendment
to the 1999 Option Plan whereby the shares reserved for issuance were increased
by 375,000 to 1,875,000.
On February 4, 2000, Switchboard filed a Certificate of Amendment to
Switchboard's Certificate of Incorporation to authorize an increase in the
capitalization of Switchboard from 30,000,000 to 85,000,000 shares of common
stock.
F-21
<PAGE>
[Narrative description of graphic material omitted in electronically filed
document:
Description of inside back cover:
At the top of the page is the heading "Advertising on Switchboard" set
against a purple background. The page is separated into three separate
vignettes, from top to bottom of the page. The caption, "Switchboard offers
customers a wide range of advertising options.", is centered above the
vignettes.
The first vignette displays a snapshot of a yellow pages search query Web
page on the Switchboard Web site centered between two sets of captions and
text. To the left of the snapshot is the caption "Banner Advertising" which
serves as the heading for the text directly below it, "We offer site-wide,
category-specific and location-targeted banner programs." Two red arrows point
from that text to banner advertisements on the Web page snapshot. To the right
of the snapshot is the caption "Sponsor Advertising" which serves as the
heading for the text directly below it, "Our site-wide and category-specific
sponsorship consistently and prominently display ads on our Web site." A red
arrow points from the caption to sponsor advertisements on the Web page
snapshot.
The second vignette displays a snapshot of a yellow pages search results
Web page on the Switchboard Web site. To the right of the snapshot is the
caption "Yellow Page Display Advertising" which serves as the heading for the
text directly below it, "We provide yellow pages-style display advertisements
which give advertisers a range of location, category and size options at the
local and national levels. Our display ads rotate to ensure that each
advertiser is periodically visible near the top of the page.". A red arrow
points from the text to the display advertisements on the Web page.
The third vignette displays two snapshots of Web pages on the Switchboard
Web site. On the left is a snapshot of Switchboard's shopping area service.
Centered underneath that snapshot is the caption, "Switchboard Shopping Area".
On the right is a snapshot of a white pages search results Web page. Centered
underneath that snapshot is the caption, "Switchboard White Pages". Between the
two snapshots is the caption "E-Commerce Advertising" which serves as the
heading for the text directly below it, "We offer advertising options placed
near white pages search results and in our shopping area to e-commerce Web
sites.". Beneath that text are two red arrows, one pointing to each of the
snapshots.
Description of outside back cover:
Centered in the top half of the page is a large yellow circle with a black
border. Inside the circle is the logo "Think outside the bookSM". Beneath that
logo within the circle in blue type with the CBS eye device in red is the logo
"CBS Switchboard.com". These logos are superimposed over the silhouette of a
person opening a door into a building. Beneath the circle centered slightly
below the middle of the page is the text "Switchboard has won numerous awards
since its launch:". A vignette appears below this text which includes four
pictures, from left to right across the page. The first picture is of the front
cover of Windows Magazine. Below that picture is the caption, ```101 Best
Business Sites', June 1, 1999 by Windows Magazine". The second picture is of a
logo for PC Magazine's top 100 Web sites in January 1999. Below that picture is
the caption, ```Top 100 Websites for People Finders', January 18, 1999 by PC
Magazine". The third picture is of a logo for Yahoo! Internet Life. Below that
picture is the caption, "Switchboard and Maps On Us -- "10 Supremely Useful
Sites on the Web', November 18, 1999 by Yahoo! Internet Life Magazine". The
fourth picture is of a Web page on the Newsweek.com Web site. Below that
picture is the caption, ```Favorite' site on the Web for finding people and
businesses, September 12, 1999 by Newsweek Magazine."]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 24,218
NASD filing fee............................................... 9,355
Nasdaq National Market listing fee............................ 95,000
Blue Sky fees and expenses.................................... 15,000
Transfer Agent and Registrar fees............................. 10,000
Accounting fees and expenses.................................. 500,000
Indemnity insurance expenses.................................. 290,000
Legal fees and expenses....................................... 600,000
Printing and mailing expenses................................. 200,000
Miscellaneous................................................. 256,427
----------
Total....................................................... $2,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Article SEVENTH of the Registrant's amended and restated certificate of
incorporation provides that no director of the Registrant shall be personally
liable for any monetary damages for any breach of fiduciary duty as a director,
except to the extent that the Delaware General Corporation Law prohibits the
elimination or limitation of liability of directors for breach of fiduciary
duty.
Article EIGHTH of the Registrant's amended and restated certificate of
incorporation provides that a director or officer of the Registrant:
(a) shall be indemnified by the Registrant against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with any litigation or other legal proceeding (other than an action
by or in the right of the Registrant) brought against him by virtue of his
position as a director or officer of the Registrant if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful and
(b) shall be indemnified by the Registrant against all expenses (including
attorneys' fees) and amounts paid in settlement incurred in connection with any
action by or in the right of the Registrant brought against him by virtue of
his position as a director or officer of the Registrant if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Registrant, except that no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged to
be liable to the Registrant, unless a court determines that, despite such
adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer at
his request, provided that he undertakes to repay the amount advanced if it is
ultimately determined that he is not entitled to indemnification for such
expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Registrant's amended and restated certificate of
incorporation further provides that the indemnification provided therein is not
exclusive, and provides that in the event that the Delaware General Corporation
Law is amended to expand the indemnification permitted to directors or officers
the Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under the Underwriting Agreement, the underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the Registrant
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1
hereto.
Item 15. Recent Sales of Unregistered Securities
Certain Sales of Securities. Since July 1996, the Registrant has issued the
following securities that were not registered under the Securities Act, as
summarized below.
(a) Issuances of capital stock, warrants and convertible notes.
1. On April 18, 1996, the Registrant issued and sold 10 shares of its
common stock to Banyan Worldwide for nominal consideration, in
connection with its formation.
2. On November 5, 1996, the Registrant issued and sold 6,999,990 shares
of its common stock to Banyan Worldwide in consideration for the
transfer of the Registrant's core technologies and net assets valued
at approximately $546,000 and in settlement of advances from Banyan
Worldwide of approximately $697,000.
3. On November 5, 1996, the Registrant issued and sold an aggregate of
750,000 shares of the Registrant's Series A Convertible Preferred
Stock, $0.01 par value per share, to Digital City Inc. and America
Online, Inc. (375,000 shares to each entity) and warrants to purchase
shares of the Registrant's Series B Convertible Preferred Stock, $0.01
par value per share, to Digital City, Inc. and America Online, Inc.,
in each case equal to 3.75% of the Registrant's capital stock on the
date of exercise, for an aggregate purchase price of $3,000,000,
pursuant to a Series A Preferred Stock Purchase Agreement.
4. On December 31, 1997, the Registrant issued a common stock purchase
warrant to Continuum Software Inc. to purchase 300,000 shares of its
common stock at an exercise price of $2.00 per share in connection
with a Technology Development and Marketing Agreement.
II-2
<PAGE>
5. On March 31, 1999, the Registrant issued a common stock purchase
warrant to US West Dex, Inc. to purchase 96,250 shares of its common
stock in connection with a Web-site Development Agreement.
6. On March 31, 1999, the Registrant issued a common stock purchase
warrant to Ameritech Interactive Media, Inc. to purchase 96,250 shares
of its common stock in connection with a Web-site Development
Agreement.
7. On March 31, 1999, the Registrant issued a common stock purchase
warrant to Intelligent Media Ventures, Inc. to purchase 96,250 shares
of its common stock in connection with a Web-site Development
Agreement.
8. On April 13, 1999, the Registrant issued a common stock purchase
warrant to SBC Communications Inc. to purchase 96,250 shares of its
common stock in connection with a Web-site Development Agreement.
9. On May 4, 1999, the Registrant issued and sold 140,000 shares of its
common stock to Continuum Software Inc. in consideration for delivery
of a subsequent technology release under a Technology Development and
Marketing Agreement.
10. On June 30 and July 1, 1999, the Registrant issued and sold an
aggregate of 7,468,560 shares of its common stock, one share of its
Series E Special Voting Preferred Stock, $0.01 par value per share,
and warrants to purchase an aggregate of 1,066,937 shares of common
stock to CBS Corporation for consideration of $5.0 million in cash
and $95.0 million in advertising and promotion through June 2006
across CBS media properties, including television, radio and outdoor
advertising.
11. On June 30, 1999, the Registrant issued 2,655,916 shares of its
Series C Convertible Preferred Stock, $0.01 par value per share, to
Banyan Worldwide in connection with the conversion of a Convertible
Secured Note issued by the Registrant on August 29, 1997, with a
principal and interest balance of $10,623,664 on the date of
conversion.
12. On June 30 and July 1, 1999, the Registrant issued an aggregate of
146,505 shares of its Series D Convertible Preferred Stock, $0.01 par
value per share, to Banyan Worldwide in connection with the
conversion of a Convertible Secured Note issued by the Registrant on
May 3, 1999, with a principal and interest balance of $1,098,788 on
the date of conversion.
13. On July 21, 1999, the Registrant issued 1,875 shares of its common
stock to an executive search firm in exchange for services rendered.
14. From January 1998 through January 1999, the Registrant has issued and
sold an aggregate of 57,999 shares of common stock to employees of
the Registrant pursuant to stock option exercises, for an aggregate
purchase price of $83,186.
(b) Stock option grants.
From the adoption of the 1996 Stock Incentive Plan through January 31,
1999, the Registrant has granted options to purchase an aggregate of 3,689,325
shares of its common stock, net of cancellations of 701,851 options and
exercises of 59,874 options at a per share weighted average exercise price of
$1.64.
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of the options to purchase common stock
described in paragraph (b) above, Rule 701 of the Securities Act. All of the
foregoing securities are deemed restricted securities for the purposes of the
Securities Act.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1** Certificate of Incorporation of the Registrant, as amended.
3.2** Certificate of Amendment to Certificate of Incorporation of the
Registrant, as amended, effective as of February 4, 2000.
3.3** Amended and Restated Certificate of Incorporation of the Registrant,
to be effective upon the closing of this offering.
3.4** By-Laws of the Registrant.
3.5** Amended and Restated By-Laws of the Registrant, to be effective upon
the closing of this offering.
4** Specimen certificate for shares of Common Stock, $0.01 par value per
share, of the Registrant.
5** Opinion of Hale and Dorr LLP.
10.1** 1996 Stock Incentive Plan, as amended, including forms of stock
option agreement for incentive and nonstatutory stock options.
10.2** 1999 Stock Incentive Plan, as amended, including forms of stock
option agreement for incentive and nonstatutory stock options.
10.3** 1999 Employee Stock Purchase Plan.
10.4** Common Stock and Warrant Purchase Agreement, as amended, by and among
the Registrant, Banyan Worldwide and CBS Corporation, dated June 1,
1999 (Incorporated herein by reference to Exhibit 10.1 of Banyan
System Incorporated's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, File No. 000-20364, filed August 16, 1999 (the
"August 16, 1999 Banyan Worldwide 10-Q")).
10.4A** Amendment No. 2 to Common Stock and Warrant Purchase Agreement,
effective as of July 1, 1999.
10.5** Advertising and Promotion Agreement by and among the Registrant,
Banyan Worldwide and CBS Corporation, dated June 30, 1999
(Incorporated by reference to Exhibit 10.3 of the August 16, 1999
Banyan Worldwide 10-Q).
10.6** License Agreement by and between the Registrant and CBS Corporation,
dated June 30, 1999 (Incorporated by reference to Exhibit 10.4 of the
August 16, 1999 Banyan Worldwide 10-Q).
10.7** Common Stock Purchase Warrant issued by the Registrant to CBS
Corporation, dated June 30, 1999 (Incorporated by reference to
Exhibit 10.2 of the August 16, 1999 Banyan Worldwide 10-Q).
10.7A** Common Stock Purchase Warrant issued by the Registrant to CBS
Corporation, dated July 1, 1999.
10.8** Registration Rights Agreement by and between the Registrant and CBS
Corporation, dated June 30, 1999.
10.9** Right of First Refusal Agreement by and among the Registrant, Banyan
Worldwide and CBS Corporation, dated June 30, 1999.
10.10** Financial Reporting Agreement among the Registrant, Banyan Worldwide
and CBS Corporation, dated as of January 28, 2000.
10.11** Stockholders' Voting Agreement by and among the Registrant, Banyan
Worldwide and CBS Corporation, dated June 30, 1999.
10.12** Common Stock Purchase Warrant issued by the Registrant to Continuum
Software Inc., dated December 31, 1997.
10.13** Registration Rights Agreement by and between the Registrant and
Continuum Software Inc., dated December 31, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.14** Common Stock Purchase Warrant issued by the Registrant to US WEST
Dex, Inc., dated March 31, 1999.
10.15** Common Stock Purchase Warrant issued by the Registrant to Ameritech
Interactive Media, Inc., dated March 31, 1999.
10.16** Common Stock Purchase Warrant issued by the Registrant to Intelligent
Media Ventures, Inc., dated March 31, 1999.
10.17** Common Stock Purchase Warrant issued by the Registrant to SBC
Communications Inc., dated April 13, 1999.
10.18** Amended and Restated Registration Rights Agreement, as amended, by
and among the Registrant, America Online, Inc., Digital City Inc. and
Banyan Worldwide, dated February 20, 1998.
10.19** Amended and Restated Registration Rights Agreement by and between the
Registrant and Banyan Worldwide, dated May 3, 1999.
10.20** Services Agreement between the Registrant and Banyan Worldwide, dated
November 1, 1996.
10.21**+ Database License Agreement, as amended, by and between the Registrant
and infoUSA Inc., dated December 31, 1997.
10.22**+ Internet Provider Agreement, as amended, by and between the
Registrant and Etak, Inc., dated November 25, 1996.
10.23** Convertible Secured Note Purchase Agreement between the Registrant
and Banyan Worldwide, dated August 29, 1997, as amended.
10.24** Amended and Restated Convertible Note issued by the Registrant to
Banyan Worldwide on January 26, 2000.
10.25** Form of Registration Rights Agreement between the Registrant and
Banyan Worldwide.
10.26** Form of Services Agreement between the Registrant and Banyan
Worldwide.
10.27** Form of Sublease between the Registrant and Banyan Worldwide.
10.28** Employment Agreement between the Registrant and Douglas J. Greenlaw,
dated October 8, 1999.
10.29** Employment Agreement between the Registrant and Dean Polnerow, dated
December 1, 1999.
10.30** Employment Agreement between the Registrant and John P. Jewett, dated
January 25, 2000.
10.31** Employment Agreement between the Registrant and James M. Canon, dated
December 31, 1999.
10.32**+ Internet Data Center Services Agreement between the Registrant and
Exodus Communications, Inc., effective June 30, 1998.
10.33** Nonstatutory Stock Option Agreement Granted Under 1999 Stock
Incentive Plan between the Registrant and Douglas J. Greenlaw, dated
October 13, 1999.
10.34** Nonstatutory Stock Option Agreement between the Registrant and
Douglas J. Greenlaw, dated October 13, 1999.
10.35** Incentive Stock Option Agreement between the Registrant and Dean
Polnerow, dated October 13, 1999.
10.36** Incentive Stock Option Agreement between the Registrant and John P.
Jewett, dated October 13, 1999.
10.37** Incentive Stock Option Agreement between the Registrant and James M.
Canon, dated October 13, 1999.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.38** Non-Statutory Stock Option Agreement between the Registrant and
William P. Ferry, dated September 14, 1999.
10.39** Non-Statutory Stock Option Agreement between the Registrant and
William P. Ferry, dated October 18, 1999.
10.40** Non-Statutory Stock Option Agreement between the Registrant and Daniel
R. Mason, dated September 14, 1999.
10.41** Non-Statutory Stock Option Agreement between the Registrant and
Richard M. Spaulding, dated September 14, 1999.
10.42** Non-Statutory Stock Option Agreement between the Registrant and David
N. Strohm, dated September 14, 1999.
10.43** Non-Statutory Stock Option Agreement between the Registrant and Robert
M. Wadsworth, dated September 14, 1999.
10.44 Non-Statutory Stock Option Agreement between the Registrant and
Russell I. Pillar, dated January 26, 2000.
21** Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2** Consent of Hale and Dorr LLP (included in Exhibit 5).
24.1** Power of Attorney for Douglas J. Greenlaw, Dean Polnerow, John P.
Jewett, William P. Ferry, Daniel R. Mason, Richard M. Spaulding, David
N. Strohm and Robert M. Wadsworth.
24.2** Power of Attorney for Russell I. Pillar.
27.1** Financial Data Schedule for the ten months ended December 31, 1996.
27.2** Financial Data Schedule for the fiscal years ended December 31, 1997
and 1998.
27.3** Financial Data Schedule for the six months ended June 30, 1998 and
1999.
27.4 Financial Data Schedule for the fiscal years ended December 31, 1998
and 1999.
</TABLE>
- --------
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Securities and Exchange
Commission pursuant to a Confidential Treatment Request.
(b) Financial Statement Schedules
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's consolidated
financial statements or notes to those statements.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE>
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-7
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 6 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Boston, Massachusetts, on this 1st day of March, 2000.
Switchboard Incorporated
/s/ John P. Jewett
By:
-----------------------------------
John P. Jewett
Vice President and Chief
Financial Officer
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer March 1, 2000
______________________________________ and Director (Principal
Douglas J. Greenlaw Executive Officer)
* President and Director March 1, 2000
______________________________________
Dean Polnerow
/s/ John P. Jewett Vice President, Chief March 1, 2000
______________________________________ Financial Officer,
John P. Jewett Treasurer and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
* Chairman of the Board of March 1, 2000
______________________________________ Directors
William P. Ferry
* Director March 1, 2000
______________________________________
Daniel R. Mason
* Director March 1, 2000
______________________________________
Russell I. Pillar
* Director March 1, 2000
______________________________________
Richard M. Spaulding
* Director March 1, 2000
______________________________________
David N. Strohm
* Director March 1, 2000
______________________________________
Robert M. Wadsworth
*By: /s/ John P. Jewett March 1, 2000
______________________________________
John P. Jewett
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1** Certificate of Incorporation of the Registrant, as amended.
3.2** Certificate of Amendment to Certificate of Incorporation of the
Registrant, as amended, effective as of February 4, 2000.
3.3** Amended and Restated Certificate of Incorporation of the Registrant,
to be effective upon the closing of this offering.
3.4** By-Laws of the Registrant.
3.5** Amended and Restated By-Laws of the Registrant, to be effective upon
the closing of this offering.
4** Specimen certificate for shares of Common Stock, $0.01 par value per
share, of the Registrant.
5** Opinion of Hale and Dorr LLP.
10.1** 1996 Stock Incentive Plan, as amended, including forms of stock
option agreement for incentive and nonstatutory stock options.
10.2** 1999 Stock Incentive Plan, as amended, including forms of stock
option agreement for incentive and nonstatutory stock options.
10.3** 1999 Employee Stock Purchase Plan.
10.4** Common Stock and Warrant Purchase Agreement, as amended, by and among
the Registrant, Banyan Worldwide and CBS Corporation, dated June 1,
1999 (Incorporated herein by reference to Exhibit 10.1 of Banyan
System Incorporated's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, File No. 000-20364, filed August 16, 1999 (the
"August 16, 1999 Banyan Worldwide 10-Q")).
10.4A** Amendment No. 2 to Common Stock and Warrant Purchase Agreement,
effective as of July 1, 1999.
10.5** Advertising and Promotion Agreement by and among the Registrant,
Banyan Worldwide and CBS Corporation, dated June 30, 1999
(Incorporated by reference to Exhibit 10.3 of the August 16, 1999
Banyan Worldwide 10-Q).
10.6** License Agreement by and between the Registrant and CBS Corporation,
dated June 30, 1999 (Incorporated by reference to Exhibit 10.4 of the
August 16, 1999 Banyan Worldwide 10-Q).
10.7** Common Stock Purchase Warrant issued by the Registrant to CBS
Corporation, dated June 30, 1999 (Incorporated by reference to
Exhibit 10.2 of the August 16, 1999 Banyan Worldwide 10-Q).
10.7A** Common Stock Purchase Warrant issued by the Registrant to CBS
Corporation, dated July 1, 1999.
10.8** Registration Rights Agreement by and between the Registrant and CBS
Corporation, dated June 30, 1999.
10.9** Right of First Refusal Agreement by and among the Registrant, Banyan
Worldwide and CBS Corporation, dated June 30, 1999.
10.10** Financial Reporting Agreement among the Registrant, Banyan Worldwide
and CBS Corporation, dated as of January 28, 2000.
10.11** Stockholders' Voting Agreement by and among the Registrant, Banyan
Worldwide and CBS Corporation, dated June 30, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.12** Common Stock Purchase Warrant issued by the Registrant to Continuum
Software Inc., dated December 31, 1997.
10.13** Registration Rights Agreement by and between the Registrant and
Continuum Software Inc., dated December 31, 1997.
10.14** Common Stock Purchase Warrant issued by the Registrant to US WEST
Dex, Inc., dated March 31, 1999.
10.15** Common Stock Purchase Warrant issued by the Registrant to Ameritech
Interactive Media, Inc., dated March 31, 1999.
10.16** Common Stock Purchase Warrant issued by the Registrant to Intelligent
Media Ventures, Inc., dated March 31, 1999.
10.17** Common Stock Purchase Warrant issued by the Registrant to SBC
Communications Inc., dated April 13, 1999.
10.18** Amended and Restated Registration Rights Agreement, as amended, by
and among the Registrant, America Online, Inc., Digital City Inc. and
Banyan Worldwide, dated February 20, 1998.
10.19** Amended and Restated Registration Rights Agreement by and between the
Registrant and Banyan Worldwide, dated May 3, 1999.
10.20** Services Agreement between the Registrant and Banyan Worldwide, dated
November 1, 1996.
10.21**+ Database License Agreement, as amended, by and between the Registrant
and infoUSA Inc., dated December 31, 1997.
10.22**+ Internet Provider Agreement, as amended, by and between the
Registrant and Etak, Inc., dated November 25, 1996.
10.23** Convertible Secured Note Purchase Agreement between the Registrant
and Banyan Worldwide, dated August 29, 1997, as amended.
10.24** Amended and Restated Convertible Note issued by the Registrant to
Banyan Worldwide on January 26, 2000.
10.25** Form of Registration Rights Agreement between the Registrant and
Banyan Worldwide.
10.26** Form of Services Agreement between the Registrant and Banyan
Worldwide.
10.27** Form of Sublease between the Registrant and Banyan Worldwide.
10.28** Employment Agreement between the Registrant and Douglas J. Greenlaw,
dated October 8, 1999.
10.29** Employment Agreement between the Registrant and Dean Polnerow, dated
December 1, 1999.
10.30** Employment Agreement between the Registrant and John P. Jewett, dated
January 25, 2000.
10.31** Employment Agreement between the Registrant and James M. Canon, dated
December 31, 1999.
10.32**+ Internet Data Center Services Agreement between the Registrant and
Exodus Communications, Inc., effective June 30, 1998.
10.33** Nonstatutory Stock Option Agreement Granted Under 1999 Stock
Incentive Plan between the Registrant and Douglas J. Greenlaw, dated
October 13, 1999.
10.34** Nonstatutory Stock Option Agreement between the Registrant and
Douglas J. Greenlaw, dated October 13, 1999.
10.35** Incentive Stock Option Agreement between the Registrant and Dean
Polnerow, dated October 13, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.36** Incentive Stock Option Agreement between the Registrant and John P.
Jewett, dated October 13, 1999.
10.37** Incentive Stock Option Agreement between the Registrant and James M.
Canon, dated October 13, 1999.
10.38** Non-Statutory Stock Option Agreement between the Registrant and
William P. Ferry, dated September 14, 1999.
10.39** Non-Statutory Stock Option Agreement between the Registrant and
William P. Ferry, dated October 18, 1999.
10.40** Non-Statutory Stock Option Agreement between the Registrant and
Daniel R. Mason, dated September 14, 1999.
10.41** Non-Statutory Stock Option Agreement between the Registrant and
Richard M. Spaulding, dated September 14, 1999.
10.42** Non-Statutory Stock Option Agreement between the Registrant and David
N. Strohm, dated September 14, 1999.
10.43** Non-Statutory Stock Option Agreement between the Registrant and
Robert M. Wadsworth, dated September 14, 1999.
10.44 Non-Statutory Stock Option Agreement between the Registrant and
Russell I. Pillar, dated January 26, 2000.
21** Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2** Consent of Hale and Dorr LLP (included in Exhibit 5).
24.1** Power of Attorney for Douglas J. Greenlaw, Dean Polnerow, John P.
Jewett, William P. Ferry, Daniel R. Mason, Richard M. Spaulding,
David N. Strohm and Robert M. Wadsworth.
24.2** Power of Attorney for Russell I. Pillar.
27.1** Financial Data Schedule for the ten months ended December 31, 1996.
27.2** Financial Data Schedule for the fiscal years ended December 31, 1997
and 1998.
27.3** Financial Data Schedule for the six months ended June 30, 1998 and
1999.
27.4 Financial Data Schedule for the fiscal years ended December 31, 1998
and 1999.
</TABLE>
- --------
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Securities and Exchange
Commission pursuant to a Confidential Treatment Request.
<PAGE>
Exhibit 10.44
-------------
Non-Statutory Stock Option Agreement
1. Grant of Option. Switchboard Incorporated, a Delaware corporation
---------------
(the "Company"), hereby grants to Russel I. Pillar (the "Optionee") an option,
----------------
pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), to purchase an
aggregate of 40,000 shares of Common Stock, $.01 par value per share, of the
------
Company ("Common Stock"), at a price of $11.00 per share, purchasable as set
------
forth in and subject to the terms and conditions of this option and the Plan.
The date of grant of this option is January 26, 2000. Except where the
----------------
context otherwise requires, the term "Company" shall include the parent and all
present and future subsidiaries of the Company as defined in Sections 424(e) and
424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to
time (the "Code").
2. Non-Statutory Stock Option. This option is not intended to qualify as
--------------------------
an incentive stock option within the meaning of Section 422 of the Code.
3. Exercise of Option and Provisions for Termination.
-------------------------------------------------
(a) Vesting Schedule. Except as otherwise provided in this
----------------
Agreement, this option may be exercised prior to the tenth anniversary of the
date of grant (hereinafter the "Final Exercise Date") in installments as to not
more than the number of shares set forth in the table below during the
respective installment periods set forth in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage of
Shares as to which
Exercise Period Option is Exercisable
- --------------- ---------------------
- --------------------------------------------------------------------------------
<S> <C>
Prior to 12 months after the date of grant -0%-
- --------------------------------------------------------------------------------
From and after 12 months after the date of -25%-
grant but prior to 24 months after the date
of grant
- --------------------------------------------------------------------------------
From and after 24 months after the date of -50%-
grant but prior to 36 months after the date
of grant
- --------------------------------------------------------------------------------
From and after 36 months after the date of -75%-
grant but prior to 48 months after the date
of grant
- --------------------------------------------------------------------------------
From and after 48 months after date of grant -100%-
- --------------------------------------------------------------------------------
</TABLE>
The right of exercise shall be cumulative so that if the option is not exercised
to the maximum extent permissible during any exercise period, it shall be
exercisable, in whole or in part, with respect to all shares not so purchased at
any time prior to the Final Exercise Date or the earlier termination of this
option. This option may not be exercised at any time on or after the Final
Exercise Date.
<PAGE>
Notwithstanding anything to the contrary in this option or in the Plan,
this option will vest as to 100% of the then-unvested shares upon the occurrence
of a Change of Control (as defined herein). For the purposes of this option, a
"Change of Control" shall mean an event or occurrence set forth in any one or
more of clauses (i) through (iv) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(i) the acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), other than Banyan Worldwide or
CBS Corporation, of beneficial ownership of any capital stock of the
Company if, after such acquisition, such Person beneficially owns (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more
of either (A) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (B) the combined voting power
of the then-outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this clause (i), the
--------
following acquisitions shall not constitute a Change in Control: (I) any
acquisition directly from the Company (excluding an acquisition pursuant to
the exercise, conversion or exchange of any security exercisable for,
convertible into or exchangeable for common stock or voting securities of
the Company, unless the Person exercising, converting or exchanging such
security acquired such security directly from the Company or an underwriter
or agent of the Company), (II) any acquisition by the Company, (III) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(IV) any acquisition by any corporation pursuant to a transaction which
complies with clauses (A) and (B) of clause (iii) of this Section 3(a); or
(ii) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board (or, if applicable, the Board of
Directors of a successor corporation to the Company), where the term
"Continuing Director" means at any date a member of the Board (A) who was
a member of the Board on the date of the execution of this Agreement or (B)
who was nominated or elected subsequent to such date by at least a majority
of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Board was recommended or
endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election; provided, however,
-------- -------
that there shall be excluded from this clause (B) any individual whose
initial assumption of office occurred as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the Board; or
(iii) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), unless, immediately following such
Business Combination, each of the following two conditions is satisfied:
(A) all or substantially all of the individuals and entities who were the
<PAGE>
beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the then-
outstanding shares of common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns the Company or
substantially all of the Company's assets either directly or through one or
more subsidiaries) (such resulting or acquiring corporation is referred to
herein as the "Acquiring Corporation") in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively; and (B) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related trust)
maintained or sponsored by the Company or by the Acquiring Corporation)
beneficially owns, directly or indirectly, 20% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such
corporation entitled to vote generally in the election of directors (except
to the extent that such ownership existed prior to the Business
Combination); or
(iv) approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
(b) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement, this option shall be exercised by the Optionee's delivery of written
notice of exercise to the Treasurer of the Company, specifying the number of
shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise shall
be effective upon receipt by the Treasurer of the Company of such written notice
together with the required payment. The Optionee may purchase less than the
number of shares covered hereby, provided that no partial exercise of this
option may be for any fractional share or for fewer than ten whole shares.
(c) Continuous Relationship with the Company Required. This option
-------------------------------------------------
may not be exercised unless the Optionee, at the time he or she exercises this
option, is, and has been at all times since the date of grant of this option, an
employee of either the Company or Banyan Worldwide, officer or director of, or
consultant or advisor to, the Company (an "Eligible Optionee").
(d) Termination of Employment. If the Optionee ceases to be employed
-------------------------
by the Company for any reason (including without limitation death, disability,
or voluntary or involuntary termination), then the right to exercise this option
shall terminate 30 days after such cessation.
(e) Early Exercise Alternative. Notwithstanding the exercisability
--------------------------
schedule set forth in paragraph (a), the Optionee may elect to exercise this
option as to the unvested shares (in addition to the vested shares) if
simultaneously with such exercise the Optionee enters into a Stock Restriction
Agreement with the Company in the form attached hereto as Exhibit A
---------
(the "Stock Restriction Agreement"). The Stock Restriction Agreement provides
that the unvested shares shall be subject to a right of repurchase (the
"Purchase Option") in favor of the Company at the $11.00 exercise price (as
adjusted pursuant to the terms hereof) in the event that the Optionee ceases to
be employed by the Company.
4. Payment of Purchase Price.
-------------------------
<PAGE>
(a) Method of Payment. Payment of the purchase price for shares
-----------------
purchased upon exercise of this option shall be made by delivery of cash or a
check in an amount equal to the exercise price of such option or, with the prior
consent of the Company (which may be withheld in its sole discretion), by (A)
delivery of shares of Common Stock owned by the Optionee for at least six
months, valued at their fair market value, as determined in (b) below, (B)
delivery of a promissory note of the Optionee to the Company on terms determined
by the Board, (C) delivery of an irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price or delivery
of irrevocable instructions to a broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price, (D) payment of such other
lawful consideration as the Board may determine, or (E) any combination of the
foregoing.
(b) Valuation of Shares or Other Non-Cash Consideration Tendered in
---------------------------------------------------------------
Payment of Purchase Price. For the purposes hereof, the fair market value of
- -------------------------
any share of the Company's Common Stock or other non-cash consideration which
may be delivered to the Company in exercise of this option shall be determined
in good faith by the Board of Directors of the Company.
(c) Delivery of Shares Tendered in Payment of Purchase Price. If the
--------------------------------------------------------
Optionee exercises this option by delivery of shares of Common Stock of the
Company, the certificate or certificates representing the shares of Common Stock
of the Company to be delivered shall be duly executed in blank by the Optionee
or shall be accompanied by a stock power duly executed in blank suitable for
purposes of transferring such shares to the Company. Fractional shares of
Common Stock of the Company will not be accepted in payment of the purchase
price of shares acquired upon exercise of this option.
(d) Restrictions on Use of Option Stock. Notwithstanding the
-----------------------------------
foregoing, no shares of Common Stock of the Company may be tendered in payment
of the purchase price of shares purchased upon exercise of this option if the
shares to be so tendered were acquired within six (6) months before the date of
such tender, through the exercise of an option granted under the Plan or any
other stock option or restricted stock plan of the Company.
5. Delivery of Shares; Compliance With Securities Laws, Etc.
--------------------------------------------------------
(a) General. The Company shall, upon payment of the option price for
-------
the number of shares purchased and paid for, make prompt delivery of such shares
to the Optionee, provided that if any law or regulation requires the Company to
take any action with respect to such shares before the issuance thereof, then
the date of delivery of such shares shall be extended for the period necessary
to complete such action.
(b) Compliance With Securities Laws, Etc. The Company will not be
-------------------------------------
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restriction from shares previously delivered under the Plan (i) until all
conditions of the option have been satisfied or removed, (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulation have been complied with, (iii) if the outstanding Stock is at the
time listed on any stock exchange, until the shares to be delivered have been
listed or authorized
<PAGE>
to be listed on such exchange upon official notice of issuance, and (iv) until
all other legal matters in connection with the issuance and delivery of such
shares have been approved by the Company's counsel.
6. Nontransferability of Option. This option is personal and no rights
----------------------------
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) nor shall any such rights be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option or of
such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon this option or such rights, this option and
such rights shall, at the election of the Company, become null and void.
7. Proxy. The Optionee hereby appoints Banyan Worldwide, a Massachusetts
-----
corporation, and/or its designee(s) ("Banyan"), as the Optionee's attorney-in-
fact and proxy, with full power of substitution, for and in the Optionee's name,
to vote, express consent or disapproval, or otherwise act in such manner
(including pursuant to written consent) and upon such matters as Banyan or its
designee(s), proxy or substitute(s) shall, in its or their sole discretion, deem
proper with respect to any and all of the shares issued upon any exercise of
this option or issued in respect to such shares as a stock dividend, stock split
or otherwise (collectively, for purposes of Sections 7, 8 and 9 hereof, the
"Shares"). The proxy granted hereby shall be irrevocable and may be exercised
at any meeting or in respect of any written consent of stockholders. This proxy
is coupled with an interest sufficient in law to support such proxy. This proxy
shall remain in full force and effect and be enforceable against any donee,
transferee or assignee of the stock. In addition to any other applicable
limitations pursuant to the terms of this option, the Optionee agrees not to
sell, assign, transfer, loan, tender, pledge, hypothecate, exchange, encumber or
otherwise dispose of, or issue an option or call with respect to, any of the
Shares, or impair such Shares, in each case unless, and as a condition precedent
thereto, the transferee of such Shares executes and delivers to Banyan an
agreement to be bound by the terms of this Section 7. Any purported transfer in
violation of this Section 7 shall be null and void and shall not be recognized
by the Company or reflected on the stock records of the Company. The Optionee
shall cause the Company to require any certificates representing any and all
Shares issued upon any exercise of this option to bear a legend referencing the
restrictions on transfer set for in this Section 7, which legend shall be
subject to the approval of Banyan. Notwithstanding anything to the contrary in
the foregoing, the provisions of, including, without limitation, the proxy
appointed by, this Section 7 shall terminate upon the closing of the Company's
initial public offering, underwritten by a nationally recognized underwriter,
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act").
8. Repurchase of Shares Upon Termination of Employment. The following
---------------------------------------------------
repurchase provisions shall apply to any and all Shares;
(a) Repurchase Rights. If the Optionee for any reason whatsoever
-----------------
(including without limitation death, disability, or voluntary or involuntary
termination) ceases to be employed by the Company or Banyan Worldwide, or
providing services on behalf of the Company or Banyan Worldwide, prior to the
date specified in Section 8(d) below for the
<PAGE>
expiration of these restrictions, then during the 90-day period following such
termination the Company may elect, by written notice delivered to the Optionee,
to repurchase all or any portion of the Shares, at a price per share equal to
the fair market value of such Shares as of the close of business on the date of
termination of the Optionee's employment. Such fair market value shall be
determined by mutual agreement of the Company and the Optionee. Failing such
agreement between the Optionee and the Company within 30 days of the date of the
Company's notice electing to repurchase such Shares, the fair market value of
such Shares shall be determined by three appraisers, one designated within five
days after the termination of said 30-day period by the Optionee or his or her
legal representatives (which appraiser shall not be the Optionee or his or her
legal representative), one within said period of five days by the Company (which
appraiser shall not be an officer, director or employee of the Company) and the
third within five days after said appointment last occurring by the two
appraisers so chosen. Successor appraisers, if any shall be required, shall be
appointed, within a reasonable time, as nearly as may be in the manner provided
as to the related original appointment. No appointment shall be deemed as having
been accomplished unless such appraiser shall have accepted in writing his
appointment as such within the time limited for his appointment. Notice of each
appointment of an appraiser shall be given promptly to the other parties in
interest. Any expenses relating to the appointment and service of an appraiser
shall be paid by the party appointing such appraiser or, in the case of the
appraiser appointed by the appraisers chosen by the Company and the Optionee,
shall be paid by the Company. Said appraisers shall proceed promptly to
determine the fair market value of said Share or Shares by agreement of any two
of the appraisers, which shall be conclusive upon all parties in interest in
such Shares. Promptly following such determination, the appraisers shall mail or
deliver such notice of such determination to the Optionee and the Company.
(b) Repurchase Procedure. Upon notice from the Company of exercise of
--------------------
its rights under this Section 8 and determination of the purchase price for the
Shares so repurchased, the Optionee shall transfer the Shares or appropriate
part thereof to the Company against payment by the Company of the purchase price
therefor. If upon the expiration of the 90-day period following the Optionee's
termination of employment the Company shall have failed to elect to repurchase
all of the Shares, the repurchase rights with respect to the Shares not so
elected to be repurchased imposed by this Section 8 shall terminate, and the
Optionee or his or her legal representatives may thereafter transfer such
Shares. The Optionee or his or her legal representatives may in no event
transfer any Shares prior thereto, other than to the Company.
(c) Failure of Optionee to Comply. If the Optionee fails to comply
-----------------------------
with any of the provisions of this Section 8, the Company, at its option and in
addition to its other remedies, may suspend the rights of the Optionee to vote
and to receive dividends on the Shares, or may refuse to register on its books
any transfer or change in the ownership of the Shares or in the right to vote
thereon, until the provisions of this Section 8 are complied with to the
satisfaction of the Company.
(d) Expiration. The restriction contained in this Section 8 shall
----------
expire upon the closing of the Company's initial public offering, underwritten
by a nationally recognized underwriter, pursuant to an effective registration
statement under the Securities Act (such expiration date shall be referred to
herein as the "Expiration Date").
<PAGE>
(e) Safekeeping. The Optionee acknowledges that the Company may, in
-----------
its discretion, retain for safekeeping stock certificates representing all
Shares purchased hereunder by the Optionee. The Optionee further acknowledges
that the Company may, to insure that the Optionee complies with the restriction
of this Section 8, continue to retain such stock certificates until the earlier
of the Expiration Date or the date of expiration of these repurchase rights
under Section 8(b) above. At the time of any exercise of this option, in whole
or in part, the Optionee shall execute such further agreement as the Company may
require to implement the foregoing.
9. Right of First Refusal.
----------------------
(a) General. The Optionee shall not sell, assign, pledge, or in any
-------
manner transfer any of the Shares or any right or interest therein, whether
voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the requirements of the provisions of this Section 9.
(b) Restrictions on Transfer. If at any time or from time to time the
------------------------
Optionee intends to sell or transfer any Shares to a third party, the Optionee
shall provide notice thereof to the Company prior to such transfer (which in the
case of a sale shall include a bona fide purchase agreement with a viable
purchaser). The Company shall have an option for 30 days following the date of
receipt of the Optionee's notice to purchase such Shares on the terms upon which
the Shares were to be purchased by or transferred to the third party by the
Optionee. If the Company does not exercise its right of first refusal under
this Section 9(b) with respect to such proposed sale or transfer within such 30-
day period, the Optionee shall be free to sell or transfer such Shares to the
third party identified in the Optionee's notice for a period of 45 days after
the expiration of the 30-day period following the date of receipt of the
Optionee's notice. Such sale or transfer must be on terms no more favorable to
the recipient than those set forth in the Optionee's notice. In no event may
Shares be sold or transferred to any then-current competitor of the Company.
Any transfer or sale of Shares by the Optionee will be conditional upon the
recipient acknowledging in writing the option set forth in this Section 9(b) and
the other restrictions to which the Shares are subject.
(c) Failure of Optionee to Comply. If the Optionee's notice in
-----------------------------
respect of any Shares is not received by the Company as provided in Section 9(b)
above, or if the Optionee fails to comply with the provisions of Section 9(b)
above in respect of any such Shares in any other regard, the Company, at its
option and in addition to its other remedies, may suspend the rights to vote or
to receive dividends on said Shares, or may refuse to register on its books any
transfer or change in ownership of said Shares or in the right to vote thereon,
until the provisions of Section 9(b) are complied with to the satisfaction of
the Company; and if the required Optionee's notice is not received by the
Company after written demand by the Company, the Company may also independently
proceed as though a proper Optionee's notice has been received at the expiration
of ten days after mailing such demand, and, if the Company exercises its rights
under Section 9(b) with respect to said Shares or any of them, the Shares
specified shall be transferred accordingly.
(d) Expiration. The Company's right of first refusal contained in
----------
this Section 9 with respect to any sale or transfer of Shares shall expire upon
the Expiration Date.
<PAGE>
10. No Special Employment Rights. Nothing contained in the Plan or this
----------------------------
option shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Optionee for the period
within which this option may be exercised.
11. Rights as a Shareholder. The Optionee shall have no rights as a
-----------------------
shareholder with respect to any shares which may be purchased by exercise of
this option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such shares) unless and until a
certificate representing such shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued.
12. Adjustment Provisions.
---------------------
(a) General. In the event of a consolidation, merger or other
-------
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (an "Acquisition") or in the event of a liquidation of the
Company, the Board of Directors of the Company or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to this option: (i) provide
that this option shall be assumed, or a substantially equivalent option shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof) on such terms as the Board determines to be appropriate, (ii) upon
written notice to the Optionee, provide that if unexercised, this option will
terminate immediately prior to the consummation of such transaction unless
exercised by the Optionee within a specified period following the date of such
notice, (iii) in the event of an Acquisition under the terms of which holders of
the Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the Acquisition (the "Acquisition Price"),
make or provide for a cash payment to the Optionee equal to the difference
between (A) the Acquisition Price times the number of shares of Common Stock
subject to outstanding options (to the extent then exercisable at prices not in
excess of the Acquisition Price) and (B) the aggregate exercise price of all
such outstanding options in exchange for the termination of such options, and
(iv) provide that all or any outstanding options shall become exercisable or
realizable in full prior to the effective date of such Acquisition.
(b) Board Authority to Make Adjustments. Any adjustments under this
-----------------------------------
Section 12 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued pursuant to this
option on account of any such adjustments.
13. Withholding Taxes. The Company's obligation to deliver shares upon
-----------------
the exercise of this option shall be subject to the Optionee's satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.
14. Investment Representations; Legends.
-----------------------------------
<PAGE>
(a) Representations. The Optionee represents, warrants and
---------------
covenants that:
(i) Any shares purchased upon exercise of this option shall be
acquired for the Optionee's account for investment only and not with a view
to, or for sale in connection with, any distribution of the shares in
violation of the Securities Act or any rule or regulation under the
Securities Act.
(ii) The Optionee has had such opportunity as he or she has deemed
adequate to obtain from representatives of the Company such information as
is necessary to permit the Optionee to evaluate the merits and risks of his
or her investment in the Company.
(iii) The Optionee is able to bear the economic risk of holding
shares acquired pursuant to the exercise of this option for an indefinite
period.
(iv) The Optionee understands that (A) the shares acquired pursuant
to the exercise of this option will not be registered under the Securities
Act and are "restricted securities" within the meaning of Rule 144 under
the Securities Act; (B) such shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (C) in
any event, an exemption from registration under Rule 144 or otherwise under
the Securities Act may not be available for at least two years and even
then will not be available unless a public market then exists for the
Common Stock, adequate information concerning the Company is then available
to the public and other terms and conditions of Rule 144 are complied with;
and (D) there is now no registration statement on file with the Securities
and Exchange Commission with respect to any stock of the Company and the
Company has no obligation or current intention to register any shares
acquired pursuant to the exercise of this option under the Securities Act.
(v) The Optionee agrees that, if the Company offers for the first
time any of its Common Stock for sale pursuant to a registration statement
under the Securities Act, the Optionee will not, without the prior written
consent of the Company, publicly offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, any shares purchased upon exercise of
this option for a period of 180 days after the effective date of such
registration statement.
By making payment upon exercise of this option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 14.
(b) Legends on Stock Certificates. All stock certificates
-----------------------------
representing shares of Common Stock issued to the Optionee upon exercise of this
option shall have affixed thereto legends substantially in the following forms,
in addition to any other legends required by applicable state law:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred,
sold or otherwise disposed of in the absence of an effective registration
statement with respect to the shares evidenced by this
<PAGE>
certificate, filed and made effective under the Securities Act of 1933, or
an opinion of counsel satisfactory to the Company to the effect that
registration under such Act is not required."
"The shares of stock represented by this certificate are subject to certain
restrictions on transfer and repurchase rights contained in an Option
Agreement, a copy of which will be furnished upon request by the issuer."
To ensure compliance with the terms of this agreement, the Company may issue to
its transfer agent appropriate stop transfer instructions with respect to the
Shares.
15. Miscellaneous.
-------------
(a) The Board may amend, modify or terminate any outstanding option,
including substituting therefor another option of the same or a different type,
changing the date of exercise or realization, provided that the Optionee's
consent to such action shall be required unless the Board determines that the
action, taking into account any related action, would not materially and
adversely affect the Optionee. The Board may at any time accelerate the time at
which all or any part of an Option may be exercised.
(b) All notices under this option shall be mailed or delivered by hand
to the parties at their respective addresses set forth beneath their names below
or at such other address as may be designated in writing by either of the
parties to one another.
(c) This option shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
Date of Grant:
January 26, 2000
SWITCHBOARD INCORPORATED
By: /s/ John P. Jewett
-----------------------------
Title: Chief Financial Officer
-------------------------
Address: 115 Flanders Road
Westboro, MA 01581
<PAGE>
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions thereof. The undersigned hereby acknowledges receipt of a copy
of the Company's 1996 Stock Incentive Plan.
OPTIONEE
/s/ Russell I. Pillar
---------------------------------------
Address: _____________________
_____________________
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 of our report dated January 14, 2000 except for
paragraph 2 of Note F and Note P for which the date is February 4, 2000,
relating to the financial statements of Switchboard Incorporated, which appear
in such Registration Statement. We also consent to the references to us under
the headings "Experts" and "Selected Financial Data" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 1, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 387 3,605
<SECURITIES> 0 2,631
<RECEIVABLES> 2,690 3,222
<ALLOWANCES> (300) (162)
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,787 9,774
<PP&E> 1,413 2,164
<DEPRECIATION> (774) (961)
<TOTAL-ASSETS> 3,565 12,195
<CURRENT-LIABILITIES> 2,338 5,464
<BONDS> 8,987 0
0 0
3,658 16,320
<COMMON> 70 147
<OTHER-SE> (11,489) (9,735)
<TOTAL-LIABILITY-AND-EQUITY> 3,565 12,195
<SALES> 6,536 8,304
<TOTAL-REVENUES> 6,536 8,304
<CGS> 1,307 1,970
<TOTAL-COSTS> 11,497 16,959
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 281 118
<INTEREST-EXPENSE> 404 149
<INCOME-PRETAX> (5,365) (8,805)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,365) (8,805)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,365) (8,805)
<EPS-BASIC> (0.81) (0.89)
<EPS-DILUTED> 0 (0.67)
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