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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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OPENSITE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 7389 56-1990869
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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5315 HIGHGATE DRIVE, SUITE 102
DURHAM, NORTH CAROLINA 27713
(919) 544-1993
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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MR. KIP A. FREY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OPENSITE TECHNOLOGIES, INC.
5315 HIGHGATE DRIVE, SUITE 102
DURHAM, NORTH CAROLINA 27713
(919) 544-1993
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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COPIES TO:
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JOHN C. YATES, ESQ. FRED D. HUTCHISON, ESQ. JOHN B. TEHAN, ESQ.
GRANT W. COLLINGSWORTH, ESQ. J. ROBERT TYLER, III, ESQ. SIMPSON THACHER & BARTLETT
MICHAEL S. WACHHOLZ, ESQ. HUTCHISON & MASON, PLLC 425 LEXINGTON AVENUE
MORRIS, MANNING & MARTIN, 4011 WESTCHASE BOULEVARD NEW YORK, NEW YORK 10017
L.L.P. SUITE 400
1600 ATLANTA FINANCIAL CENTER RALEIGH, NORTH CAROLINA 27607
3343 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") please 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, please 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, please 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, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF REGISTRATION
SECURITIES REGISTERED AGGREGATE OFFERING PRICE(1) FEE
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Common Stock, $.01 par value..................... $45,000,000 $12,510
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL 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 SECTION 8(A), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
SHARES
[OPENSITE LOGO]
COMMON STOCK
This is an initial public offering of shares of common stock of OpenSite
Technologies, Inc. There is currently no public market for these shares.
OpenSite expects that the public offering price will be between $ and
$ per share.
We intend to apply for admission for trading and quotation of our common
stock on the Nasdaq National Market under the symbol "OPNS."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to OpenSite...................... $ $
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The underwriters may also purchase up to an additional
shares of common stock at the public offering price, less the underwriting
discounts and commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
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SG COWEN
SOUNDVIEW TECHNOLOGY GROUP
WACHOVIA SECURITIES, INC.
, 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary..................... 1
Risk Factors........................... 4
Forward-Looking Statements............. 13
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Financial Data................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
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PAGE
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Business............................... 29
Management............................. 45
Certain Transactions................... 48
Principal Stockholders................. 49
Description of Capital Stock........... 51
Shares Eligible for Future Sale........ 54
Underwriting........................... 56
Legal Matters.......................... 57
Experts................................ 57
Where You Can Find More Information.... 57
Index to Financial Statements.......... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR 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.
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UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
"OPENSITE" IS A REGISTERED TRADEMARK OF OPENSITE AND AUCTIONNOW,
AUCTIONRATE, AUCTIONWATCH, BIDSTREAM.COM, CONCEIRGE AND MAGICBID ARE TRADEMARKS
OF OPENSITE. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS, SERVICE MARKS AND TRADE
NAMES OF OTHER COMPANIES.
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PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and accompanying notes appearing elsewhere in this prospectus. Our
business involves significant risks. You should carefully consider the
information under the heading "Risk Factors." Unless otherwise noted, all
information in this prospectus assumes: (1) the conversion of all outstanding
shares of our preferred stock into 21,175,440 shares of common stock upon the
closing of this offering and (2) no exercise by the underwriters of the
over-allotment option.
OpenSite is the market share leader in online auction software solutions
with the largest installed base of auction sites. Our solutions, which include a
variety of cost-effective software and services, enable small, medium and large
merchants to create branded, Internet-based auctions on their own Web sites. Our
solutions automate the process of installing, running and maintaining real-time
auctions over the Internet. By bringing together buyers and sellers, our
products and services help individuals and businesses create new sales channels,
manage inventory, attract new customers, introduce new products and strengthen
relationships with existing partners and customers.
Dynamic pricing, in which prices are determined by buyers and sellers on a
transaction-by-transaction basis, is becoming more accepted as a form of
electronic commerce. The Internet enables market information to be disseminated
more quickly, in greater quantity and to a wider audience than has been possible
with traditional forms of media. Also, the interactive nature of the Internet
and its ability to transmit information on a real-time basis have caused
Internet users to become more comfortable with continuous market refinement of
pricing. Auctions are among the most well known forms of dynamic pricing.
Forrester Research projects that the value of goods sold through Internet
auctions will increase from $10.0 billion in 1998 to $64.9 billion in 2002, a
59% compound annual growth rate.
The OpenSite Auction family of software products, available in
Professional, Merchant and Corporate versions, enables merchants of all sizes to
set up and conduct auctions on the Internet and provides them with the ability
to gain more sophisticated functionality as they grow. We also provide related
consulting, education and technical support services. Our Concierge service
enables our customers to outsource completely to us the process of running
Internet auctions, including development, deployment, maintenance and hosting.
In addition, our BidStream.com Web site aggregates the content of the auction
Web sites of our participating customers. BidStream.com is intended to provide
our customers with increased traffic to their Web sites while providing Internet
users with a central location from which to access the items put up for auction
by our customers.
Some of our customers include Cheapfares.com, CNET, Coinbuyers.com, The
Sharper Image, Sporting Auction, VerticalNet and Winebid.com. OpenSite Auction
won a Best of Show Award for e-commerce applications at Fall Internet World 1998
and a Best of Class Award for Web-based selling at Fall Internet Commerce Expo
1998. OpenSite Auction also earned an Analyst's Choice Award from PC Week
magazine and received a five-star rating from online magazine Internet.com.
We are incorporated under the laws of the State of Delaware, and our
executive offices are located at 5315 Highgate Drive, Suite 102, Durham, North
Carolina 27713. Our telephone number is (919) 544-1993. Our World Wide Web
address is www.opensite.com. The information on our Web site does not constitute
a part of this prospectus.
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THE OFFERING
Common stock we are offering.............. shares
Common stock to be outstanding after this
offering.................................. shares
Underwriters' over-allotment option....... shares
Use of proceeds........................... We intend to use the net proceeds
from the offering primarily for
expansion of our business,
including sales and marketing
activities, product development,
possible future acquisitions and
for general corporate purposes,
including working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.... OPNS
The number of shares of our common stock to be outstanding immediately
after the offering is based on the number of shares outstanding at May 28, 1999.
This number does not take into account 1,181,500 shares of our common stock
subject to options outstanding under our stock option plan at May 28, 1999.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following financial data is a summary of the more complete financial
information provided in our financial statements and accompanying notes
appearing elsewhere in this prospectus. See Note 2 of Notes to Financial
Statements for an explanation of unaudited pro forma basic and diluted net loss
per common share and the weighted average shares used in computing unaudited pro
forma basic and diluted net loss per common share. The "pro forma as adjusted"
balance sheet data gives effect to the conversion of all outstanding shares of
mandatorily redeemable preferred stock into common stock upon the closing of the
offering and is adjusted to give effect to our sale of shares of common
stock offered at an assumed initial public offering price of $ per share
and the receipt of the estimated net proceeds from such sale.
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Total revenue........................ $ 12 $ 340 $ 1,281 $ 217 $ 1,050
Gross profit......................... 11 312 1,132 209 884
Operating income (loss).............. 0 127 (2,404) (6) (1,512)
Net income (loss).................... 0 130 (2,361) (1) (1,494)
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Basic and diluted net income (loss)
per common share.................. $ 0.00 $ 0.02 $ (0.32) $ 0.00 $ (1.15)
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Shares used in computing basic and
diluted net income (loss) per
share............................. 7,516 8,143 8,623 8,351 9,091
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MARCH 31, 1999
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PRO FORMA
AS
ACTUAL ADJUSTED
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $18,539 $
Working capital........................................... 17,444
Total assets.............................................. 19,940
Mandatorily redeemable convertible preferred stock........ 33,719
Stockholders' equity (deficit)............................ (15,594)
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and accompanying notes appearing
elsewhere in this prospectus. The risk and uncertainties described below are
those that we currently believe may materially affect our company. Additional
risks and uncertainties that we are unaware of or that we currently deem
immaterial also may become important factors that affect our company.
This prospectus also contains forward looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US
We commenced operations and introduced our first auction software product
in 1996. Due to our limited operating history, our business and our prospects
must be evaluated in light of the risks and uncertainties often encountered by
companies in their early stages of development. These risks and uncertainties
are particularly significant for companies in rapidly evolving markets, such as
the market for Internet products and services. In addition, our business model
is evolving. Currently our revenue is generated primarily from the sale of
auction software products. In the future, we expect to generate revenue from
multiple sources, including BidStream.com and business services. For us, this
business model is unproven. We will be successful only if consumers and
merchants purchase our software products and actively use BidStream.com and our
other business services. It is impossible to predict the degree to which
consumers and merchants will purchase our software products or use these
services.
As a result of our limited operating history and the emerging nature of the
online auction software market, we are unable to accurately forecast our
revenue. Additionally, we currently have a relatively short sales cycle, which
makes forecasting our revenues more difficult and uncertain. We incur expenses
based predominantly on our operating plans and estimates of future revenue, and
our expenses are to a large extent fixed. We may be unable to adjust spending in
a timely manner to compensate for any unexpected revenue shortfall. Accordingly,
a failure to meet our revenue projections could have an immediate and negative
impact on profitability. We are aware that some media reports about us have
included revenue projections for 1999. We cannot be certain that any of these
revenue projections will be accurate.
WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE
We incurred net losses of $2.4 million in 1998. We incurred net losses of
$1.5 million in the quarter ended March 31, 1999. As of March 31, 1999, we had
incurred cumulative net losses of $3.7 million. As part of our strategy to
achieve profitability, we intend to expend significant financial and management
resources on:
- developing our OpenSite and BidStream.com brands;
- developing new products and services;
- increasing marketing and promotional activities;
- establishing and expanding our direct and indirect sales channels;
- establishing strategic relationships; and
- acquiring complementary businesses and products.
As a result, we expect to incur substantial operating losses and continued
negative cash flow from operations for the foreseeable future. We expect these
losses to increase significantly. We cannot be certain that we will increase
revenues sufficiently to achieve profitability or generate cash from operations
in the future. If our losses continue for an extended period or are greater than
projected, we may be forced to raise additional capital that would dilute our
stockholders. We cannot be certain that we will be able to obtain any necessary
capital on favorable terms or at all.
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FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE
We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:
- the level of demand for online auction software;
- the development of the electronic commerce market;
- increasing competition;
- performance of resellers;
- timely release of new products and product upgrades;
- management of our growth; and
- risks associated with potential acquisitions.
Many of these factors are beyond our control. Due to our limited operating
history and the limited history of businesses relying on the Internet as a
commercial medium, we believe that period-to-period comparisons of our operating
results are not meaningful. In addition, it is likely that in one or more future
quarters our operating results will fall below the expectations of securities
analysts and investors. If this happens, the trading price of our common stock
would almost certainly be materially and adversely affected.
OUR SUCCESS DEPENDS UPON THE CONTINUED GROWTH OF ONLINE AUCTIONS
Our success is highly dependent upon the widespread acceptance and use of
the Internet for electronic commerce. In particular, the continued adoption by
buyers and sellers of online auctions and other dynamic pricing models on the
Internet is critical to the continued growth in sales of our products. Use of
the Internet to conduct auctions is at an early stage of development. We cannot
be certain that acceptance of online auctions will continue to develop. Any
material reduction in the growth of acceptance and use of online auctions could
have a material adverse effect on our business. The continued growth of online
auctions is dependent upon a number of factors, including the following:
- continued growth in the number of buyers and sellers who use electronic
commerce services;
- continued market demand for dynamic pricing by buyers and sellers;
- continued growth in the number of merchants who desire online auction
capabilities;
- continued development of transaction security technology; and
- continued development of electronic commerce technology.
OUR SUCCESS DEPENDS ON THE CONTINUED MARKET ACCEPTANCE OF OPENSITE AUCTION
We derive a majority of our revenue from sales of OpenSite Auction. We
expect this to continue for the foreseeable future. As a result, our future
operating results depend upon the continued market acceptance of OpenSite
Auction. We cannot be certain that OpenSite Auction will continue to achieve
market acceptance. Any material reduction in demand for OpenSite Auction could
have a material adverse effect on our business. Factors that could adversely
affect sales of OpenSite Auction include:
- failure of buyers and sellers to adopt online auctions as a method of
doing business;
- competitive products that obtain greater market acceptance;
- failure to adapt OpenSite Auction to new technologies and computing
platforms; and
- failure to adapt OpenSite Auction to address changing customer and
reseller needs.
BIDSTREAM.COM IS A NEW BUSINESS MODEL THAT IS SUBJECT TO A NUMBER OF RISKS
We launched the BidStream.com Web site in April 1999. The continued
development and market acceptance of BidStream.com is a key element of our
business strategy. Due to its recent introduction, we cannot be certain that
BidStream.com will be successful. The participation of OpenSite-powered auction
sites in BidStream.com is essential to its success. The success of BidStream.com
depends upon the participation of
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a large number of OpenSite-powered auction sites. Currently, participation in
BidStream.com is free to our customers. However, we intend to charge a fee for
participation in the future. We cannot be certain that our customers will be
willing to pay a fee to participate in BidStream.com. Also, the value of
BidStream.com to our customers is the potential for directing additional traffic
to their auction sites. We cannot be certain that Internet users will be
attracted to BidStream.com. If BidStream.com fails to attract a sufficient
number of potential bidders, whether due to lack of compelling content or for
other reasons, BidStream.com will be less valuable to our customers. We intend
to expend considerable resources in developing, maintaining and promoting
BidStream.com. In addition, system interruptions could cause BidStream.com to be
unavailable for extended periods, which could reduce its attractiveness to
merchants and bidders. The failure of BidStream.com to be a commercial success
could have a material adverse effect on our business.
OUR SUCCESS DEPENDS UPON MARKET ACCEPTANCE OF THE OPENSITE BRAND
We believe that maintaining and enhancing the OpenSite brand is critical to
increasing our product sales. There are a number of companies that offer
competing products, and we expect our competition to increase. We believe that
increased competition makes promoting the OpenSite brand more imperative as a
competitive advantage. Increased competition may make promoting our brand
significantly more expensive. Promotion of the OpenSite brand will depend
largely on expanding our sales and marketing capabilities and providing a
high-quality product. We intend to use a portion of the proceeds of this
offering to expand our sales and marketing activities and further our product
development efforts. We cannot be certain that we will be successful in
establishing the OpenSite brand. If we are unable to successfully promote our
brand, or if we incur substantial expenses in attempting to do so, our business
could be materially and adversely affected.
WE OPERATE IN A VERY COMPETITIVE INDUSTRY
The online auction software market is a new, rapidly evolving and intensely
competitive market. We expect this competition to intensify in the future. Our
competition includes the following:
- dynamic pricing software providing entry-level solutions that compete
with OpenSite Auction Professional, including Auction Broker, Beyond
Solutions and Emaze;
- enterprise-level auction software that competes with OpenSite Auction
Merchant and OpenSite Auction Corporate, including IBM's Net.commerce
product, Moai Technologies, Trading Dynamics and WebVision;
- Web sites that feature auction aggregation that compete with
BidStream.com, including Bidder Network, Bidder's Edge and BidFind;
- person-to-person online auction communities, including those operated by
Amazon.com, Auction Universe, eBay, ONSALE and uBid; and
- outsourced auction-hosting services that compete with our Concierge
service as well as our OpenSite Auction products, including Bidder
Network and FairMarket.
As the online auction software market grows, we expect other companies to
develop software that competes with our products. Many of our competitors and
potential competitors have longer operating histories, greater brand recognition
and greater financial, marketing and other resources than ours. Some competitive
products and services may be priced lower than ours. In addition, new
technologies and the expansion of existing technologies may increase competitive
pressures. Increased competition may result in increased pricing pressures,
reduced sales and reduced operating margins, as well as loss of market share and
brand recognition. We cannot be certain that we will be able to compete
successfully against current and future competitors. These competitive pressures
could have a material adverse effect on our business.
LARGER, BETTER KNOWN AND MORE ESTABLISHED COMPANIES MAY ENTER OUR MARKET
In addition to our current competitors, our market may attract new
competition. For example, companies that operate person-to-person online auction
communities, such as eBay and Amazon.com, may expand to
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offer auction solutions that compete with our products and services or acquire
one of our existing or future competitors. These companies have significant
resources and brand recognition in the online auction market. In addition,
software developers, such as Microsoft, may add auction functionality to, or
expand the existing auction functionality of, their existing products. Any of
these events could greatly increase our competitive pressures and have a
material adverse effect on our business.
OUR SUCCESS DEPENDS UPON OUR ESTABLISHMENT OF INDIRECT SALES CHANNELS
We are making an effort to increase distribution of our products through
various indirect channels of distribution, including systems integrators, value
added resellers, distributors and Internet Service Providers. The failure to
attract and retain a sufficient number of these resellers could have a material
adverse effect on our business. In addition, we cannot predict the extent to
which any of these resellers will be successful in marketing, distributing or
implementing our products. It may also be more difficult for us to forecast
revenues generated by these resellers. Many of these resellers also market and
sell competitive products and services. We may not be able to effectively manage
potential conflicts between our resellers and us or prevent them from devoting
greater resources to supporting the products of other companies.
In addition, we rely on our resellers to inform us of opportunities to
develop new products that serve end user demands. If our resellers do not
present us with market opportunities early enough for us to develop products to
meet end user needs in a timely fashion or if resellers fail to anticipate end
user needs at all, we may fail to develop new products or modify our existing
products for our target markets. In addition, if our resellers fail to
accurately anticipate end user demands, we may spend resources on products that
are not commercially successful.
OUR SUCCESS DEPENDS UPON THE ESTABLISHMENT AND MAINTENANCE OF STRATEGIC
ALLIANCES
The establishment of strategic alliances is an element of our marketing
strategy. We intend to seek:
- application alliances with providers of complementary technology in order
to ensure product compatibility;
- aggregation alliances with portal sites in order to increase the value of
BidStream.com; and
- service alliances with ancillary service providers in order to provide
opportunities for complementary services.
We may experience competition from other auction solution providers for
these relationships. We cannot be certain that we will be able to establish a
sufficient number of strategic alliances to carry out our marketing strategy. In
addition, we intend to invest financial and management resources in developing
these alliances. If we do not generate additional revenue through these
alliances to offset our investment, our business could be materially and
adversely affected.
LONGER SALES CYCLES MAY ADVERSELY AFFECT OUR BUSINESS
Increasing sales of higher-end auction solutions, particularly OpenSite
Auction Corporate, is an element of our business strategy. As we sell more
sophisticated solutions to larger organizations, we expect the time from initial
contact to sale completion to lengthen. During this sales cycle, we may expend
substantial funds and management resources without any corresponding revenue. If
sales are delayed or do not occur, our operating results for a particular period
may be adversely affected. Our sales are subject to delays over which we have
little or no control, including the following:
- potential customers' budgetary constraints;
- potential customers' internal approval processes;
- seasonal and other timing effects; and
- cancellation or delay of auction projects by customers.
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OUR SUCCESS DEPENDS UPON OUR ABILITY TO ADAPT OUR PRODUCTS AND SERVICES TO
CHANGING MARKET CONDITIONS
The electronic commerce industry generally, and the online auction industry
specifically, are expected to undergo rapid technological changes. These changes
could render our products and services obsolete. We must continually improve the
performance, features and reliability of our products and services, particularly
in response to our competition. We must also introduce new and expanded products
and services in order to attract more buyers and sellers to our online auction
products and services. We cannot be certain that we will be able to offer these
products or services in a cost-effective or timely manner or that markets will
develop for our new or expanded products and services. Our success will depend,
in part, on our ability to:
- enhance our existing products and services;
- successfully anticipate changing market demand;
- integrate our products with our customers' existing IT systems;
- develop new services and technologies that address the increasingly
sophisticated and varied needs of our target markets; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
If we are unable to adapt to changing market conditions or buyer
requirements, our business could be materially and adversely affected.
PRODUCT PERFORMANCE FAILURES COULD RESULT IN LIABILITY TO OUR CUSTOMERS AND
OTHER ADVERSE IMPACTS
Performance failures of our products could result in a loss of current and
potential customers, adverse publicity and damage to the OpenSite brand. Any of
these results could have a material adverse effect on our business. In addition,
our products typically are critical to generating revenue for our customers.
Performance failures of our products could impair our customers' revenues and
consequently could result in a claim for substantial damages against us. We
cannot be certain that the liability limitations included in our customer
agreements will be enforceable in all instances or will otherwise protect us
from liability for damages. We cannot be certain that our general liability
insurance coverage will be available in sufficient amounts to cover one or more
large claims or that our insurer will not disclaim coverage for any future
claim. Any successful claim against us that exceeds available insurance coverage
requirements could have a material adverse effect on our business.
THERE ARE MANY RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS
We are expanding internationally. We began the international introduction
of our products through our United Kingdom office in March 1999. As we continue
to expand outside the United States, we are subject to risks of doing business
internationally, including the following:
- management and other resources spread over various countries;
- difficulties in staffing and managing foreign operations;
- longer payment cycles, different accounting practices and difficulties in
collecting accounts receivable;
- seasonal reductions in business activity;
- potentially adverse tax consequences;
- administrative burdens in collecting local taxes, including value-added
taxes;
- compliance with a variety of foreign laws and regulations;
- foreign currency exchange rate fluctuations; and
- regional economic conditions.
We may not be successful in expanding into international markets or in
generating revenues from foreign operations.
8
<PAGE> 12
WE MUST EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS
We are rapidly expanding our operations. We expect this expansion to
continue at an accelerated rate. This expansion has placed a significant strain
on our management and on our operational and financial resources, which we
expect will continue. To successfully manage our future growth, we will need to
upgrade our resources and systems as well as expand our employee base. Our
future performance will depend, in part, on our ability to integrate our newly
hired executive officers effectively into our management team. Our executive
officers, who have worked together for only a short time, may not be successful
in carrying out their duties or running our company. We cannot be certain that
our management, operational and financial resources will be adequate to support
our future operations. If we are unable to manage our growth effectively, our
business could be materially and adversely affected.
OUR SUCCESS DEPENDS UPON ATTRACTING AND RETAINING KEY EMPLOYEES
A key factor to our success is the continued services and performance of
our executive officers and other key personnel. If we lose the services of any
of our executive officers, our business could be materially and adversely
affected. We also depend on our ability to identify, hire and retain other
highly skilled technical, managerial and marketing personnel. We cannot be
certain of our ability to identify, hire and retain sufficiently qualified
personnel. For example, we may encounter difficulties in attracting a sufficient
number of qualified software developers. Failure to identify, hire and retain
necessary technical, managerial and marketing personnel could have a material
adverse effect on our business.
WE INTEND TO PURSUE ACQUISITIONS OF OTHER BUSINESSES WHICH INVOLVES A NUMBER OF
RISKS
An element of our strategy is to broaden the scope and content of our
auction software products and services through the acquisition of existing
auction software products, technologies, services and businesses in the online
auction market. We have no current agreements or binding commitments regarding
any potential acquisitions. Any future acquisitions would expose us to increased
risks, including:
- the integration of new operations, products, services and personnel;
- the diversion of resources from our existing businesses, sites and
technologies;
- the inability to generate revenues from new products and services
sufficient to offset associated acquisition costs;
- the maintenance of uniform standards, controls, procedures and policies;
- accounting effects that adversely affect our financial results;
- the impairment of employee and customer relations as a result of any
integration of new management personnel; and
- dilution to existing stockholders from the issuance of equity securities.
In addition, liabilities or other problems associated with an acquired
business could have a material adverse effect on our business.
THE REGULATION OF ONLINE COMMERCE IS UNCERTAIN AND SUBJECT TO CHANGE
There are currently few laws and regulations directly applicable to the
Internet and online auctions. However, we expect that additional regulation may
be adopted covering issues such as user privacy, pricing, content, copyrights,
antitrust and characteristics and quality of products and services. Taxation of
Internet use, or other charges imposed by government agencies or by private
organizations for accessing the Internet may also be imposed. In addition, the
growth and development of electronic commerce may prompt calls for more
stringent laws applying to the solicitation, collection or processing of
personal or consumer information. Such laws may impose additional burdens on
those companies conducting business online. The adoption of any additional laws
or regulations may decrease the growth of online auctions, which could, in turn,
decrease the demand for our products and services. Additional regulation could
also increase our cost of doing business.
9
<PAGE> 13
WE RELY ON THE PROTECTION OF OUR INTELLECTUAL PROPERTY
We rely on a combination of trade secrets, copyright and trademark laws,
license agreements, nondisclosure and other contractual provisions and technical
measures to protect our proprietary rights. Our software technology is not
patented and existing copyright laws offer only limited practical protection. We
have applied for several trademark registrations, one of which has been issued
to date. We cannot guarantee that the legal protections that we rely on will be
adequate to prevent misappropriation of our intellectual property. Also, these
protections may not prevent independent third-party development of competitive
products or services. We believe that our products, trademarks and other
proprietary rights do not infringe upon the proprietary rights of third parties.
However, we cannot guarantee that third parties will not assert infringement
claims against us in the future or that any such assertion will not require us
to enter into a license agreement or royalty agreement or financial settlement
with the party asserting a claim. Even the successful defense of an infringement
claim could result in substantial costs and diversion of our management's
efforts that could have a material adverse effect on our business.
In addition, effective copyright and trademark protection may be
unenforceable or limited in certain countries, and the global nature of the
Internet makes it impossible to control all of the jurisdictions in which our
intellectual property is used. The laws of many countries do not honor the
protections of proprietary rights that are available in the United States.
Litigation to protect intellectual property rights outside the United States
could be very expensive and have uncertain results. Such litigation, whether or
not successful, is likely to be time-consuming and costly to prosecute, require
the use of substantial management attention and resources and could have a
material adverse effect on our business.
CONCERNS FOR PRIVACY ON THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS
Increased regulation of privacy poses a potential risk to our business. The
information that we obtain from auction participants could make it easier to
target advertisements to users in specific demographic groups. Advocates of
privacy rights have voiced concern over the implications of this type of
technology. The resolution of privacy issues could adversely affect the growth
both of online auctions and of our business. The effectiveness of our products
and the success of our business model would be severely limited by any reduction
or limitation in the use of user information.
OUR BUSINESS MAY BE HARMED BY THE USE OF OUR PRODUCTS FOR ILLEGAL PURPOSES
We do not attempt to limit or regulate the types of auction sites that are
established using our products. We are aware that some customers may use our
products to auction items that are subject to regulation by local, state or
federal authorities, such as firearms, alcohol and tobacco. We cannot be certain
that unlawful goods will not be sold using our products. The law relating to the
liability of software providers for the activities of their users is unclear. We
could be subject to civil or criminal claims for unlawful activities carried out
by our customers. Any successful claims could have a material adverse effect on
our business. Even the defense of a frivolous or other unsuccessful claim could
result in substantial costs and diversion of our management's efforts that could
have a material adverse effect on our business.
POTENTIAL YEAR 2000 PROBLEMS COULD ADVERSELY AFFECT OUR BUSINESS
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems cannot
reliably distinguish dates beginning on January 1, 2000 from dates prior to the
Year 2000. Many companies' software and computer systems may need to be upgraded
or replaced in order to correctly recognize and process dates beginning in 2000.
Significant uncertainty exists in the software industry and in many other
industries concerning the potential effects of Year 2000 non-compliance.
Our internally developed software has been designed to accept only four
digit entries in order to resolve Year 2000 ambiguities. However, our products
operate with third-party equipment and software that may not be Year 2000
compliant. We are in the process of verifying whether our suppliers and service
providers are Year 2000 compliant. We cannot guarantee that the systems of our
suppliers or service providers will be Year
10
<PAGE> 14
2000 compliant. The failure of such parties to correct Year 2000 problems could
substantially disrupt our business.
In addition, the computer systems necessary to maintain the viability of
the Internet or any of the Web sites that direct buyers to our Web sites may not
be Year 2000 compliant. We believe that the Year 2000 issue may adversely affect
buyers and potential buyers. The computers of potential buyers may not be Year
2000 compliant, thus preventing such buyers from accessing our customers' Web
sites or BidStream.com. In addition, many companies are expending significant
resources to address the Year 2000 issue in their current software systems that
may reduce the amount of funds available to purchase our products. To the extent
that our potential customers experience Year 2000 difficulties, our business
could be materially and adversely affected.
WE MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAMES
We currently hold the Internet domain names "opensite.com" and
"bidstream.com," as well as various other related names. Domain names generally
are regulated by Internet regulatory bodies. The regulation of domain names in
the United States and in foreign countries is subject to change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, we may not be able to acquire or maintain all of the desired variations
of the "OpenSite" and "BidStream" domain names in all of the countries in which
we conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
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.
WE HAVE DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING
The net proceeds from the sale of our common stock will become part of our
general working capital upon completion of this offering. We may use these funds
to expand our business, including increasing our sales and marketing activities,
increasing our product development, possible future acquisitions and for general
corporate purposes, including working capital. We will have considerable
discretion in the application of the net proceeds of this offering to these
uses. The net proceeds may be used for corporate purposes that do not increase
our profitability or market value. Pending application of the proceeds, they may
be placed in investments that do not produce income or that lose value. The
timing of our use of the net proceeds will depend on a number of factors,
including the amount and timing of our future cash flows.
TRADING IN OUR COMMON STOCK MAY BE LIMITED
We cannot predict the extent to which investor interest in OpenSite will
lead to the development of a trading market for our common stock or how liquid
that market might become. The initial public offering price for our common stock
has been determined by negotiations between the underwriters and us and may not
be indicative of prices that will prevail in the trading market. If you purchase
shares of common stock, you may not be able to resell those shares at or above
the initial public offering price.
SIGNIFICANT FLUCTUATION IN THE MARKET PRICE OF OUR COMMON STOCK COULD RESULT IN
SECURITIES CLASS ACTION CLAIMS AGAINST US
Significant price and volume fluctuations have occurred with respect to the
securities of Internet-related companies. In the past, following periods of
downward volatility in the market price of a company's securities, class action
litigation has often been pursued against companies. If such litigation were
pursued against us, it could result in substantial costs and a diversion of our
management's attention and resources.
11
<PAGE> 15
SHARES ELIGIBLE FOR FUTURE SALE COULD ADVERSELY AFFECT STOCK PRICE IN THE FUTURE
Sales of substantial amounts of our common stock in the public market after
this offering, or the perception that such sales may occur, could materially
affect prevailing market prices of our common stock and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the shares sold in this offering will be freely tradable without
restriction or registration under the Securities Act, unless such shares are
purchased by our affiliates. The remaining 27,888,352 shares of common stock are
held by existing stockholders. Such shares, as well as any shares sold in this
offering that are purchased by one of our affiliates, are restricted securities
that may be sold in the public market only if registered or if they qualify for
an exemption from registration under the Securities Act. Up to 12,000,000 shares
of restricted securities may be eligible for sale in the public market in
accordance with the requirements of Rule 144 under the Securities Act beginning
on March 30, 2000. All of our officers and directors and most of our
stockholders and option holders have signed lock-up agreements under which they
have agreed that for a period 180 days following the date of this prospectus,
without the prior written consent of SG Cowen Securities Corporation, they will
not, directly or indirectly, sell or otherwise dispose of any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for our common stock. As a result of these lock-up agreements and the provisions
of Rule 144, up to an additional 15,888,352 shares of restricted securities may
be eligible for sale in the public market in accordance with the requirements of
Rule 144 upon expiration of lock-up agreements. See "Description of Capital
Stock -- Registration Rights" and "Shares Eligible for Future Sale."
Upon completion of this offering, the holders of 10,121,841 shares of our
common stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. After such
a registration, these shares become freely tradable without restriction under
the Securities Act.
As of , 1999, options to purchase an aggregate of
shares of common stock were fully vested. Of the total shares
issuable pursuant to these vested options, are subject to 180-day
lock-up agreements.
NEW INVESTORS IN OPENSITE WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the net tangible book value of each outstanding share of common stock. If
you purchase common stock in this offering, you will incur immediate and
substantial dilution in net tangible book value per share in the amount of
$ . There are also a large number of outstanding stock options to purchase
our common stock with exercise prices significantly below the estimated initial
public offering price of the common stock. To the extent that these options are
exercised, there will be further dilution.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW COULD MAKE
DIFFICULT AN ACQUISITION BY A THIRD PARTY
Some provisions of our certificate of incorporation and bylaws and
provisions of Delaware law may deter or prevent a takeover attempt, including an
attempt that might result in a premium over the market price for our common
stock. Even in the absence of a takeover attempt, these provisions could
adversely affect the market price of our common stock. These provisions include:
Stockholder Proposals. Our stockholders must follow an advance
notification procedure for stockholder nominations of candidates for our board
of directors and for other business to be conducted at any stockholders'
meeting. These requirements could inhibit a change of control.
Preferred Stock. Our certificate of incorporation authorizes our board of
directors to issue up to shares of preferred stock having such rights
as may be designated by our board of directors, without stockholder approval. An
issuance of preferred stock could inhibit a change in control.
12
<PAGE> 16
Delaware Antitakeover Statute. The Delaware corporation law restricts
certain business combinations with interested stockholders upon their acquiring
15% or more of our common stock. This law may have the effect of inhibiting a
non-negotiated merger or other business combination.
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. You may not be able to resell
your shares of our common stock following periods of volatility because of the
market's adverse reaction to such volatility. We cannot assure you that our
stock will trade at the same levels as other Internet stocks or that Internet
stocks in general will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- introduction of competing products or services;
- changes in financial estimates by securities analysts or our failure to
meet analysts' performance expectations;
- conditions or trends in the Internet industry;
- changes in the market valuations of other Internet companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
- capital commitments;
- additions or departures of key personnel; and
- sales of our common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." They
include statements concerning:
- our business strategy;
- liquidity and capital expenditures;
- use of proceeds of the offering;
- future sources of revenues;
- future profitability;
- expansion of our products and services;
- trends in Internet activity generally and trends in online auctions in
particular;
- development of BidStream.com;
- development of indirect sales channels and strategic alliances;
- expansion of international operations;
- trends in acceptance of dynamic pricing methods;
- trends in government regulation; and
- payment of dividends.
13
<PAGE> 17
You can identify these statements by forward-looking words such as
"expect," "believe," "goal," "plan," "intend," "estimate," "may" and "will" or
similar words. You should be aware that these statements are subject to known
and unknown risks, uncertainties and other factors, including those discussed in
the section entitled "Risk Factors," that could cause the actual results to
differ materially from those suggested by the forward-looking statements.
USE OF PROCEEDS
Our proceeds from the sale of the shares of common stock in
this offering are estimated to be approximately $ ($ if the
underwriters exercise their over-allotment option in full), assuming an initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated expenses payable by us in
connection with the offering.
We intend to use the net proceeds from the offering primarily for expansion
of our business, including sales and marketing activities, product development,
possible future acquisitions and for general corporate purposes, including
working capital. The amounts we actually use for each purpose may vary
significantly and are subject to change at our discretion depending upon certain
factors, including economic or industry conditions, changes in the competitive
environment and strategic opportunities that may arise. In addition, we believe
that it is important to create a public market for our common stock to
facilitate future access to public market funds and provide the availability of
a publicly traded stock if we decide to issue common stock in connection with
future acquisitions. We have no specific agreements, commitments or
understandings with respect to any acquisitions. Pending application of the net
proceeds as described above, we intend to invest the net proceeds of the
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We do not anticipate declaring or paying any cash dividends for the
foreseeable future. We currently expect to retain all earnings, if any, for
investment in our business. Our board of directors has broad discretion as to
whether to pay dividends. Any determination whether to pay dividends will depend
on a number of factors, including our results of operations, financial position
and capital requirements, general business conditions, restrictions imposed by
financing arrangements, if any, legal and regulatory restrictions on the payment
of dividends and other factors that our board of directors deems relevant.
14
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of OpenSite as of
, 1999 (1) on an actual basis; (2) on a pro forma basis giving effect
to the conversion of all outstanding shares of mandatorily redeemable preferred
stock into common stock upon the closing of the offering and (3) on a pro forma
as adjusted basis to reflect the sale of shares of common stock
offered at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us. This information should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
prospectus.
The amounts below exclude 2,760,000 shares of common stock presently
reserved for issuance upon exercise of options granted under our stock option
plan, of which options to purchase 1,181,500 shares were outstanding as of May
28, 1999 at a weighted average exercise price of $1.58 per share.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Capital lease obligations, net of current portion..... $ 37,540 $ 37,540 $ 37,540
------------ ------------ ------------
Mandatorily redeemable preferred stock, $.01 par
value, 21,175,439 shares authorized:
Series A -- 3,243,681 shares issued and outstanding
actual, none issued and outstanding pro forma and
pro forma as adjusted............................ 4,854,254 -- --
Series B -- 5,000,000 shares issued and outstanding
actual, none issued and outstanding pro forma and
pro forma as adjusted............................ 7,490,188 -- --
Series C -- 10,750,000 shares issued and outstanding
actual, none issued and outstanding pro forma and
pro forma as adjusted............................ 21,375,000 -- --
------------ ------------ ------------
Total mandatorily redeemable preferred
stock..................................... 33,719,442 -- --
------------ ------------ ------------
Stockholders' equity (deficit):
Common stock, $.01 par value, shares
authorized, 9,090,876 shares issued and outstanding
actual; 28,084,557 shares issued and outstanding pro
forma; and shares issued and
outstanding pro forma as adjusted................... 90,909 280,846
Additional paid-in capital............................ -- 33,529,505
Deferred compensation................................. (115,482) (115,482) (115,482)
Treasury stock........................................ (2,795,274) (2,795,274) (2,795,274)
Accumulated deficit................................... (12,695,741) (12,695,741) (12,695,741)
Notes receivable from stockholders.................... (78,500) (78,500) (78,500)
------------ ------------ ------------
Total stockholders' equity (deficit)........ (15,594,088) 18,125,354
============ ============
Total capitalization........................ $ 18,162,894 $ 18,162,894
============ ============
</TABLE>
15
<PAGE> 19
DILUTION
As of , 1999, the pro forma net tangible book value of OpenSite
was approximately $18,125,354, or $0.65 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the conversion of all mandatorily redeemable
securities. After giving effect to the sale of shares of common
stock in this offering at an assumed initial public offering price of $
per share and the receipt of the estimated net proceeds therefrom, the pro forma
net tangible book value of OpenSite at , 1999, would have been
approximately $ million, or $ per share of common stock. This
represents an immediate increase in such net tangible book value of $ per
share to existing stockholders and an immediate decrease in net tangible book
value of $ per share to new investors. The following table illustrates
this unaudited per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share at ,
1999................................................... $
Increase attributable to the offering..................... $
Pro forma adjusted net tangible book value per share after the
offering........................................................... $
Net tangible book value dilution per share to new investors in the
offering........................................................... $
</TABLE>
The following table summarizes, as of , 1999, on the pro forma basis
described above, the total number of shares sold by us, the consideration paid
to us for those shares and the average price per share paid by the existing
stockholders and by new investors purchasing shares of common stock in the
offering at an assumed initial public offering price of $ per share (before
deducting the estimated underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... $ $
-------- ----- -------- ----- -----
New investors.............................
-------- ----- -------- ----- -----
Total........................... 100.0% $ 100.0% $
======== ===== ======== ===== =====
</TABLE>
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing stockholders would be % of the total
number of shares of common stock to be outstanding after the offering, and the
number of shares held by new stockholders would be increased to
shares, or % of the total number of shares of common stock
to be outstanding after the offering.
These computations are based on the number of shares of common stock outstanding
as of March 31, 1999 and exclude (1) shares of common stock
issuable upon exercise of stock options outstanding as of March 31, 1999 at a
weighted average exercise price of $ per share (2) shares of
common stock reserved for issuance as of , 1999 under our
stock option plan and (3) shares of common stock issuable upon
conversion of Series C preferred stock sold after March 31, 1999.
Immediately following completion of this offering, OpenSite will have
outstanding options to acquire approximately 1,181,500 shares of common stock at
exercise prices ranging from $0.08 to $5.00 per share and a weighted average
exercise price of $1.58 per share. The exercise of these options will have the
effect of increasing the net tangible book value dilution of new investors in
this offering.
16
<PAGE> 20
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The statement of operations data from the period from
inception (July 24, 1996) to December 31, 1996 and the years ended December 31,
1997 and 1998, and the balance sheet data as of December 31, 1997 and 1998, are
derived from, and are qualified by reference to, our financial statements, which
have been audited by PricewaterhouseCoopers LLP and are included elsewhere in
this prospectus. The balance sheet data as of December 31, 1996 is derived from
audited financial statements not included in this prospectus. The statement of
operations data for the three months ended March 31, 1998 and 1999, and the
balance sheet data as of March 31, 1999 are derived from our unaudited financial
statements appearing elsewhere in this prospectus. In the opinion of our
management, the unaudited financial statements have been prepared on a basis
consistent with our audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the financial position and results of operations for these unaudited periods.
Historical results are not necessarily indicative of results to be expected in
the future.
Pro forma as adjusted numbers give effect to the conversion of all
outstanding shares of preferred stock into common stock upon the closing of the
offering and the sale by us of shares of common stock offered at an
initial public offering price of $ per share after deducting estimated
underwriting discounts and commissions and offering expenses and the receipt of
the estimated net proceeds.
17
<PAGE> 21
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 24, 1996) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- -------------------
1996 1997 1998 1998 1999
--------------- ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses.................. $ 11 $ 177 $ 1,072 $ 179 $ 921
Services and other................. 1 163 209 38 129
----- ------ ------- ------ -------
Total revenue.............. 12 340 1,281 217 1,050
----- ------ ------- ------ -------
Cost of revenue:
Cost of software licenses.......... -- 9 18 3 8
Cost of services and other......... 1 19 131 5 158
----- ------ ------- ------ -------
Total cost of revenue...... 1 28 149 8 166
----- ------ ------- ------ -------
Gross profit......................... 11 312 1,132 209 884
----- ------ ------- ------ -------
Operating expense:
Sales and marketing................ -- 43 1,918 62 1,052
Product development................ -- 105 695 56 534
General and administrative......... 12 36 923 97 810
----- ------ ------- ------ -------
Total operating expense.... 12 184 3,536 215 2,396
----- ------ ------- ------ -------
Operating income (loss).............. (1) 128 (2,404) (6) (1,512)
Interest, net........................ -- 2 43 5 18
----- ------ ------- ------ -------
Net income (loss).................... $ (1) $ 130 $(2,361) $ (1) $(1,494)
===== ====== ======= ====== =======
Basic and diluted net income (loss)
per common share................... $0.00 $ 0.02 $ (0.32) $ 0.00 $ (1.15)
----- ------ ------- ------ -------
Shares used in computing basic and
diluted net income (loss) per
share.............................. 7,516 8,143 8,623 8,351 9,091
----- ------ ------- ------ -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, ---------------------
-------------------- PRO FORMA
1996 1997 1998 ACTUAL AS ADJUSTED
---- ---- ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $1 $151 $2,276 $18,539
Working capital (deficit)............................. (1) 141 1,780 17,444
Total assets.......................................... (2) 210 3,070 19,940
Long-term debt and capital lease obligations, net of
current portion..................................... -- 17 43 38
Mandatorily redeemable convertible preferred stock.... -- -- 4,818 33,719
Total stockholders' equity (deficit).................. -- 159 (2,707) (15,594)
</TABLE>
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and accompanying notes which appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those discussed below and elsewhere in this prospectus, particularly under the
heading "Risk Factors."
OVERVIEW
OpenSite is the market share leader in online auction software solutions
with an installed base of over 250 auction sites. We commenced operation and
introduced our first auction software product in 1996. The OpenSite Auction
family of software products, available in Professional, Merchant and Corporate
versions, enables merchants of all sizes to set up and conduct auctions on the
Internet and provides them with the ability to gain more sophisticated
functionality as they grow. We have historically sold our software directly to
our customers, but are increasing the proportion that is sold through resellers.
We also provide related consulting, education and technical support services.
Our Concierge service enables our customers to outsource completely to us the
process of running Internet auctions, including development, deployment,
maintenance and hosting. In addition, BidStream.com is a Web site owned and
operated by OpenSite that aggregates the items for bid on participating
OpenSite-powered auction sites. While we have derived minimal revenue from
BidStream.com, we anticipate it to contribute a growing portion of revenue in
the future. As of April 30, 1999, we had 68 full-time employees.
OpenSite's revenue is currently derived primarily from software license
fees and support and maintenance fees. Historically, the predominant portion of
our software license revenue and support and maintenance revenue was generated
by our direct sales force. However, due to the initiation of sales through
resellers in late 1998, we expect that a sizeable portion of our revenue in 1999
will result from sales generated by our resellers. Our resellers do not maintain
an inventory of our software. While software license revenue and support and
maintenance revenue will continue to be the majority of our revenue for the next
several years, we expect to generate a significant portion of our revenue from
BidStream.com and OpenSite Concierge service in future years.
Software license revenue is generated through the licensing of our software
products to end users and resellers. We sell three levels of our OpenSite
Auction software product with increasingly sophisticated functionality. The
current prices for our auction software products range from $5,000 to $50,000
based on the level of the software. Software license revenue is recognized upon
shipment of the software product and fulfillment of the acceptance terms, if
any. In instances where the support and maintenance fee and the license fee are
included in the same sales arrangement, the support and maintenance revenue is
unbundled in an amount that equals the charge for support and maintenance when
support and maintenance services are sold separately from the software license.
The remaining portion of the revenue for the sale is recognized as software
license revenue as discussed above.
Services and other revenue include support and maintenance, consulting and
education services. Support and maintenance services are generally provided over
a twelve month period in accordance with our support and maintenance agreements.
The annual fees for support and maintenance services vary from $1,000 to $15,000
based on the level of the software product sold and the level of support
selected. Support and maintenance fees initially are deferred and recognized
ratably over the period of the support and maintenance agreement. Revenue from
consulting and education services is charged on a time and materials basis and
is recognized as the services are provided.
Cost of software license revenue consists primarily of personnel costs
related to downloading software to our customers' Web sites and costs of product
media and manuals. Cost of services and other revenue consists primarily of
costs of consulting and customer support and maintenance, including personnel,
travel and occupancy and maintenance of the BidStream.com web site.
19
<PAGE> 23
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed". Under the
standard, capitalization of software development costs begins upon the
establishment of technological feasibility, subject to net realizable value
considerations. To date, the period between achieving technological feasibility
and the general availability of such software has substantially coincided.
Therefore, software development costs qualifying for capitalization have been
immaterial. Accordingly, we have not capitalized any software development costs
and charged all such costs to product development expense in the period
incurred.
RESULTS OF OPERATIONS
The following table sets forth our historical operating information as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
INCEPTION YEAR ENDED ENDED
(JULY 24, 1996) DECEMBER 31, MARCH 31,
TO DECEMBER 31, -------------- --------------
1996 1997 1998 1998 1999
--------------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses............................. 93.1% 52.2% 83.7% 82.3% 87.7%
Services and other............................ 6.9 47.8 16.3 17.7 12.3
-------- ----- ------ ----- ------
Total revenue......................... 100.0 100.0 100.0 100.0 100.0
-------- ----- ------ ----- ------
Cost of revenue:
Cost of software licenses..................... 0.0 2.6 1.4 1.3 0.8
Cost of services and other.................... 9.7 5.6 10.2 2.1 15.0
-------- ----- ------ ----- ------
Total cost of revenue................. 9.7 8.2 11.6 3.4 15.8
-------- ----- ------ ----- ------
Gross Profit.................................... 90.3 91.8 88.4 96.6 84.2
-------- ----- ------ ----- ------
Operating Expense:
Sales and marketing........................... 0.0 12.8 149.8 28.9 100.3
Product development........................... 0.0 30.9 54.3 25.8 50.8
General and administrative.................... 94.0 10.5 72.1 44.7 77.1
-------- ----- ------ ----- ------
Total operating expense............... 94.0 54.2 276.2 99.3 228.2
-------- ----- ------ ----- ------
Operating income (loss)......................... (3.7) 37.6 (187.8) (2.7) (144.0)
Interest, net................................... 0.0 0.6 3.4 2.2 1.7
-------- ----- ------ ----- ------
Net income (loss)............................... (3.7)% 38.2% (184.4)% (0.5)% (142.3)%
======== ===== ====== ===== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenue
Total revenue increased by 384% to $1,050,000 in the three months ended
March 31, 1999 from $217,000 in the three months ended March 31, 1998.
Software license revenue increased by 416% to $921,000 in the three months
ended March 31, 1999 from $179,000 in the three months ended March 31, 1998. As
a percentage of total revenue, software license revenue increased to 87.7% in
the three months ended March 31, 1999 from 82.3% in the three months ended March
31, 1998. These increases were a result of our increased sales and marketing
efforts combined with the market acceptance and popularity of auctions on the
Internet.
Services and other revenue increased by 237% to $129,000 in the three
months ended March 31, 1999 from $38,000 in the three months ended March 31,
1998. As a percentage of total revenue, services and other revenue decreased to
12.3% in the three months ended March 31, 1999 from 17.7% in the three months
ended March 31, 1998. The dollar increase was a result of the licensed software
customers increasing to 266
20
<PAGE> 24
at March 31, 1999 from 68 at March 31, 1998. The decrease as a percentage of
total revenue was due to the significant increase in software license revenue.
Cost of Revenue
Cost of software license revenue increased by 187% to $8,000 in the three
months ended March 31, 1999 from $3,000 in the three months ended March 31,
1998. As a percentage of software license revenue, cost of software license
revenue decreased to 0.9% in the three months ended March 31, 1999 from 1.6% in
the three months ended March 31, 1998. The dollar increase resulted primarily
from the increase in software licensing activity. The percentage decrease was a
result of the significant increase in software license revenue.
Cost of services and other revenue increased by 3,394% to $158,000 in the
three months ended March 31, 1999 from $5,000 in the three months ended March
31, 1998. As a percentage of services and other revenue, cost of services and
other revenue increased to 122.3% in the three months ended March 31, 1999 from
11.8% in the three months ended March 31, 1998. These increases resulted
primarily from the increase in the number of employees providing support and
maintenance to nine at March 31, 1999 from two at March 31, 1998. Cost of
services and other revenue increased at a greater rate than services and other
revenue as we expanded the infrastructure for our support and maintenance group
in advance of recognizing corresponding services and other revenue.
Sales and Marketing
Sales and marketing expense consists primarily of compensation for sales
and marketing personnel, advertising, trade shows and other promotional costs
and, to a lesser extent, fees for outside professional advisors and overhead
costs. Sales and marketing expense increased by 1,582% to $1,052,000 in the
three months ended March 31, 1999 from $63,000 in the three months ended March
31, 1998. As a percentage of total revenue, sales and marketing expense
increased to 100.3% in the three months ended March 31, 1999 from 28.9% in the
three months ended March 31, 1998. Sales and marketing expense increased as a
result of the number of sales and marketing employees increasing to 19 at March
31, 1999 from two at March 31, 1998, and expenditures increasing as part of our
marketing and advertising efforts.
Product Development
Product development expense consists primarily of compensation for product
development staff and overhead costs. We expense product development costs as
they are incurred. Product development expense increased by 854% to $534,000 in
the three months ended March 31, 1999 from $56,000 in the three months ended
March 31, 1998. As a percentage of total revenue, product development expense
increased to 50.8% in the three months ended March 31, 1999 from 25.8% in the
three months ended March 31, 1998. Product development expense increased
primarily as a result of the number of employees in the product development
group increasing to 21 at March 31, 1999 from six at March 31, 1998. The
increase in the number of product development employees was primarily the result
of hiring additional software engineers and quality assurance personnel to
support our additional product development and testing activities.
General and Administrative
General and administrative expense consists primarily of compensation for
personnel and, to a lesser extent, fees for outside professional advisors and
overhead costs. General and administrative expense increased by 737% to $810,000
in the three months ended March 31, 1999 from $97,000 in the three months ended
March 31, 1998. As a percentage of total revenue, general and administrative
expense increased to 77.1% in the three months ended March 31, 1999 from 44.7%
in the three months ended March 31, 1998. General and administrative expense
increased as a result of the number of general and administrative employees
increasing to nine at March 31, 1999 from two at March 31, 1998, and due to
expense of $269,000 related to a put feature of the redeemable common stock
warrant, as described in Note 10 to the accompanying Notes to Financial
Statements, in the three months ended March 31, 1999. The increase in the number
of general and administrative personnel was a result of the addition of new
members to the
21
<PAGE> 25
management team during the second half of 1998 as well as development of an
administrative infrastructure to support our growth.
Interest Income, Net
Interest income, net of interest expense, increased by 276% to $18,000 in
the three months ended March 31, 1999 from $5,000 in the three months ended
March 31, 1998. As a percentage of total revenue, interest income, net of
interest expense, decreased to 1.7% in the three months ended March 31, 1999
from 2.2% in the three months ended March 31, 1998. The dollar increase was a
result of the interest income generated by our increased cash and cash
equivalents resulting from the sale of our mandatorily redeemable preferred
stock during 1998 and 1999. Interest expense was immaterial in both periods.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue
Total revenue increased by 277% to $1,281,000 in the year ended December
31, 1998 from $340,000 in the year ended December 31, 1997.
Software license revenue increased by 505% to $1,072,000 in the year ended
December 31, 1998 from $177,000 in the year ended December 31, 1997. As a
percentage of total revenue, software license revenue increased to 83.7% in the
year ended December 31, 1998 from 52.2% in the year ended December 31, 1997.
These increases were a result of our increased sales and marketing efforts
combined with the market acceptance and popularity of Internet auctions.
Services and other revenue increased by 28% to $208,000 in the year ended
December 31, 1998 from $162,000 in the year ended December 31, 1997. As a
percentage of total revenue, services and other revenue decreased to 16.3% in
the year ended December 31, 1998 from 47.8% in the year ended December 31, 1997.
The dollar increase was a result of the licensed software customers increasing
to 177 at December 31, 1998 from 50 at December 31, 1997. The decrease as a
percentage of total revenue was a result of the significant increase in software
license revenue in the year ended December 31, 1998.
Cost of Revenue
Cost of software license revenue increased by 95% to $18,000 in the year
ended December 31, 1998 from $9,000 in the year ended December 31, 1997. As a
percentage of software license revenue, cost of software license revenue
decreased to 1.6% in the year ended December 31, 1998 from 5.1% in the year
ended December 31, 1997. The dollar increase resulted primarily from the
increase in software licensing activity. This decrease as a percentage of total
revenue resulted primarily from the significant increase in total revenue in the
year ended December 31, 1998.
Cost of services and other revenue increased by 589% to $131,000 in the
year ended December 31, 1998 from $19,000 in the year ended December 31, 1997.
As a percentage of services and other revenue, cost of services and other
revenue increased to 62.8% in the year ended December 31, 1998 from 11.7% in the
year ended December 31, 1997. These increases were primarily a result of
increasing the number of employees providing support and maintenance to four at
December 31, 1998 from two at December 31, 1997.
Sales and Marketing
Sales and marketing expense increased by 4,304% to $1,918,000 in the year
ended December 31, 1998 from $44,000 in the year ended December 31, 1997. As a
percentage of total revenue, sales and marketing expense increased to 149.8% in
the year ended December 31, 1998 from 12.8% in the year ended December 31, 1997.
These increases resulted primarily from the number of sales and marketing
employees increasing to 20 at December 31, 1998 from three at December 31, 1997,
as well as increased expenditures as part of our marketing and advertising
efforts.
22
<PAGE> 26
Product Development
Product development expense increased by 562% to $695,000 in the year ended
December 31, 1998 from $105,000 in the year ended December 31, 1997. As a
percentage of total revenue, product development expense increased to 54.3% in
the year ended December 31, 1998 from 30.9% in the year ended December 31, 1997.
Product development expense increased primarily as a result of the number of
employees in the product development group increasing to 16 at December 31, 1998
from four at December 31, 1997. The increase in the number of product
development employees was primarily the result of hiring additional software
engineers and quality assurance personnel to support our additional product
development and testing activities.
General and Administrative
General and administrative expense increased by 2,491% to $923,000 in the
year ended December 31, 1998 from $36,000 in the year ended December 31, 1997.
As a percentage of total revenue, general and administrative expense increased
to 72.1% in the year ended December 31, 1998 from 10.5% in the year ended
December 31, 1997. General and administrative expense increased primarily as a
result of the number of general and administrative employees increasing to eight
at December 31, 1998 from one at December 31, 1997. This increase in the number
of administrative personnel is a result of the addition of new members to the
management team during the second half of 1998 as well as development of an
administrative infrastructure to support our growth.
Interest Income, Net
Interest income, net of interest expense, increased by 1,738% to $43,000 in
the year ended December 31, 1998 from $2,000 in the year ended December 31,
1997. As a percentage of total revenue, interest income, net of interest
expense, increased to 3.4% in the year ended December 31, 1998 from 0.7% in the
year ended December 31, 1997. This increase was a result of the interest income
generated by our increased cash and cash equivalents on hand resulting from the
sale of mandatorily redeemable preferred stock in the year ended December 31,
1998. Interest expense was immaterial during both periods.
PERIOD FROM INCEPTION (JULY 24, 1996) TO DECEMBER 31, 1996 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1997
Revenue
Total revenue increased by 2,626% to $340,000 in the year ended December
31, 1997 from $12,000 in the year ended December 31, 1996.
Software license revenue increased by 1,428% to $177,000 in the year ended
December 31, 1997 from $11,000 in the year ended December 31, 1996. As a
percentage of total revenue, software license revenue decreased to 52.2% in the
year ended December 31, 1997 from 93.1% in the year ended December 31, 1996. The
increase in software license revenue was due to the introduction of our auction
software products in the year ended December 31, 1997. The decrease in software
license revenue as a percentage of total revenue was due primarily to revenue
from customer support and maintenance fees in the year ended December 31, 1997,
which was not generated in the year ended December 31, 1996.
Services and other revenue increased by 18,726% to $163,000 in the year
ended December 31, 1997 from $1,000 in the year ended December 31, 1996. As a
percentage of total revenue, services and other revenue increased to 47.8% in
the year ended December 31, 1997 from 6.9% in the year ended December 31, 1996.
The increase in services and other revenue as a percentage of total revenue
resulted from our introduction of support and maintenance services in the year
ended December 31, 1997.
Cost of Revenue
Cost of software license revenue increased to $9,000 in the year ended
December 31, 1997 from $0 in the year ended December 31, 1996. As a percentage
of software license revenue, cost of software license
23
<PAGE> 27
revenue increased to 5.1% in the year ended December 31, 1997 from 0% in the
year ended December 31, 1996. These increases resulted from the significant
increase in software license revenue in the year ended December 31, 1997.
Cost of services and other revenue increased by 1,472% to $19,000 in the
year ended December 31, 1997 from $1,000 in the year ended December 31, 1996. As
a percentage of services and revenue, cost of services decreased to 11.7% in the
year ended December 31, 1997 from 140.1% in the year ended December 31, 1996.
The increase in cost of services and other revenue was due primarily to an
increase in the number of support and maintenance employees to two at December
31, 1997 from zero at December 31, 1996.
Sales and Marketing Expense
Sales and marketing expense increased to $44,000 in the year ended December
31, 1997 from $0 in the year ended December 31, 1996. As a percentage of total
revenue, sales and marketing expense increased to 12.8% in the year ended
December 31, 1997 from 0% in the year ended December 31, 1996. The increase in
sales and marketing expense was due primarily to an increase in the number of
sales and marketing employees to three at December 31, 1997 from zero at
December 31, 1996.
Product Development Expense
Product development expense increased to $105,000 in the year ended
December 31, 1997 from $0 in the year ended December 31, 1996. As a percentage
of total revenue, product development expense increased to 30.9% in the year
ended December 31, 1997 from 0% in the year ended December 31, 1996. The
increase in product development expense was due primarily to an increase in the
number of product development employees to four at December 31, 1997 from zero
at December 31, 1996, due to the development of our auction software products,
which occurred primarily in the year ended December 31, 1997.
General and Administrative Expense
General and administrative expense increased by 204% to $35,000 in the year
ended December 31, 1997 from $12,000 in the year ended December 31, 1996. As a
percentage of total revenue, general and administrative expense decreased to
10.5% in the year ended December 31, 1997 from 94.0% in the year ended December
31, 1996. The increase in general and administrative expense resulted from the
addition of one general and administrative employee in the year ended December
31, 1997.
Interest Income, Net
Interest income, net of interest expense, increased to $2,000 in the year
ended December 31, 1997 from $0 in the year ended December 31, 1996. As a
percentage of total revenue, interest income, net of interest expense, increased
to 0.7% in the year ended December 31, 1997 from 0.0% in the year ended December
31, 1996.
24
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of OpenSite's unaudited quarterly
operating results for each of the nine quarters in the period ended March 31,
1999, as well as results expressed as a percentage of total revenue for the
periods indicated. This information has been derived from unaudited interim
financial statements that, in the opinion of management, have been prepared on a
basis consistent with the financial statements contained elsewhere in this
prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with financial statements and accompanying notes appearing elsewhere
in this prospectus. The operating results 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 MAR. 31
1997 1997 1997 1997 1998 1998 1998 1998 1999
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses.............. $ 3 $ 50 $ 56 $ 68 $ 179 $ 321 $ 177 $ 396 $ 921
Services and other............. 8 25 65 64 38 46 48 76 129
------ ------ ------ ------ ------ ------ ------- ------- -------
Total revenue........ 11 75 121 132 217 367 225 472 1,050
------ ------ ------ ------ ------ ------ ------- ------- -------
Cost of revenue:
Cost of software licenses...... -- 3 3 3 3 4 3 8 8
Cost of services and other..... -- -- 2 16 5 14 36 77 158
------ ------ ------ ------ ------ ------ ------- ------- -------
Total cost of
revenue............ -- 3 5 19 8 18 39 85 166
------ ------ ------ ------ ------ ------ ------- ------- -------
Gross profit................... 11 72 116 113 209 349 186 387 884
------ ------ ------ ------ ------ ------ ------- ------- -------
Operating expense:
Sales and marketing............ 2 5 14 24 62 147 679 1,029 1,052
Product development............ -- 3 35 66 56 116 223 300 534
General and administrative..... 4 8 2 21 97 148 158 520 810
------ ------ ------ ------ ------ ------ ------- ------- -------
Total operating
expense............ 6 16 51 111 215 411 1,060 1,849 2,396
------ ------ ------ ------ ------ ------ ------- ------- -------
Operating income (loss)........ 5 56 65 2 (6) (62) (874) (1,462) (1,512)
Interest, net.................. -- -- 1 1 5 4 1 33 18
------ ------ ------ ------ ------ ------ ------- ------- -------
Net income (loss).............. $ 5 $ 56 $ 66 $ 3 $ (1) $ (58) $ (873) $(1,429) $(1,494)
====== ====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
1997 1997 1997 1997 1998 1998 1998 1998 1999
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Software licenses.... 25.5% 67.3% 46.1% 51.5% 82.3% 87.4% 78.7% 83.9% 87.7%
Services and other... 74.5 32.7 53.9 48.5 17.7 12.6 21.3 16.1 12.3
----- ----- ----- ----- ----- ----- ------ ------ ------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ------ ------ ------
Cost of revenue:
Cost of software
license............ 0.0 3.4 2.7 2.4 1.3 1.1 1.3 1.6 0.8
Cost of services and
other.............. 3.1 0.4 1.8 12.2 2.1 3.7 15.9 16.4 15.0
----- ----- ----- ----- ----- ----- ------ ------ ------
Total cost of
revenue............ 3.1 3.8 4.5 14.6 3.4 4.8 17.2 18.0 15.8
----- ----- ----- ----- ----- ----- ------ ------ ------
Gross profit......... 96.9 96.2 95.5 85.4 96.6 95.2 82.8 82.0 84.2
----- ----- ----- ----- ----- ----- ------ ------ ------
Operating expense:
Sales and
marketing.......... 14.3 6.3 11.3 17.8 28.9 40.0 302.4 218.0 100.3
Product development.. 2.9 4.5 28.8 50.2 25.8 31.7 99.5 63.4 50.8
General and
administrative..... 37.2 10.9 1.8 15.9 44.6 40.3 70.3 110.1 77.1
----- ----- ----- ----- ----- ----- ------ ------ ------
Total operating
expense............ 54.4 21.7 41.9 83.9 99.3 112.0 472.2 391.5 228.2
----- ----- ----- ----- ----- ----- ------ ------ ------
Operating income
(loss)............. 42.4 74.5 53.6 1.5 (2.7) (16.8) (389.4) (309.5) (144.0)
Interest income,
net................ 0.0 0.6 0.4 1.0 2.2 1.0 0.5 7.0 1.8
----- ----- ----- ----- ----- ----- ------ ------ ------
Net income (loss).... 42.5% 75.1% 54.0% 2.5% (0.5)% (15.8)% (388.9)% (302.5)% (142.2)%
===== ===== ===== ===== ===== ===== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations using proceeds from the
issuance of preferred stock to private equity investors. To date, we have
received $28,368,000 in proceeds, net of issuance costs, from issuances of
preferred stock. At March 31, 1999, our primary source of liquidity was
$18,539,000 in cash and cash equivalents.
Net cash used in operating activities was $561,000 in the three months
ended March 31, 1999. Net cash used in operating activities was $1,774,000 in
the year ended December 31, 1998. Net cash provided by operating activities was
$160,000 in the year ended December 31, 1997. Net cash provided by operating
activities was $2,000 in the period from inception (July 24, 1996) to December
31, 1996.
Net cash used in investing activities was $53,000 in the three months ended
March 31, 1999. Net cash used in investing activities was $388,000 in the year
ended December 31, 1998. Net cash used in investing activities was $39,000 for
the year ended December 31, 1997. Net cash used in investing activities was less
than $1,000 in the period from inception (July 24, 1996) to December 31, 1996.
The cash used in investing activities was primarily for purchases of software
for customer call support, computer equipment and office furniture.
Net cash provided by financing activities in the three months ended March
31, 1999 was $16,877,000. Net cash provided by financing activities was
$4,286,000 in the year ended December 31, 1998. Net cash provided by financing
activities was $30,000 in the year ended December 31, 1997. Net cash provided by
financing activities was $0 in the period from inception (July 24, 1996) to
December 31, 1996. The 1998 financing activities consisted primarily of
issuances of preferred stock. In January 1998, we completed a private placement
of Series A preferred stock, totaling 4,175,439 shares, resulting in gross
proceeds of $600,000. In August and September 1998, we completed a private
placement of 5,000,000 shares of Series B
26
<PAGE> 30
preferred stock, resulting in gross proceeds of $4,000,000. In March and April
1999, we completed a private placement of 12,000,000 shares of Series C
preferred stock, resulting in gross proceeds of $24,000,000. The Series A
preferred stock, Series B preferred stock and Series C preferred stock will be
converted into shares of common stock automatically upon completion of this
offering.
We have experienced a substantial increase in our capital expenditures,
which is consistent with our growth in operations and staffing. We anticipate
that capital expenditures will continue to increase for the foreseeable future.
Additionally, we will evaluate possible investments in our business, technology
and products. We believe our existing liquidity and capital resources, and the
proceeds resulting from the sale of common stock in this offering, will be
sufficient to satisfy our cash requirements for the next 12 to 18 months. To the
extent that such amounts are insufficient, we will be required to raise
additional funds through equity or debt financing. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of unanticipated opportunities or otherwise respond to
competitive pressure would be significantly limited. There can be no assurance
that we will be able to raise such funds on favorable terms or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). This statement requires
companies to report information about operating segments in annual financial
statements. It also requires segment disclosures about products and services,
geographic areas and major customers. The disclosures prescribed by SFAS No. 131
are effective for fiscal years beginning after December 15, 1997. Management has
determined that OpenSite does not have any separately reportable operating
segments as of December 31, 1998.
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
("SOP No. 98-1") which provides guidance regarding when software developed or
obtained for internal use should be capitalized. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Management expects that the adoption of SOP No. 98-1 will not have a material
impact on our financial condition or results of operations.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition, With Respect to Certain Transactions," ("SOP
No. 98-9"). SOP No. 98-9 amended SOP No. 97-2 to require recognition of revenue
using the "residual method" in circumstances outlined in SOP No. 97-2. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by Vendor Specific Objective Evidence
("VSOE"), is deferred and subsequently recognized in accordance with the
relevant sections of SOP No. 97-2 and (2) the difference between the total
arrangement fee and the amount deferred for the undelivered elements is
recognized as revenue related to the delivered elements.
SOP No. 98-9 is effective for fiscal years beginning after March 15, 1999.
Also, the provisions of SOP No. 97-2 that were deferred by Statement of Position
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition," ("SOP No. 98-4") will continue to be deferred until the
date SOP No. 98-9 becomes effective. We do not expect that the adoption of SOP
No. 98-9 will have a material impact on our financial condition or results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
is effective for financial statements for all fiscal quarters of all fiscal
years beginning after June 15, 1999. We intend to adopt SFAS No. 133 when
required; however, SFAS No. 133 is not expected to have a material impact on our
financial position or results of operations.
IMPACT OF YEAR 2000 COMPUTER ISSUES
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year without specifying the century.
As a result, date-sensitive software may recognize a date of
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"00" as the year 1900 rather than the Year 2000. This could result in system
failures or miscalculations causing disruptions of our operations, including a
temporary inability to process transactions, send invoices or engage in other
business activities, and, as a result, the operations of the end users that we
serve. Year 2000 issues impact OpenSite both on an external basis in connection
with the products and services we offer to end users, as well as on an internal
basis as to our own operations and information technology systems. We also face
risks relating to the potential Year 2000 non-compliance with vendors that
provide products and services to us. We believe that based on our assessments to
date, material year 2000 issues that we have identified that are within our
control can be corrected. The failure of OpenSite or third party hardware or
software that is used by OpenSite or in conjunction with our products to be Year
2000 compliant could have a material adverse effect on OpenSite's financial
position and results of operations.
Year 2000 Project Team. We have assembled a Year 2000 Project Team
composed of OpenSite employees from our management. This team consults with
employees from our product management, product development, technical support,
internal information technology, accounting and facilities management working
groups. We have recently hired a Director of Corporate Technology, in part to
ensure Year 2000 readiness. Our Year 2000 Project Team has identified software,
equipment and systems supplied to us by third party vendors that are material to
our business and have verified all internal systems to be Year 2000 compliant.
We are in the process of reviewing and testing our products to determine their
ability to correctly process date changes from 1999 through 2000. The goals of
the Project Team are to minimize any Year 2000-related impact to our customers
and their customers; maintain Year 2000 readiness as a top business priority;
and work closely with our internal and external business partners to achieve
Year 2000 readiness. To date, we have not become aware of any material Year 2000
compliance problems resulting from our internal or external software, equipment
or systems. We will continue to test and evaluate our internal and external
software, equipment or systems through 1999 and into the year 2000. Management
believes the costs related to Year 2000 compliance have not been material to
date and will not grow to have a material adverse effect on our business.
OpenSite Products. We designed the most recent versions of our products to
be Year 2000 compliant. To date, Year 2000 remediation efforts to our products
were minor due to our awareness of Year 2000 issues when our products were
developed. We have begun the process of testing our products in test
environments intended to emulate a Year 2000 environment. To date, no
significant problems have been detected as a result of this testing. We
anticipate testing to be completed by August 31, 1999.
Year 2000 External Efforts and Issues. We have substantially completed the
replacement, modification or retirement of hardware or software components for
our products and services that were identified by the Year 2000 Project Team to
be vital to our core business processes and at risk for Year 2000 failures. In
addition, we have requested that our customers, vendors and other business
partners participate in our readiness efforts and update us on their Year 2000
progress. Many of our computer systems and business operations are provided
and/or maintained by outside suppliers. Our key vendors and suppliers have been
asked to demonstrate sufficient Year 2000 readiness. Where feasible, we have
tested vendor supplied products that are critical to our operations.
Year 2000 Internal Efforts and Issues. Our Year 2000 Project Team has
completed corporate-wide inventory of our internal application and system
software and of our computers and other equipment to determine if this equipment
uses embedded computer chips that may be date sensitive. Based on this analysis,
we have, where required, upgraded hardware and software deemed vital to our
on-going business by the Year 2000 Project Team to versions or releases
identified by our vendors as Year 2000 ready or compliant, implemented computer
code changes for non-critical issues not affecting Year 2000 compliance, and
substantially completed remediation of identified Year 2000 issues in "mission
critical" systems, or systems that are vital to the successful continuance of
core business activities.
Contingency Planning. To date, we have not developed any formalized
contingency plans to address the risk that our products, systems, customers,
vendors or other business partners may fail to be or become Year 2000 compliant.
To the extent that we identify third party or other Year 2000 compliance issues
that may not be capable of remediation on a timely basis, we will rapidly seek
to develop contingency plans in order to minimize our risks.
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BUSINESS
OVERVIEW
OpenSite is the market share leader in online auction software solutions
with an installed base of over 250 auction sites. Our solutions, which include a
variety of cost-effective software products and services, enable small, medium
and large merchants to create branded, Internet-based auctions on their own Web
sites. Our solutions automate the process of installing, running and maintaining
real-time auctions over the Internet. By bringing together buyers and sellers,
our products and services help individuals and businesses create new sales
channels, manage inventory, attract new customers, introduce new products and
strengthen relationships with existing partners and customers. Some of our
customers include Cheapfares.com, CNET, Coinbuyers.com, The Sharper Image,
Sporting Auction, VerticalNet and WineBid.com. OpenSite Auction won a Best of
Show Award for e-commerce applications at Fall Internet World 1998 and a Best of
Class Award for Web-based selling at Fall Internet Commerce Expo 1998. OpenSite
Auction also earned an Analyst's Choice Award from PC Week magazine and received
a five-star rating from online magazine Internet.com. As of April 30, 1999, we
had 68 full-time employees.
INDUSTRY BACKGROUND
Growth of the Internet and the Rise of Electronic Commerce
The Internet has rapidly emerged as an important medium for communicating,
obtaining information and conducting commerce. International Data Corporation
estimates that the number of Internet users worldwide exceeded 97 million in
1998 and will grow to approximately 320 million by the end of 2002. The Internet
possesses unique and commercially powerful characteristics that differentiate it
from traditional forms of media, including freedom from geographical or temporal
limitations, real-time access to dynamic interactive content and instantaneous
connections between merchants and consumers. International Data Corporation
estimates that worldwide commerce over the Internet will grow from approximately
$32 billion in 1998 to approximately $426 billion by the end of 2002.
Emergence of Dynamic Pricing
Dynamic pricing, in which prices are determined by buyers and sellers on a
transaction-by-transaction basis, is becoming more accepted as a form of
electronic commerce. Certain characteristics of traditional commerce, such as
multi-tiered distribution, costly product delivery requirements, and limited
ability to collect and process real-time pricing information, have led to fixed
pricing as the dominant transactional format. The Internet, however, has enabled
market information to be disseminated more quickly, in greater quantity and to a
wider audience than was historically possible. It has also streamlined the
process of production and distribution of goods. These factors have reduced the
need to adhere to fixed pricing of goods and services. Additionally, consumers
and merchants are increasingly utilizing the Internet to buy and sell goods and
services. The interactive nature of the Internet, especially as embodied by
real-time updates of information, has also given Internet users an increasing
sense of confidence about continuous market refinement of pricing.
Internet Facilitation of Auctions
Auctions are among the most well known forms of dynamic pricing. Prior to
the Internet, auctions faced critical shortcomings, including location and time
constraints, which limited the degree to which buyers and sellers could
interact. When information is more difficult to obtain, pricing is a less
efficient process. Even in cases where intermediaries such as auction houses
become involved to mitigate some of these problems, their fees often reduce the
practicality and attractiveness of an auction marketplace. The Internet
alleviates many of these problems. It has no geographic or time boundaries and
allows large quantities of information to be transmitted instantaneously.
Accordingly, online auctions can offer more products to more people over a wider
geographic area, providing a better pricing mechanism for both buyers and
sellers. Forrester Research
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projects that the value of goods sold through Internet auctions will increase
from $10.0 billion in 1998 to $64.9 billion in 2002, a 59% compound annual
growth rate.
Benefits of Online Auctions
The needs of both merchants and consumers are served by online auctions.
Merchants benefit from the following: (1) alternative transaction models, (2)
cost-effective methods for liquidating overstock, outdated or perishable
inventory, (3) efficient price discovery mechanisms for new products, (4) the
ability to collect marketing data on existing and potential buyers and (5) the
ability to attract additional traffic to merchant web sites.
Benefits to online bidders include the following: (1) greater flexibility
in the timing and pricing of purchases, (2) access to a broader range of items
for bid without geographical limitations, (3) the ability to capitalize on real
time market conditions which may produce temporary price advantages, (4) the
ability to find rare or collectible items to which they might not otherwise be
exposed and (5) the formation of enthusiast communities, chat rooms and
newsletters which make online auctions a participatory and enjoyable interactive
experience.
The Current Landscape for Online Auctions
As a result of these benefits, a growing number of merchants are seeking
Internet auction capabilities. Online auction solutions currently can be divided
into two categories. The first category consists of person-to-person Internet
auction communities. These communities provide a convenient and popular
destination for individuals who wish to trade with each other or for merchants
seeking a simple way to auction a limited number of items. These communities,
however, generally preclude merchants from maintaining their own brands on the
Internet, controlling the online experience of bidders or retaining data on the
activity of their bidders. The second category is comprised of applications that
allow merchants to control and maintain their own branded online auction sites.
These merchants have choices ranging from developing their own online auction
capabilities to purchasing online auction applications from third party vendors.
Custom built applications are typically expensive and time consuming. Many
applications from third party software vendors are difficult to customize, are
burdensome to implement and often lack a wide range of features. In addition,
these vendors typically do not provide a complete package of ancillary services.
We believe that a large and growing number of online merchants will seek
auction solutions that enable them to create and maintain their own brand
images, control their customers' online experience and collect bidder activity
data. We believe these merchants are also likely to be attracted to solutions
that are simple to implement, become quickly operational and facilitate targeted
interaction with visitors to their sites. Since Internet auctions are both a
relatively new phenomenon and an increasingly critical capability, many
companies require a full range of related services to ensure the rapid and
effective implementation of an online auction solution. Finally, since traffic
is such an important element of successful electronic commerce, merchants are
likely to gravitate towards a solution which possesses the ability to attract
more bidders to their own auction sites.
THE OPENSITE SOLUTION
We are the market share leader in online auction software solutions, with
an installed base of over 250 auction sites. Our solutions, which include a
variety of cost-effective software products and services, enable small, medium
and large merchants to create branded, Internet-based auctions on their own Web
sites. Our solutions automate the process of installing, running and maintaining
real-time auctions over the Internet. By bringing together buyers and sellers,
our products and services help individuals and businesses create new sales
channels, manage inventory, attract new customers, introduce new products and
strengthen relationships with existing partners and customers.
The OpenSite Auction family of products is designed to provide a full range
of dynamic pricing functionality and to allow our customers a flexible solution
based on their changing needs. Additionally, we provide a range of related
services including consulting, implementation and hosting to enable any merchant
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to launch Internet auctions quickly and easily. We also provide ancillary
products to enable auction participants to track and monitor their activity,
facilitate proxy bidding and notify them of new items being put up for bid.
Launched in April 1999, BidStream.com is a Web site owned and operated by
OpenSite that aggregates the items for bid on participating OpenSite-powered
auction sites. We intend to establish BidStream.com as the central point for
locating items for bid at participating OpenSite-powered auction sites. Our
proprietary search engine indexes all items for sale at these sites.
BidStream.com is designed to provide the general Internet user an effective and
time-efficient way to find auction items on which to bid and provides our
customers with additional visitors to their Web sites.
Our solutions have the following benefits:
Increased Revenue Opportunities Through Dynamic Pricing. Our products and
services facilitate new online revenue opportunities for our customers by easily
and efficiently enabling branded Internet auctions. Through our online auction
technology, merchants can (1) manage inventory levels more effectively by
quickly liquidating overstocks, (2) achieve improved product prices by
stimulating demand, (3) conduct price discovery by offering new products for
bid, (4) manage perishable inventory by finding buyers in real-time and (5)
build communities of collectors and enthusiasts.
Control of Brand Equity. Our products allow customers to control their
auction sites rather than list their products in a person-to-person Internet
auction community. This enables them to control and expand the presence of their
brand equity on the Internet while increasing sales.
Increased Site Traffic; Aggregation of Marketing Data. BidStream.com
provides bidders with a central point for locating items for sale on
participating OpenSite-powered auction sites. By aggregating the content from
these sites, we provide a way for our customers to generate increased site
traffic without costly marketing campaigns. Additionally, BidStream.com collects
data about visitors to auction sites and allows merchants to profile their
customers' buying behavior. They can use this data to reach more qualified
customers and more effectively market products to targeted customers.
Ease of Use and Rapid Deployment. Our solutions are designed to enable
customers to quickly and easily create sophisticated online auctions, in some
cases in as little as two days. Our solutions include pre-designed Web page
templates to speed site development. These templates can be easily customized,
edited and branded using our template and style editors. Our Concierge service,
a complete turnkey auction solution, lets businesses establish an online auction
almost immediately without an up-front investment in software or hardware.
Flexible and Scalable Solutions. Unlike some other Internet auction
software providers, which offer a single product solution, we provide a flexible
and scalable growth path for merchants wishing to expand their auction
capabilities over time. Our software is offered as a three-tiered product
family -- Professional, Merchant and Corporate -- created to meet a wide array
of needs. Thus, customers new to online auctions may start with an entry-level
product which requires a modest initial investment in time and resources, while
customers who are more experienced, or have more complex needs, have the option
of a more advanced level of our software. Our products are designed so that the
growth path from one level to the next is a relatively seamless and simple
process.
Bidder Empowerment. Our solutions provide information, tools and services
designed to increase bidders' success at online auctions. For example,
AuctionWatch Desktop is an application that allows users to manage their bidding
activity more effectively, including multiple bids on multiple sites, from a
single screen.
STRATEGY
Our goal is to maintain and strengthen OpenSite's position as a leader in
online auction solutions. Our strategies to achieve this goal include the
following:
Use Our Market Leadership to Build Brand Awareness. We are the market
share leader in online auction software solutions, with an installed base of
over 250 auction sites. We believe that OpenSite is the
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first significant vendor of a complete Internet auction solution and the first
to enhance the value proposition to customers through aggregation of auction
content from disparate customer sites. We expect to aggressively increase the
market impact of the OpenSite brand by expanding our sales and marketing
organization and investing significantly in both online and offline advertising.
The development and promotion of BidStream.com as a tool for bidders to locate
items for bid on our customers' auction sites is a key component of this
strategy.
Continue to Enhance Our Solutions. Our family of products and services is
designed to provide a full range of auction functionality. As the market for
online auctions matures, we believe that the demands of merchants and bidders
will grow and become more sophisticated. We intend to continue to invest in our
product development resources and to develop new auction solutions to meet these
growing demands. We believe that our market share leadership, reflected in an
installed base of over 250 auction sites, provides us with a unique advantage in
understanding the needs of online auctioneers. We have recently introduced
BidStream.com as service to increase traffic to our customers' auction sites. We
also intend to release three new products in 1999 that are designed for the
needs of specific target markets.
Aggregate Content Through Development of BidStream.com. Through
BidStream.com, we aggregate the content from participating OpenSite-powered
auction sites into a single Web site. BidStream.com enables a user to search
multiple OpenSite-powered auction locations for specific items. BidStream.com is
designed to increase traffic to our customers' auction sites, thus increasing
the value we provide to our customers. BidStream.com can also allow us to obtain
information regarding auction participants and their bidding patterns. We
believe that our significant market share will allow us to aggregate substantial
quantities of auction content that our competitors with less market share will
be unable to duplicate. Although only recently launched, BidStream.com has
initially experienced positive customer acceptance and currently aggregates over
80 auction sites containing over 50,000 items for bid. We expect the number of
participants to increase as we further promote and educate our customers about
the benefits of BidStream.com.
Increase Sales of High-End Solutions. As the market for auction technology
matures, we intend to target our sales and marketing efforts increasingly
towards larger merchants requiring enterprise-level auction solutions. We
believe that OpenSite Auction Corporate and other products under development
will be attractive as the need for more sophisticated solutions increases. In
addition, by increasing our sales of high-end solutions to larger merchants, we
expect to sustain revenue growth and increase the quantity of content aggregated
on BidStream.com. To support this effort, we intend to accelerate our
development of scalable, dynamic pricing solutions capable of integration into
widely used IT systems, such as enterprise resource planning and supply-chain
management. We also believe that our indirect sales channels will provide us
with greater access to this target market.
Develop Indirect Sales Channels. We have developed an indirect sales
channel comprised of resellers, systems integrators, Internet Service Providers
and others. These channels are designed to reach new and larger target markets,
particularly larger merchants, more efficiently than our direct sales force.
Established in 1998, our indirect sales channel now consists of 42 resellers. To
support these sales efforts, we are developing OpenSite AuctionNow, which is
targeted to Internet Service Providers and e-commerce software providers to
enable them to embed auction functionality into their product and service
offerings.
Expand Internationally. Online auctions have the ability to reach
potential buyers throughout the world. We believe that a considerable market for
our products exists outside the United States. We intend to accelerate our
investment in international sales and to add new features and functionality to
our products to accommodate accounting, customs, currency and tax requirements
of foreign countries. We intend to use our indirect sales channel to accelerate
our international marketing efforts. In addition, we have retained Protege
Software Ltd. to provide sales and marketing services for our European
expansion.
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Products and Services
OpenSite Auction 4.0. OpenSite Auction 4.0, our core product, automates
the process of implementing, running and maintaining real-time auctions over the
Internet. OpenSite Auction 4.0 is designed to simplify for merchants the process
of installing and maintaining an auction site with features such as:
- remote installation to permit rapid deployment;
- various predesigned Web page styles and templates with editors to
facilitate easy editing to create a customized look and feel;
- security features such as digital certification, automatic database
encryption and multi-level administration authentication;
- statistic generation tools and log file viewers to view and analyze
auction data; and
- Web browser interfaces, configuration and invoice menus, automated winner
calculations, email notification and database archiving designed to
simplify the auction management process and monitor auction activity.
OpenSite Auction 4.0 offers the following features to enhance the auction
experience for bidders:
- monitoring of bidding;
- notification of new items;
- facilitation of proxy bidding; and
- enabling simultaneous bidding on multiple items.
We offer the following three levels of OpenSite Auction 4.0. Each level is
designed to address the unique needs of specific types of customers. Our family
of software products is also designed to allow our customers to grow with easy
migration paths to increasing levels of functionality.
- OpenSite Auction Professional, our entry-level version, allows customers
to build and operate their own online auctions and to begin operation
quickly and economically with modest initial financial and time
investment.
- OpenSite Auction Merchant, our mid-level version, enables our customers
to allow outside sellers to post items on their auction sites. Customers
are also able to place an online store, banner advertisements and
classified advertisements on their auction sites. The Merchant level also
includes consignment auctions as an additional option for customers and
AuctionRate, a participant rating system of bidders and sellers.
- OpenSite Auction Corporate, our premium version, is designed for
enterprise level merchants who desire an auction solution that provides
more system flexibility and an open database architecture for integration
into third party applications. Version 4.0 of the Corporate level enables
customers to integrate their online auctions with Oracle databases. The
Corporate level offers a wider variety of auction types, including
reverse, sealed bid and modified English auctions.
OpenSite Auction 4.0 was released in the first quarter of 1999.
Enhancements include the ability to integrate with Oracle databases, additional
auction types, private auctions, notification of new items for bid and enhanced
user and administrator interfaces. We continue to develop our products to meet
the growing needs of the marketplace. Development plans for the remainder of
1999 include releases relating to automated transaction processing, Oracle
support on UNIX platforms and multiple database support.
OpenSite Auction won a Best of Show Award for e-commerce applications at
Fall Internet World 1998 and a Best of Class Award for Web-based selling at Fall
Internet Commerce Expo 1998. OpenSite Auction also earned an Analyst's Choice
Award from PC Week magazine and received a five-star rating from online magazine
Internet.com, in addition to several other positive product reviews from a
variety of industry publications.
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AuctionWatch Desktop. AuctionWatch Desktop is an application that allows
bidders to use one central interface to simultaneously track and bid on multiple
items from any auction site on the Internet. AuctionWatch Desktop is currently
available as a free download to registered users of BidStream.com. From the
central interface the user can bid on items, monitor those bids throughout the
auction, or just watch items of interest. Sellers can use the application to
track the items they are selling. Using the MagicBid feature, participants can
bid on items at preset times while away from their computers. The program
includes numerous tools for bidders to track information about items of interest
both during and after an auction such as closing price, payment status and
shipping status. An address book keeps track of names and addresses, email
addresses, identification numbers and passwords.
BidStream.com. Launched in April 1999, BidStream.com is a Web site owned
and operated by OpenSite that aggregates the items for bid on participating
OpenSite-powered auction sites. Although only recently launched, BidStream.com
has initially experienced positive customer acceptance and currently aggregates
over 80 auction sites containing over 50,000 items for bid. We expect the number
of participants to increase as we further promote and educate our customers
about the benefits of BidStream.com. BidStream.com is intended to be the central
point for locating items for bid at participating OpenSite-powered auction sites
and indexes all items for auction at these sites. BidStream.com provides the
general Internet user an effective and time-efficient way to find auction items
on which to bid and provides our customers with additional visitors to their Web
sites.
We intend to generate additional site traffic to BidStream.com through a
marketing campaign that will include Internet, print and radio advertising as
well as affiliate programs and strategic partnerships with other Web publishers.
For example, BidStream.com will be co-branded with other shopping sites such as
CNET to provide links between BidStream.com searches, OpenSite-powered auction
sites and focused content sites. We believe these affiliates will direct traffic
to BidStream.com, while also providing a category-specific auction page with
relevant content and context.
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BidStream.com, as illustrated by the homepage shown below, contains the
following features:
1. Central searching of OpenSite Auction customer sites;
2. Highlighting of key auction categories such as Art & Antiques,
Travel, Collectibles and Technology;
3. Registration as a member of BidStream.com, for site personalization
and special offers;
4. Site categorization and browsing by site type; and
5. Download of AuctionWatch Desktop.
(GRAPH)
OpenSite Concierge. Our Concierge service provides a turnkey auction
solution including set-up, software rental, hosting, site design and auction
maintenance (adding items, maintaining auctions and creating winners lists). The
customer simply provides us with item data and then bills winners and ships
products. Once a Concierge site is up and running, at any time, the customer can
move the site to its own server and administer auctions itself.
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The following table summarizes our current products and services.
<TABLE>
<CAPTION>
PRODUCTS DESCRIPTION
<S> <C>
OpenSite Auction Professional - An entry level auction solution
- Rapid deployment through remote installation
- Quick installation through a full set of Web page
templates
- Simplified editing through template, style and variable
editors
- Includes automatic database encryption and multi-level
administration authentication security features
- Monitors auction data through statistic generation tools
and log file viewer
- Auction administration tools include automated winner
calculations and email notification and database archiving
- Provides hardware and operating system flexibility
- Monitors bidding/selling activity
- Notifies users of new items
- Facilitates proxy bidding
- Allows simultaneous bidding on multiple items at a time
OpenSite Auction Merchant - Includes all Professional level features
- Allows auction host to include third party auctions
- Includes a participant rating system of bidders and
sellers
- Allows auction host to include an online store, banner
advertisements and classified advertisements
- Allows consignment auctions
OpenSite Auction Corporate - Includes all Professional and Merchant level features
- Adds security and flexibility through dynamic pages option
and access privileges
- Enables auction host to integrate their online auctions
with Oracle databases
- Include reverse, sealed bid and modified English auctions
AuctionWatch Desktop - Enables auction participants to use one central interface
to monitor and manage all bidding activity
- Can be downloaded from BidStream.com
</TABLE>
<TABLE>
<CAPTION>
SERVICES DESCRIPTION
<S> <C>
BidStream.com - Web site owned and operated by OpenSite that aggregates
items for bid on participating OpenSite-powered auction
sites
- Central point for locating items for bid at participating
OpenSite-powered auction sites and indexes all items for
auction at these sites
- Provides general Internet users an effective and
time-efficient way to find auction items on which to bid and
provides our customers with additional visitors to their
Web sites
- Enables auction participants to monitor multiple auction
sites through AuctionWatch Desktop
OpenSite Concierge - Offers the auction functionality of OpenSite Auction
Corporate
- Includes set-up, software, rental, hosting, site design
and auction maintenance by OpenSite
- Permits auction implementation without developing internal
infrastructure
- Enables sellers to test the auction solution within their
business model
- Natural upgrade path to OpenSite Auction products
</TABLE>
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Customer Services and Support
Our Customer Services organization of 14 people provides a broad range of
services to assist customers in successfully implementing Web-based auctions
using our products. These include Professional Services, Technical Support and
Education Services.
Professional Services. Our Professional Services group provides complete
product installation and configuration, template customization and technical
assistance with integrating our products with third party applications.
Professional Services consulting is generally offered on a time and materials
basis. This group also includes the Concierge auction site creation and hosting
service. Concierge customers are generally billed a one-time setup fee and a
monthly maintenance fee based on the volume of business on the site.
Technical Support. Our Technical Support group provides basic product
support to our licensees. Subscribers use email to ask questions and request
assistance of the support staff. Issues are then resolved via email or telephone
as appropriate. Technical Support services are generally paid for in advance
through annual fixed-fee maintenance fees.
Education Services. Our Education Services group designs the curricula and
develops the materials for training customers to install, administer and
maintain auction sites based on our products. Educational materials are designed
for use in both self-paced online and instructor-led learning. Pricing for
Education Services offerings is still under consideration at this time.
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CUSTOMERS
We have an installed base of over 250 auction sites in a wide variety of
categories. The following table lists some of our customers. Those customers
marked with an asterisk participate in BidStream.com.
TECHNOLOGY
AuctionComp*
CNET*
Evertek Computers Corp.*
Graham Dorian, Inc.
NextBid.com*
PCAuctioneer*
RETAIL/CATALOG
Daddy's Junky Music*
The Sharper Image*
MEDICAL/DENTAL/SCIENTIFIC EQUIPMENT
Dexpo.com*
MedTradex.com
Planettest.com
SciQuest.com*
TestBid.com
COLLECTIBLES
America Online Furby Auction
Auction Zoo
Carlisle Productions
Classified Auctions*
Cyber City Auctions*
Krause Publications*
Rareties-Exchange.com*
Royal Auctions*
The Bradford Exchange
Up4Auction*
SPORTING GOODS/MEMORABILIA
Basketball Bonanza*
Cannondale*
Currans Select Auctions*
Sporting Auction*
SportsCards Center*
The Mountain Zone*
ART AND ANTIQUES
Art.Net.com*
Asian Collection
Biddingtons*
Dargate Auction Galleries*
GoUniq.com*
COINS AND STAMPS
AwardMasters Philatelics*
Coinbuyers.com
Philatelic.com*
US Paper Money
Williams Gallery
BOOKS AND MOVIES
BooksbyBid
NewLine Cinema
Pacific Book Auctions*
JEWELRY AND GEMSTONES
Galaxy Gold*
Gem Auction*
Gem Shopping Network*
CHARITIES
Afundraiser.com*
Beverly Hills Charity Auction*
Save The Earth Foundation
MISCELLANEOUS
Bargain Builders
Brentwood Wine*
BuildScape*
Cyberhorse.com*
PackagingExchange.com
VerticalNet
WineBid.com*
TRAVEL AND VACATION
Active Currents
Cheapfares.com
Holiday Resale Homes*
SkyAuction*
Wholesalebid.com*
AUTOMOBILES AND PARTS
Gearhead Auction*
Mobilia*
Salvage Direct*
TECHNOLOGY
Our technology is designed to operate on a variety of hardware and software
platforms and to meet the business needs of our customers. We followed an
efficient cross-platform development strategy to allow for
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<PAGE> 42
broad platform support from a single code base. In addition, the software
provides the necessary interface capabilities to enable content aggregation by
BidStream.com.
Broad Platform Support. OpenSite Auction 4.0 is supported on a variety of
the most common hardware and software platforms used for e-commerce. NT Server
4.0, BSD 3.1, BSD 4.0, Linux RedHat 5.x, Linux Debian and Linux Slackware 3.6
are all supported on Intel hardware. Solaris 2.6 is supported on SPARC hardware.
The software is designed to run in conjunction with the Internet Information
Server (IIS) on NT 4.0, and in conjunction with the Netscape Enterprise Server
on all other operating systems.
Cross-platform Architecture. OpenSite Auction 4.0 is built as a collection
of Common Gateway Interface routines to avoid the necessity of development for
Web server-dependent interfaces. The user interface components are constructed
with Hypertext Markup Language (HTML) and JavaScript based templates for ease of
customization.
Standard Programming Languages. OpenSite Auction 4.0 was developed using
the ANSI Standard C and C++ programming languages to provide maximum
cross-platform portability across operating systems.
Compatibility with Database Management Systems. We offer two options for
back-end database management. Our proprietary database provides an efficient
database solution with reporting and management enabled through the
administrative interface at no additional cost. OpenSite Auction 4.0 Corporate
features Oracle database support designed to allow a more robust database and
more scalable system solution for larger customers. This solution also allows
reporting and analysis via third party tools.
Adherence to Industry Standards. We have invested considerable resources
in creating a product architecture that conforms to the standards that are
broadly accepted for Internet commerce applications. The products use the Common
Gateway Interface (CGI) and Hypertext Transfer Protocol (HTTP) for Internet
access, the Secure Socket Layer (SSL) for secure network transmissions, the
Information Server Application Programming Interface (ISAPI) for access to
Microsoft's Internet servers and HTML and JavaScript templates for representing
user interface content.
Integration with BidStream.com. OpenSite Auction 4.0 incorporates design
features which allow for the extraction and transmission of auction item data to
provide BidStream.com with timely updates on the status of all of the items on
participating auction sites. The aggregated content base represented by
BidStream.com has the potential of attracting more bidders and sellers to our
customers' auctions. This increased bidder and seller base in turn makes the
deployment of an auction with our products even more attractive. As more
OpenSite licenses are sold, the content aggregated by BidStream.com increases,
repeating the cycle on a larger scale.
Object-Oriented Paradigm. We are developing the Enterprise Auction Toolkit
on which the AuctionNow products will be constructed, as an object-oriented
interface. The implementation is being done in ANSI standard C++.
N-tier Architecture. With the Enterprise Auction Toolkit and the
AuctionNow products, we will provide auction system components that are tailored
for use in enterprise N-tier systems, which minimally provide for a user
interface tier (typically a Web server), a business rules tier (the auction
engine) and a database tier. The auction engine is built with a distributed
object interface, employing CORBA on Solaris or DCOM on NT. The interface to the
user interface tier is constructed as an in-process server, using the Web
Application Interface (WAI) to the Netscape Enterprise Server (NES) and the
ISAPI to Microsoft's IIS. The interface to the database tier is via OCI for the
Oracle database, or via the ODBC abstraction for other select database products.
Automatic email notifications are accomplished via the Simple Mail Transfer
Protocol (SMTP).
PRODUCT DEVELOPMENT
Our product development organization of 30 people is responsible for
developing the architecture, designing, implementing and testing the software
and tools, and developing the end user documentation for our products. Our
product development organization efforts reflect the combined experience of
interacting with and solving problems for over 250 customers.
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Most of our development efforts are directed toward producing a more
scalable auction solution for large enterprises, whether they deploy the auction
on their own behalf or do so for their customers as an auction service bureau.
Our product development organization consists of three product groups, a
documentation group and a quality assurance group. Each of the development
groups follows a process of product requirement definition, resource planning
and scheduling, design, implementation, test, final acceptance testing, release
and maintenance. Appropriate documents are generated and reviewed at each phase
of the product development process, including product specification, design
specification, development plan, schedule, test plan and quality assurance plan
documents. Industry accepted third party tools and systems are used in all
phases of development for document creation and control, source and object code
creation, source code maintenance and control, project tracking, test automation
and defect resolution.
Future Products
We expect to introduce the following products by the end of 1999.
OpenSite Auction 4.1 will contain enhancements such as Oracle database
support on Solaris/Netscape, integrated via WAI for scalability. The target
market will be merchants that desire a premium auction solution with the
flexibility to connect to many different business applications.
OpenSite AuctionNow ISP will (1) enable Internet Service Providers to offer
auction functionality to their customers through a virtual hosting environment,
(2) enable management of multiple auctions from a single database and (3) allow
easy installation and configuration with simplified Web browser menus.
OpenSite AuctionNow TX is a version of OpenSite AuctionNow ISP that is
designed to address the specific needs of Internet Service Providers that have
adopted Open Market as their electronic commerce standard. This solution will be
sold through the Open Market sales force.
OpenSite Enterprise Auction Toolkit is a software developer's kit that will
provide an Application Programming Interface (API) on which customers can build
highly custom extensible auction applications. This will offer (1) system
flexibility with a variety of database options and auction types, including
private auctions and (2) integration capabilities enabled through an open
object-oriented architecture. The target market will be large enterprises which
want to integrate auction functionality within their current infrastructure.
SALES & MARKETING
Sales
Our sales philosophy is to combine direct selling and indirect channel
sales in order to maximize our sales efforts. The sales organization currently
has a staff of 11 people, which we expect to expand significantly.
We initially marketed our products exclusively through a direct sales
organization. This direct sales group achieved its results by pursuing inquiries
generated from online banner advertising, trade show attendance and contact
requests from our Web site. The entire sales organization is located at our
corporate headquarters in Durham, North Carolina.
At the end of 1998, we modified our sales strategy to move toward a
combination of direct sales and indirect sales through resellers. At that time,
we began recruiting a reseller channel to optimize market coverage. Our
resellers, most of which are value-added resellers providing systems integration
and Web site design services, allow us to obtain incremental sales opportunities
and provide a natural service extension to our customers. Channel recruitment
efforts have yielded 42 resellers to date. The average period that these
resellers have been with us is just over two months, and we have added over 25
new customers through these resellers. We currently have three sales
professionals dedicated to establishing and developing reseller relationships.
We plan to expand this group significantly.
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We are currently creating a sales group of between three and five
professionals that will concentrate on specific vertical markets, the first of
which will be computer technology, travel/hospitality, collectibles and sporting
items/memorabilia. These sales representatives are expected to be located in San
Francisco, New York, Chicago and Miami.
The sales support staff includes a sales engineer, a pre-sales group, an
account management group and a sales coordinator. The sales engineer helps in
the more technical sales opportunities. The pre-sales group is responsible for
screening all inquiries and introducing those prospects to the proper sales
person as expediently as possible. Account managers are assigned to customers to
provide continuity and enhance customer satisfaction. Our sales coordinator
helps coordinate the knowledge and information flow throughout the organization.
Marketing
Our marketing effort is focused on product positioning, brand awareness and
lead generation. Our marketing group consists of 13 people and is divided into
the following areas:
Product Management. Product managers are responsible for developing and
positioning market driven products and services. Their duties include providing
direction for product development as well as new product concept planning.
Product managers are also responsible for segmenting the marketplace and
refining the target customer base for our products.
Market Research. The Director of Market Research is responsible for
monitoring industry analyst reports, fielding primary research studies and
managing our beta testing program and customer panels. We emphasize the
importance of listening to customers and resellers, monitoring our competition
and using this information in our product management process.
Marketing Programs. The Marketing Programs group is responsible for
building brand awareness, generating leads, channel marketing and maintaining
consistency in the look and feel of the OpenSite brand image. This group's
responsibilities include management of participation in targeted trade shows and
conferences, print advertising and online marketing, targeted direct mail
efforts and daily updating of the corporate Web site. This group also develops
sales tools such as our corporate brochure and product sheets, white papers and
case studies as well as our industry guides -- The Web Auction Guide and The Web
Auction Security Guide. Every program has measurement tools in place to measure
the return on investment and determine which activities are the most effective
and efficient, allowing us to constantly work toward optimizing our marketing
program mix.
Public Relations. Our Public Relations group is supplemented by an outside
public relations firm. We communicate with industry analysts and targeted trade,
channel, vertical and business press on a regular basis through a combination of
phone briefings, in-person tours and trade show appointments.
Strategic Alliances
We believe that a key to the successful execution of our marketing strategy
is to establish strategic alliances and partnerships. These relationships can
help us achieve brand awareness and revenue goal attainment, as well as assist
us in developing customer solutions and optimizing product compatibility.
Application Alliances. To ensure compatibility of our products with the
infrastructure of customers' IT assets, we plan to proactively establish
relationships with companies that have complementary technology. These include:
(1) e-commerce applications, (2) infrastructure applications and (3) platform
vendors.
Aggregation Alliances. To maximize the value of BidStream.com, we will
attempt to match open auction categories with portal sites. The initial list of
partnership categories that we are actively pursuing includes
computer/technology, travel/hospitality, collectibles and sporting items/sports
memorabilia. Currently, we have secured a relationship with CNET for the
computer and technology category and are in discussions concerning other
potential relationships.
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Service Alliances. To enhance bidders' auction experience, increase
consumer confidence and simplify on-line transactions, we intend to establish
relationships with companies that provide opportunities to augment our existing
revenue stream, foster goodwill with our customers and their customers and
strengthen our market position.
INTERNATIONAL OPERATIONS
We believe that markets outside the United States will provide an
increasing portion of our revenues in the future. In April 1999 we opened our
first international office in London. We entered into an agreement with Protege
Software Ltd., a United Kingdom-based company that provides outsourced support
for Internet companies wishing to establish a European business presence.
Protege introduced a number of noteworthy Internet companies into the European
market, including Andromedia, iCat, NetGravity and Vignette.
Our agreement requires Protege to provide a General Manager to our European
operation and to equip and staff an office of sales and marketing professionals
as business needs demand. Other than the General Manager, all European hires
will be employees of OpenSite's European subsidiary and will be supported by
back-office employees of Protege.
COMPETITION
We face competition in a number of areas, including application,
aggregation, auction hosting and other services.
Application. Our direct competitors include other software providers,
application service providers and system integrators who create unique solutions
suited to a specific customer as well as solutions developed in-house at
individual organizations.
The number of dynamic pricing software providers is increasing every
quarter. These providers can be segmented into entry and enterprise level. The
entry-level providers tend to offer solutions for companies who desire easy
entry into the auction market without a large financial investment. Most
software is relatively inexpensive (less than $10,000), and price and ease of
use are often the deciding factor in this target market. Competitors in this
arena include Auction Broker, Beyond Solutions and Emaze.
Another category of application competitors focuses on enterprise-level
solutions. The target market for these competitors is larger businesses that
desire system flexibility and integration into back-end ERP and supply-chain
systems. Functionality and a desire for an open architecture are key decision
criteria for this target market. Competitors in the enterprise-level market
include IBM's Net.commerce product, Moai Technologies, Trading Dynamics and
Webvision.
Aggregation. A number of aggregation sites exist today, including the
Bidder Network, Bidder's Edge and BidFind. In addition to these aggregation
sites, there are other person-to-person online auction community sites that
contain a large number of auction items, including Amazon.com, Auction Universe,
eBay, OnSale and uBid. These large content sites have significant brand
recognition and large amounts of site traffic.
Auction Hosting. We believe that the outsourced Internet technology model
will become increasingly popular in the auction space. Currently, only two
competitors offer outsourced auction-hosting services similar to our Concierge
product. They are the Bidder Network and FairMarket.
Services. We also believe that some business consultants currently provide
auction-related services and solutions in the course of their work. As the
acceptance of online auctions grows, we believe that more consultants will
develop expertise in the area of online auctions. These competitors include
Andersen Consulting and iXL.
LICENSING, INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Protection of our technology and other proprietary assets and respect for
the intellectual property rights of others are among our highest priorities. We
rely heavily on various types of intellectual property for our success and
competitive positioning. We use trademarks, copyrights, trade secrets and the
laws pertaining to
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them as well as contractual provisions to protect our intellectual property.
However, no combination of intellectual property protections can provide
complete assurance of the value of intellectual property or a guarantee of its
continued availability. We believe that our knowledge of the marketplace, new
product development, enhancements to existing products and the technical and
creative abilities of our employees are equally important to the establishment
and maintenance of our strong market position in a rapidly changing and evolving
competitive and technological landscape.
Creation and/or implementation of our technology, business model, marketing
research and plans, lead generation activities, customer lists, alliance
"partnership" plans and similar proprietary assets are all protected at their
inception and throughout their economic lifetimes by confidentiality and
proprietary rights agreements which each of our employees is required to execute
contemporaneously with commencement of employment. We also rely on
confidentiality agreements entered into with contractors and vendors.
All proprietary aspects of our licensed software are protected principally
by the contractual provisions found in our standard confidentiality agreement.
Each prospective customer is required to execute a confidentiality agreement
before access to our products is granted, whether via a demonstration or
directly. We also require execution of a standard comprehensive license
agreement before unsupervised access to our products is granted. These licenses
typically grant nonexclusive, nontransferable and perpetual access to the
software at a single designated location on a single central processing unit by
trained users. Misuse of the software or violation of a contractual provision is
grounds for revocation of the license.
We also protect the source code for our proprietary software as a trade
secret and a copyrighted work. We maintain a source code escrow arrangement with
an independent third party. Some of our customers have limited access to the
source code through this escrow under certain conditions, principally where we
fail to support or maintain the software pursuant to our contractual obligations
or where we cease doing business. This limited accessibility of our source code
may increase the possibility of its misappropriation by third parties.
There can be no assurance that we will be successful in protecting our
proprietary technologies or that our competitors will not develop similar
technology independently. Any failure to protect our intellectual property
assets sufficiently could have a material adverse effect on our business.
We own the registered trademark "OpenSite," and two other marks and have
applications pending with the US Patent and Trademark Office for registration of
seven additional trademarks and service marks. We also claim rights in other
unregistered marks. We also rely on these marks to protect our principal domain
names. We police unauthorized use of our trademarks and service marks and take
such action as may be necessary and advisable to protect them. Litigation may be
required in the future to enforce our trademark rights.
We do not presently integrate proprietary third party software into our
products. Certain products currently under development are, however, likely to
have embedded software. We expect that such software would be acquired pursuant
to license agreements and would be supported by annual maintenance and support
agreements with the software vendor. If we cannot obtain licenses to these
technologies or obtain continued support from the providers, development and
delivery of our planned software releases could be delayed until functionally
equivalent software could be obtained or developed and integrated into our
products. Such a possibility could have a material adverse effect on our
business.
We are actively seeking to expand our market reach to include a number of
countries outside North America. The laws of many countries do not honor the
protections of proprietary rights that are available in the United States.
Litigation to protect intellectual property rights outside the United States
could be very expensive and have uncertain results. Such litigation, whether or
not successful is likely to be time-consuming and costly to prosecute, require
the use of substantial management attention and resources and could have a
material adverse effect on our business.
Over the past few years, several software patents have been issued to
companies providing various products and services related to auctions and
dynamic pricing applications. In addition, many patent applications have
reportedly been filed. Certain of those patents issued are currently the subject
of litigation
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in the federal courts. To date, we are not aware of any judicial pronouncements
that would establish precedent in this area. We have not been notified that our
products infringe on the proprietary rights of any third party. With the growth
in the number of Web-based software products and services available from new and
existing companies striving for a competitive advantage, claims of infringement
of the intellectual property rights within this and related industry segments
are expected to rise. Such claims, whether or not they have merit, are likely to
be time-consuming and costly to defend, require the use of substantial
management attention and resources and could result in the need to enter into
royalty or licensing arrangements, which may not be available on acceptable
terms. Our inability to successfully defend a claim of product infringement
coupled with an inability to license the subject technology or to develop
non-infringing technology could have a material adverse effect on our business.
LAW AND GOVERNMENTAL REGULATION
We are subject to various laws and regulations affecting our business.
While there are relatively few laws that actually exist to regulate
Internet-related companies and electronic commerce in general, the sizeable
growth of Internet usage and electronic commerce transactions has prompted many
governmental bodies to commence consideration of legislation in such areas as
pricing, content, data protection, privacy protection, intellectual property
protection, taxation and consumer protection. Enactment of laws or regulations
in these areas could place burdens on us, either directly or as a burden to
electronic commerce in general.
Laws applicable to electronic commerce and Internet communications are
becoming more common. Congress has recently passed legislation concerning
on-line copyright protection and Congress continues to consider laws relating to
Internet taxation. The European Union has recently enacted regulations relating
to on-line privacy protections. These laws and regulations are very recent and
their impact on us and our industry is yet to be determined. This could include
litigation which, whether or not successful, would be likely to be
time-consuming and costly and require the use of substantial management
attention and resources. The application of these laws and regulations and
others that may be enacted affecting the Internet and electronic commerce, could
have a material adverse effect on our business.
EMPLOYEES
As of April 30, 1999, we had 68 full-time employees, of which 25 were in
product development, 23 in sales and marketing, 10 in administration and 10 in
other departments. None of our employees are covered by a collective bargaining
agreement. We consider our relations with our employees to be good.
FACILITIES
Our principal administrative, sales, marketing, support and research and
development facility is located in approximately 5,463 square feet of office
space in Durham, North Carolina. We lease this facility. In July 1999, we will
relocate to new facilities containing approximately 24,000 square feet in
Durham, North Carolina. We believe the new facilities will be adequate for our
current requirements and will meet future growth needs.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kip A. Frey.................................. 40 President and Chief Executive Officer
Douglas B. Kubel............................. 41 Senior Vice President, Technology
Roger R. Edgar............................... 35 Vice President, Business Development
Vice President, Finance and Chief Operating
James R. Ford................................ 45 Officer
Thomas F. Hanlon, III........................ 35 Vice President, Sales
Grace Ueng Trombetta......................... 33 Vice President, Marketing
Richard E. Widin............................. 43 Vice President, Business Affairs
Justin Hall-Tipping (1)...................... 42 Director
Roger Hurwitz (2)............................ 34 Director
Mark Jauquet................................. 32 Director
Ross B. Kenzie (1)........................... 67 Director
Mitchell M. Mumma (2)........................ 39 Director
Alan J. Taetle (1)........................... 35 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Kip A. Frey has served as our President since August 1998 and Chief
Executive Officer since March 1999. From January 1998 to June 1998, Mr. Frey
served as President of Accipiter which was acquired by CMGI in April 1998. From
June 1994 to December 1997, Mr. Frey was Executive Vice President of Ventana
Communications Group, a division of International Thomson Publishing. Prior to
that, Mr. Frey held various executive and legal positions at Turner Broadcasting
System and practiced law with Parker, Poe, Adams & Bernstein. Mr. Frey is a
Visiting Lecturer at Duke University's Sanford Institute for Public Policy
Studies and received a J.D. from Duke University and an A.B. from the University
of Southern California.
Douglas B. Kubel has served as our Senior Vice President, Technology since
April 1999. From October 1994 to March 1999, Mr. Kubel served as Vice President,
Engineering and Technology at Interactive Magic. From September 1987 to
September 1994, Mr. Kubel served as a Senior Manager for Sun Microsystems. Mr.
Kubel has completed the Program for Technology Managers at the University of
North Carolina at Chapel Hill's Kenan-Flagler School of Business and received a
B.S. in Electrical Engineering from North Carolina State University.
Roger R. Edgar has served as our Vice President, Business Development since
March 1999 and as our Director of Business Development from September 1998 to
March 1999. From January 1998 to September 1998, Mr. Edgar served as Director of
Business Development at Accipiter. From December 1995 to December 1997, Mr.
Edgar was Product Manager and Business Development Manager at HAHT Software. Mr.
Edgar received an M.B.A. from Duke University and a B.S. in Finance from Babson
College.
James R. Ford has served as our Vice President, Finance and Chief Operating
Officer since October 1998. From January 1998 to October 1998, Mr. Ford served
as the Controller for Research and Development of the Mobile Phones and
Terminals division at Ericsson. From December 1991 to January 1998, Mr. Ford
served as Chief Financial Officer for Ventana Communications. Mr. Ford received
an M.B.A. from Florida State University and a B.S. in Accounting and Finance
from Gardner-Webb College.
Thomas F. Hanlon, III has served as our Vice President, Sales since March
1999 and as our Director of Sales from May 1998 to March 1999. From January 1995
to April 1998, Mr. Hanlon served as Regional District Manager at Ultimate
Software Group. From November 1989 to December 1994, Mr. Hanlon served as
Regional Sales Manager for ADP. Mr. Hanlon received a B.S. in Business
Management with a concentration in Finance at the State University of New York
at Buffalo.
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Grace Ueng Trombetta has served as our Vice President, Marketing since
March 1999. From October 1998 to March 1999, Ms. Trombetta served as our
Director of Marketing. From October 1996 to September 1998, Ms. Trombetta served
as Director of Business Development for Interactive Magic. From September 1994
to September 1996, Ms. Trombetta served as Product Line Manager for The Learning
Company. Ms. Trombetta received an M.B.A. from Harvard Business School and a
B.S. in Management Science from Massachusetts Institute of Technology.
Richard E. Widin has served as our Vice President, Business Affairs since
March 1999. From March 1997 to March 1999, Mr. Widin served as Vice President
and Director at A.M. Pappas & Associates. From May 1995 to October 1996, Mr.
Widin served as Senior Vice President, Planning and Administration for Imonics.
Prior to that, Mr. Widin held various positions with CSX, General Electric and
White & Case. Mr. Widin received a Master of Laws in Taxation from Georgetown
University and both a J.D. and a B.S. in Accounting from Villanova University.
Justin Hall-Tipping has served as a director of OpenSite since March 1999.
Mr. Hall-Tipping is Managing Director of SG Capital Partners LLC. From 1995 to
1997, Mr. Hall-Tipping served as Director of the Data Intelligence Group for
Reuters plc. From 1992 to 1995, Mr. Hall-Tipping founded and served as CEO of
Heartbeat Corp. Mr. Hall-Tipping received an M.B.A. from Harvard Business School
and a B.Sc. in International Finance and Banking from City University, London.
Roger Hurwitz has served as a director of OpenSite since March 1999. Mr.
Hurwitz has been a Vice President of GE Capital -- Equity Capital Group since
March 1996. From July 1995 to March 1996, Mr. Hurwitz served in the Corporate
Finance Department of Chase Manhattan Bank. Mr. Hurwitz currently serves as a
director of Ironside Technologies, Inc. Mr. Hurwitz received an M.B.A. from the
Wharton School at the University of Pennsylvania and a B.S. in Accounting from
Syracuse University.
Mark Jauquet, co-founder of OpenSite, has served as a director of OpenSite
from our inception until March 1999 and from May 1999 to the present. Mr.
Jauquet has served as our Chief Scientist since May 1999 and as our Vice
President, Technology from May 1997 to April 1999. From October 1996 to May
1997, Mr. Jauquet served as an analyst for Health Care Plan. From August 1994 to
June 1996, Mr. Jauquet served as an analyst for Fonorola. Mr. Jauquet received a
B.S. from Lafayette College.
Ross B. Kenzie has served as a director of OpenSite since January 1998.
Prior to his retirement in 1989, Mr. Kenzie served as the Chairman of the Board
and Chief Executive Officer of Goldome, a publicly-held banking corporation.
Prior to joining Goldome in 1957, Mr. Kenzie served as Executive Vice President
and Director of Merrill Lynch & Co. and Merrill, Lynch, Pierce, Fenner & Smith.
Mr. Kenzie currently serves as a director of Rand Capital Corporation, a
publicly-held venture capital company and as a Manager of Auction Ventures, LLC.
Mr. Kenzie received a degree from the United States Military Academy at West
Point, New York.
Mitchell M. Mumma has served as a director of OpenSite since August 1998.
Mr. Mumma has served as a General Partner of Intersouth Partners since August
1989 and as a director for numerous other companies. Prior to that, Mr. Mumma
held various management positions with technology companies. Mr. Mumma received
a B.S. in Management Science from Duke University.
Alan J. Taetle has served as a director of OpenSite since August 1998. Mr.
Taetle has been a General Partner with Noro-Moseley Partners since May 1998.
From March 1995 to April 1998, Mr. Taetle was Executive Vice President of
Marketing and Business Development for MindSpring Enterprises. From November
1992 to March 1995, Mr. Taetle served as Director of Operations and Product
Management at CogniTech Corporation, Mr. Taetle received an M.B.A. from Harvard
Business School and a B.A. in Economics from the University of Michigan.
There are no family relationships between any of the directors or executive
officers of OpenSite.
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COMMITTEES OF THE BOARD OF DIRECTORS
The members of the Audit Committee are Messrs. Hurwitz and Mumma. The Audit
Committee reviews the scope and timing of our audit services, the auditor's
report on our financial statements following completion of their audit and their
policies and procedures with respect to internal accounting and financial
control and any other services our independent auditors are asked to perform. In
addition, the Audit Committee makes annual recommendations to the board of
directors for the appointment of independent auditors for the following year.
The members of the Compensation Committee are Messrs. Kenzie (Chairman),
Hall-Tipping, and Taetle. The Compensation Committee reviews and evaluates the
compensation and benefits of all our officers, reviews general policy matters
relating to compensation and benefits of our employees and makes recommendations
concerning these matters to the board of directors. The Compensation Committee
also administers our stock option plans.
COMPENSATION OF DIRECTORS
Our directors currently do not receive any compensation for services
performed in their capacity as directors. We reimburse each director for
reasonable out-of-pocket expenses incurred in attending meetings of the board of
directors and any of its committees.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid by OpenSite
during 1998 for our Chief Executive Officer. No other executive officer was paid
total annual salary and bonuses determined in excess of $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- ------- ------- ------------
<S> <C> <C> <C>
Michael Brader-Araje (1)
Chief Executive Officer................................... $69,308 $10,000 $2,379
</TABLE>
- ------------------------------
(1) Mr. Brader-Araje, OpenSite's founder, served as our Chief Executive Officer
until March 1999.
Stock Option Plan. Our stock option plan became effective as of July 10,
1998. The aggregate number of shares reserved for issuance under the Stock
Option Plan is 3,500,000 shares. The purpose of the stock option plan is to
provide incentives for key employees, officers, consultants and directors to
promote our success and to enhance our ability to attract and retain the
services of such persons. Options granted under the stock option plan may be
either options intended to qualify as "incentive stock options" under Section
422 of the Code or nonqualified stock options.
As of May 28, 1999, 740,000 shares of common stock had been issued under
the stock option plan and options to purchase 1,181,500 shares of common stock
were outstanding under the stock option plan at a weighted average exercise
price of $1.58 per share.
401(k) Profit Sharing Plan. OpenSite maintains a 401(k) Profit Sharing
Plan which is intended to be a tax-qualified defined contribution plan under
Section 401(k) of the Code. In general, all employees of OpenSite are eligible
to participate. The 401(k) Plan includes a salary deferral arrangement pursuant
to which participants may contribute, subject to certain Code limitations, a
maximum of 15% of their first $66,666 in salary on a pre-tax basis. Subject to
certain Code limitations, OpenSite may make a matching contribution at a rate of
100% of the participant's contributions, up to 3% of the participant's salary. A
separate account is maintained for each participant in the 401(k) Plan. The
portion of a participant's account attributable to his or her own contributions
is 100% vested. The portion of the account attributable to OpenSite
contributions is
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<PAGE> 51
100% vested. Distributions from the 401(k) Plan may be made in the form of a
lump-sum cash payment or in installment payments.
EMPLOYMENT AGREEMENTS
Effective as of August 10, 1998, OpenSite and Kip A. Frey entered into an
Executive Employment Agreement pursuant to which Mr. Frey serves as the
President and as a member of the board of directors of OpenSite. Mr. Frey was
subsequently appointed as Chief Executive Officer. The agreement provides for an
annual salary of $150,000 and a bonus plan with a targeted bonus amount of
$50,000. The initial term of this agreement expires on December 31, 2002, and
unless terminated, the agreement will renew on an annual basis thereafter. If we
terminate Mr. Frey's employment without cause, Mr. Frey will be entitled to
receive his then current base salary, benefits and pro rata bonus for six months
after termination. If we constructively terminate Mr. Frey's employment, Mr.
Frey will be entitled to receive his then current salary, benefits and pro rata
bonus for 12 months after termination. If Mr. Frey terminates his employment for
good reason, he will be entitled to receive his then current base salary,
benefits and pro rata bonus for three months after termination. The agreement
contains provisions restricting Mr. Frey from competing with our business or
soliciting our customers during his employment and for a period of one year
thereafter.
CERTAIN TRANSACTIONS
In August 1998, OpenSite loaned Mr. Frey $65,000, which he used to purchase
shares of our common stock. This loan bears interest at a rate of 6 1/2% per
annum and is repayable on December 31, 2002. As of May 28, 1999, the total
principal and accrued interest under this loan was approximately $68,000.
In March 1999, OpenSite loaned Mr. Frey $300,000. This loan bears interest
at the rate of 6% per annum and is repayable upon the earlier of the termination
of Mr. Frey's employment with OpenSite or December 31, 2002. As of May 28, 1999,
the total principal and accrued interest under this loan was approximately
$303,000. Mr. Frey pledged his shares of common stock of OpenSite to secure this
loan.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of the date of this prospectus and as adjusted
to reflect the sale by OpenSite of common stock in this offering by: (1) each
director of OpenSite; (2) all executive officers and directors of OpenSite as a
group; and (3) all those known by OpenSite to be beneficial owners of more than
five percent of the outstanding shares of common stock. Unless otherwise set
forth herein, the street address of the named beneficial owner is 5315 Highgate
Drive, Suite 102, Durham, North Carolina 27713.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING(1) OFFERING
------------------------- --------------------
NAME SHARES PERCENT SHARES PERCENT
---- ----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Noro-Moseley Partners IV, L.P........................... 4,000,000(2) 14.3 %
9 North Parkway Square
4200 Northside Parkway, NW
Atlanta, Georgia 30327
Auction Ventures, LLC................................... 3,243,681 11.6
369 Franklin Street
Buffalo, New York 14202
SGC Partners I LLC...................................... 3,125,000(3) 11.2
1221 Avenue of the Americas
New York, New York 10020
Michael Brader-Araje.................................... 2,839,312 10.2
Mark Jauquet............................................ 2,839,312 10.2
GE Capital Equity Investments, Inc...................... 2,500,000(4) 9.0
260 Long Ridge Road
Stamford, Connecticut 06927
Intersouth Partners IV, L.L.C........................... 2,437,500 8.7
One Copley Parkway, Suite 102
Morrisville, North Carolina 27713
Southeast Interactive Technology Fund II, LLC........... 1,875,000 6.7
2525 Meridian Parkway, Suite 300
Durham, North Carolina 27713
Wakefield Group, II, LLC................................ 1,562,500 5.6
1110 East Morehead Street
Charlotte, North Carolina 28204
CNET, Inc............................................... 1,500,000 5.4
150 Chestnut Street
San Francisco, California 94111
Kip A. Frey............................................. 650,000 2.3
Justin Hall-Tipping..................................... -- --
Roger Hurwitz........................................... -- --
Ross B. Kenzie.......................................... --(5) --
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING(1) OFFERING
------------------------- --------------------
NAME SHARES PERCENT SHARES PERCENT
---- ----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Mitchell M. Mumma....................................... --(6) --
Alan J. Taetle.......................................... --(7) --
All directors and executive officers as a group (13
persons)(2)(3)(4)(5)(6)............................... 6,328,624 22.7
</TABLE>
- ------------------------------
* Less than one percent.
(1) For purposes of calculating the percentage beneficially owned, the number of
shares of common stock deemed outstanding prior to this offering consists of
27,888,351 shares outstanding as of May 15, 1999. The number of shares of
common stock deemed outstanding after this offering includes an additional
shares that are being offered for sale by OpenSite in this
offering. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission that deem shares to be beneficially
owned by any person or group who has or shares voting or investment power
with respect to such shares.
(2) Includes shares owned by Noro-Moseley Partners IV-B, L.P., a related entity.
(3) SGC Partners I LLC is a wholly owned subsidiary of SG Merchant Banking Fund
L.P. The general partner of SG Merchant Banking Fund L.P. is SG Capital
Partners L.L.C. SG Cowen Securities Corporation, a wholly owned subsidiary
of Societe Generale, is the managing member of SG Capital Partners L.L.C. As
a result of these relationships, SG Merchant Banking Fund L.P., SG Capital
Partners L.L.C., SG Cowen Securities Corporation and Societe Generale may
each be deemed to share beneficial ownership of these shares. Each of these
entities disclaims such beneficial ownership.
(4) Does not include shares owned by GE Capital Equity Investments, Inc., ("GE
Equity"), a wholly-owned subsidiary of General Electric Capital Corporation
("GECC"). GE Equity shares beneficial ownership with GECC with respect to
all of such shares held of record by GE Equity.
(5) Does not include shares owned by Auction Ventures, LLC, of which Mr. Kenzie
serves as Manager. Mr. Kenzie may be deemed a beneficial owner of such
shares. Mr. Kenzie disclaims such beneficial ownership.
(6) Does not include shares owned by Intersouth Partners IV, L.L.C., of which
Mr. Mumma is a General Partner. Mr. Mumma may be deemed a beneficial owner
of such shares. Mr. Mumma disclaims such beneficial ownership.
(7) Does not include shares owned by Noro-Moseley Partners IV, L.P., of which
Mr. Taetle is a General Partner. Mr. Taetle may be deemed a beneficial owner
of such shares. Mr. Taetle disclaims such beneficial ownership.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of (1) shares of common
stock, $.01 par value per share, and (2) shares of preferred stock,
$.01 par value per share. As of May 15, 1999, we had issued and outstanding
27,888,351 shares of common stock. The following description of our capital
stock is a summary and is qualified in its entirety by the provisions of our
certificate of incorporation and bylaws, copies of which have been filed as
exhibits to the registration statement of which this prospectus is a part.
COMMON STOCK
Holders of shares of our common stock are entitled to one vote per share
for the election of directors and all matters to be submitted to a vote of our
stockholders. Subject to the rights of any holders of preferred stock which may
be issued in the future, the holders of shares of our common stock are entitled
to share ratably in such dividends as may be declared and paid out of legally
available funds. In the event of dissolution, liquidation or winding up of
OpenSite, holders of our shares of common stock are entitled to share ratably in
all assets remaining after payment of all liabilities and liquidation
preferences, if any. Holders of shares of our common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of our
common stock are, and the shares of common stock to be issued in this offering
will be, duly authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series,
including the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designations of such series. The issuance of our preferred stock may have the
effect of delaying, deferring or preventing a change of control of OpenSite.
There are no outstanding shares of preferred stock and no series have been
designated.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our bylaws provide that,
except as otherwise required by law, special meetings of the stockholders can
only be called by the board of directors or our Chief Executive Officer. In
addition, our bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders, including
proposed nominations of persons for election to the board. Stockholders at an
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
board of directors or by a stockholder who was a stockholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who has
delivered timely written notice in proper form to our Secretary of the
stockholder's intention to bring such business before the meeting.
These provisions of our bylaws are intended to discourage certain types of
transactions which may involve an actual or threatened change of control of
OpenSite. Such provisions are designed to reduce the vulnerability of OpenSite
to an unsolicited acquisition proposal and, accordingly, could discourage
potential acquisition proposals and could delay or prevent a change in control
of OpenSite. Such provisions are also intended to discourage certain tactics
that may be used in proxy fights but could, however, have the effect of
discouraging others from making tender offers for our shares and, consequently,
may also inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts. These provisions may also have
the effect of preventing changes in the management of OpenSite.
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<PAGE> 55
EFFECT OF DELAWARE ANTITAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law, or
the Antitakeover Law, which regulates corporate acquisitions. The Antitakeover
Law prevents certain Delaware corporations, including those whose securities are
listed for trading on the Nasdaq National Market, from engaging under certain
circumstances in a "business combination" with any "interested stockholder" for
three years following the date that such stockholder became an interested
stockholder. For purposes of the Antitakeover Law, a "business combination"
includes, among other things, a merger or consolidation involving OpenSite and
the interested stockholder and the sale of more than 10% of OpenSite's assets.
In general, the Antitakeover Law defines an "interested stockholder" as any
entity or person beneficially owning 15% or more the outstanding voting stock of
OpenSite and any entity or person affiliated with or controlling or controlled
by such entity or person. A Delaware corporation may opt out of the Antitakeover
Law with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the corporation's
outstanding voting shares. We have not opted out of the provisions of the
Antitakeover Law.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our bylaws and Section 145 of the Delaware General Corporation Law require
us to indemnify:
- a director who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which such director was a party because such
director was a director of OpenSite against reasonable expenses incurred
by the director in connection with the proceeding; and
- an individual who is made a party to a proceeding because such individual
is or was a director or officer of OpenSite against liability incurred by
such individual in the proceeding if the individual acted in a manner
believed in good faith to be in or not opposed to the best interests of
OpenSite and, in the case of any criminal proceeding, such individual had
no reasonable cause to believe such individual's conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or other persons
controlling us pursuant to the foregoing provisions, we recognize 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.
LIMITATIONS OF DIRECTOR LIABILITY
Our certificate of incorporation limits personal liability for breach of
the fiduciary duty of our directors to the fullest extent provided by the
Delaware General Corporation Law. Such provisions provide that no OpenSite
director shall have personal liability to OpenSite or to its stockholders for
monetary damages for breach of fiduciary duty of care or other duty as a
director. However, such provisions shall not eliminate or limit the liability of
a director:
- for any breach of the director's duty of loyalty to OpenSite or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for voting or assenting to unlawful distributions; or
- for any transaction from which the director derived an improper personal
benefit.
Any amendment, modification or repeal of such provisions will not eliminate
or reduce the effect of such provisions in respect of any act or failure to act,
or any cause of action, suit or claim that would accrue or arise prior to any
amendment, repeal or adoption of such an inconsistent provision. If the Delaware
General Corporation Law is subsequently amended to provide for further
limitations on the personal liability of directors of corporations for breach of
duty of care or other duty as a director, then the personal liability of the
directors of OpenSite will be so further limited to the greatest extent
permitted by the Delaware General Corporation Law.
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<PAGE> 56
REGISTRATION RIGHTS
We have granted registration rights to some of our existing stockholders
covering 20,243,681 shares of our common stock. Subject to specified
limitations, approximately six months after the date of this prospectus, holders
of these securities may require that we register all or part of these securities
for sale under the Securities Act as long as the offering value of the
securities to be registered on any occasion is in excess of $20,000,000. Until
we are entitled to register our shares on Form S-3 (a short form registration
statement), these holders may only make four such demands. Once we are entitled
to use Form S-3, which may be as early as , these holders may
make such demands on an unlimited number of occasions.
If we register any of our common stock, either for our own account or for
the account of other security holders, and the registration form to be used may
be used for the registration of the securities of the holders described above,
the holders are entitled to include their shares of common stock in the
registration. All of these holders have waived their rights to register
securities in connection with this offering.
In all cases, a holder's right to include shares in a registration is
subject: (1) a registration priority arrangement and (2) in an underwritten
registration, to the ability of the underwriters to limit the number of shares
included in the offering. All fees, costs and expenses of all of the
registrations will be paid by us, and all selling expenses (e.g. underwriting
discounts, selling commissions and stock transfer taxes) will be paid by the
holders of the securities being registered.
LISTING
We intend to apply for trading and quotation of our common stock on the
Nasdaq National Market under the trading symbol "OPNS."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is BankBoston, N.A.
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<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
this offering, or the perception that such shares may occur, could materially
and adversely affect prevailing market prices of our common stock and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the shares sold in this offering will be freely tradable without
restriction or registration under the Securities Act, unless such shares are
purchased by our affiliates. The remaining 27,888,351 shares of our common stock
are held by existing stockholders. Such shares, as well as any shares sold in
this offering that are purchased by one of our affiliates, are restricted
securities that may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144 or 701 promulgated
under the Securities Act, which rules are summarized below.
As a result of the lock-up agreements described below and the provisions of
Rule 144 and 701, the restricted securities will be available for sale in the
public market as follows:
- 15,888,351 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of the lock-up agreements; and
- 12,000,000 shares may be eligible for sale in accordance with the
requirements of Rule 144 beginning on March 30, 2000.
LOCK-UP AGREEMENTS. All of our officers and directors and most of our
stockholders and option holders have signed lock-up agreements under which they
have agreed that for a period 180 days following the date of this prospectus,
without the prior written consent of SG Cowen Securities Corporation, they will
not
- directly or indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise dispose of, other than by operation of law,
any shares of our common stock or any securities convertible into or
exercisable or exchangeable for our common stock (including, without
limitation, common stock which may be deemed to be beneficially owned in
accordance with the rules and regulations promulgated under the
Securities Act); or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of our
common stock whether any such transaction described above is to be
settled by delivery of common stock or such other securities, in cash or
otherwise.
RULE 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person (including an affiliate of
ours) who has beneficially owned shares of our common stock for at least one
year would be entitled to sell within any three-month period a number of
restricted securities that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding such sale.
Such sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than one of our
affiliates, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock or option plan
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<PAGE> 58
or other written agreement is eligible to resell such shares 90 days after the
date of this prospectus in reliance on Rule 144, but without compliance with
certain restrictions. Specifically, shares acquired pursuant to Rule 701 may be
sold by nonaffiliates without regard to the holding period, volume limitations
or information or notice requirements of Rule 144, and by our affiliates without
regard to the holding period requirement.
REGISTRATION RIGHTS. Upon completion of this offering, the holders of
10,121,841 shares of our common stock, or their transferees, will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock -- Registration Rights." After
such a registration, these shares become freely tradable without restriction
under the Securities Act.
STOCK OPTIONS. As of , 1999, options to purchase an aggregate
of shares of our common stock were fully vested. Of the total
shares issuable pursuant to these vested options, are subject to
the 180-day lock-up agreements described above. As of , 1999,
options to purchase an additional shares of common stock were
outstanding but subject to future vesting and an additional
shares of common stock were available for future grants under our stock option
plan.
Following this offering, we intend to file one or more registration
statements on Form S-8 under the Securities Act to register all shares of common
stock subject to outstanding stock options and options issuable pursuant to our
stock option plan. Subject to the lock-up agreements, shares covered by these
registration statements will be eligible for sale in the public markets, other
than shares owned by our affiliates, which may be sold in the public market if
they qualify for an exemption from registration under Rule 144 or 701.
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<PAGE> 59
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, dated
, 1999, the underwriters named below, through their representatives,
SG Cowen Securities Corporation, SoundView Technology Group, Inc. and Wachovia
Securities, Inc., have severally agreed to purchase from us the number of shares
of common stock set forth opposite their names at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
SG Cowen Securities Corporation.............................
SoundView Technology Group, Inc.............................
Wachovia Securities, Inc....................................
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets and may also be
terminated upon the occurrence of the events specified in the underwriting
agreement. The underwriters are severally committed to purchasing all of the
common stock being offered by us if any shares are purchased (other than those
covered by the over-allotment option described below).
The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
shares of the common stock are released for sale to the public, the underwriters
may vary the offering price and other selling terms from time to time.
We have granted to the underwriters an option, exercisable for up to 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price set forth on the cover of
this prospectus to cover over-allotments, if any. If the underwriters exercise
their over-allotment option, the underwriters have severally agreed, subject to
certain conditions, to purchase shares in approximately the same proportion of
shares in the table above.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect of those liabilities.
OpenSite, all of our directors and officers and most of our existing
stockholders, who hold an aggregate of shares, together with the holders
of options to purchase shares of our common stock, have agreed with the
underwriters that for a period of 180 days following the date of this
prospectus, without the prior written consent of SG Cowen Securities
Corporation, they will not: (1) directly or indirectly, offer, sell, assign,
transfer, encumber, pledge, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise dispose of, other than by operation of
law, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock (including, without limitation,
common stock which may be deemed to be beneficially owned in accordance with the
rules and regulations promulgated under the Securities Act); or (2) enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of common stock whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate
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<PAGE> 60
member when the common stock originally sold by such syndicate member is
purchased in a syndicate covering transaction to cover syndicate short
positions. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain limitations,
make bids for or purchases of the common stock until the time, if any, at which
a stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price was determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations were prevailing market conditions, the market capitalization
and the stages of development of other companies that we and the underwriters
believe to be comparable to us, estimates of our business potential, our results
of operation in recent periods, the present state of our development and other
factors deemed relevant.
SG Cowen Securities Corporation is an underwriter in this offering. It is
also an affiliate of SGC Partners I LLC which currently owns 11.2% of our common
stock. In addition, Justin Hall-Tipping, a director of OpenSite, is a Managing
Director of SG Cowen Securities Corporation. As a result of the foregoing, this
offering is subject to the provisions of Rule 2720 of the Conduct Rules of the
National Association of Securities Dealers, Inc. Accordingly, the underwriting
terms for this offering conform to the requirements set forth in Rule 2720. In
particular, the price at which our common stock is to be distributed to the
public must be at a price no higher than that recommended by a "qualified
independent underwriter" who has also participated in the preparation of this
prospectus and the registration statement of which this prospectus is a part and
who meets certain standards. In accordance with this requirement,
will serve in such role and will recommend the public offering
price in compliance with the requirements of Rule 2720. , in its
role as qualified independent underwriter, has performed the due diligence
investigations and reviewed and participated in the preparation of this
prospectus and the registration statement of which this prospectus is a part.
We estimate that our out-of-pocket expenses for this offering will be
approximately $ .
LEGAL MATTERS
The validity of the issuance of the shares of the common stock to be sold
in this offering will be passed upon for OpenSite by Morris, Manning & Martin,
L.L.P., Atlanta, Georgia, and Hutchison & Mason, PLLC, Raleigh, North Carolina.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The financial statements of OpenSite as of December 31, 1997 and 1998 and
for the period from inception (July 24, 1996) to December 31, 1996 and the years
ended December 31, 1997 and 1998 included in this prospectus 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered by this prospectus. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
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<PAGE> 61
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Exchange Act and, in accordance
therewith, will file periodic reports, proxy and information statements and
other information with the SEC. These periodic reports, proxy and information
statements and other information will be available for inspection and copying at
the public reference facilities, regional offices and SEC's Web site referred to
above.
58
<PAGE> 62
OPENSITE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1997 and 1998, and March
31, 1999.................................................. F-3
Statements of Operations for the period from inception (July
24, 1996) to December 31, 1996, the years ended December
31, 1997 and 1998, and the three months ended March 31,
1998 and 1999............................................. F-4
Statements of Stockholders' Equity (Deficit) for the period
from inception (July 24, 1996) to December 31, 1996, the
years ended December 31, 1997 and 1998, and the three
months ended March 31, 1999............................... F-5
Statements of Cash Flows for the period from inception (July
24, 1996) to December 31, 1996, the years ended December
31, 1997 and 1998, and the three months ended March 31,
1998 and 1999............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
OpenSite Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of OpenSite
Technologies, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from inception (July 24, 1996) to
December 31, 1996 and the years ended December 31, 1997 and 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
May 25, 1999
F-2
<PAGE> 64
OPENSITE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $151,345 $2,276,031 $18,538,549 $18,538,549
Accounts receivable, net....................... 23,713 303,312 508,647 508,647
Prepaid expenses............................... -- 61,591 173,364 173,364
-------- ---------- ----------- -----------
Total current assets.................... 175,058 2,640,934 19,220,560 19,220,560
-------- ---------- ----------- -----------
Property and equipment, net...................... 33,538 417,723 408,484 408,484
Note receivable from officer..................... -- -- 300,000 300,000
Other assets..................................... 1,838 11,032 10,740 10,740
-------- ---------- ----------- -----------
Total assets............................ $210,434 $3,069,689 $19,939,784 $19,939,784
======== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................... $ 19,502 $ 75,542 $ 77,339 $ 77,339
Accrued expenses............................... 3,000 342,834 957,531 957,531
Deferred revenue............................... -- 354,802 719,865 719,865
Taxes other than income........................ 11,571 66,005 -- --
Capital lease obligations -- current portion... -- 22,155 22,155 22,155
-------- ---------- ----------- -----------
Total current liabilities............... 34,073 861,338 1,776,890 1,776,890
Note payable..................................... 17,000 -- -- --
Capital lease obligations -- noncurrent
portion........................................ -- 42,765 37,540 37,540
Redeemable common stock warrants................. -- 54,221 -- --
Mandatorily redeemable convertible preferred
stock.......................................... -- 4,817,892 33,719,442 --
Commitments and contingencies (Note 11)
Stockholders' equity (deficit):
Common stock, $.01 par value, 40,000,000 shares
authorized; issued and outstanding:
8,350,876, 9,090,876 and 9,090,876 shares at
December 31, 1997 and 1998, and March 31,
1999, respectively; 28,084,557 shares pro
forma........................................ 83,509 90,909 90,909 280,846
Additional paid-in capital..................... 21,649 -- -- 33,529,505
Deferred compensation.......................... -- -- (115,482) (115,482)
Treasury stock................................. -- -- (2,795,274) (2,795,274)
Retained earnings (accumulated deficit)........ 54,203 (2,718,936) (12,695,741) (12,695,741)
Notes receivable from stockholders............. -- (78,500) (78,500) (78,500)
-------- ---------- ----------- -----------
Total stockholders' equity (deficit).... 159,361 (2,706,527) (15,594,088) 18,125,354
-------- ---------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)...................... $210,434 $3,069,689 $19,939,784 $19,939,784
======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 65
OPENSITE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM INCEPTION
(JULY 24,
1996) TO YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
DECEMBER 31, --------------------------- -----------------------------
1996 1997 1998 1998 1999
-------------- ------------ ------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses............ $ 11,600 $177,234 $ 1,072,152 $ 178,341 $ 920,628
Services and other........... 863 162,469 208,393 38,329 129,044
---------- -------- ----------- ---------- ------------
Total revenue......... 12,463 339,703 1,280,545 216,670 1,049,672
---------- -------- ----------- ---------- ------------
Cost and operating expense:
Cost of software licenses.... -- 9,000 17,550 2,850 8,184
Cost of services and other... 1,209 19,010 130,939 4,515 157,762
Sales and marketing.......... -- 43,541 1,917,745 62,560 1,052,340
Product development.......... -- 105,054 695,282 55,907 533,626
General and administrative... 11,714 35,607 922,689 96,770 809,689
---------- -------- ----------- ---------- ------------
Total operating
expense............. 12,923 212,212 3,684,205 222,602 2,561,601
---------- -------- ----------- ---------- ------------
Operating income
(loss).............. (460) 127,491 (2,403,660) (5,932) (1,511,929)
---------- -------- ----------- ---------- ------------
Interest income (expense):
Interest income.............. 2 2,336 48,362 4,818 20,542
Interest expense............. (8) -- (5,419) -- (2,419)
---------- -------- ----------- ---------- ------------
Interest income
(expense), net........ (6) 2,336 42,943 4,818 18,123
---------- -------- ----------- ---------- ------------
Net income (loss)..... (466) 129,827 (2,360,717) (1,114) (1,493,806)
Distributions to preferred
stockholders................. -- -- (39,457) -- --
Accretion of preferred stock... -- -- (324,661) -- (8,924,186)
---------- -------- ----------- ---------- ------------
Net income (loss)
available to common
stockholders........ $ (466) $129,827 $(2,724,835) $ (1,114) $(10,417,992)
========== ======== =========== ========== ============
Net income (loss) per common
share-basic and diluted...... $ 0.00 $ 0.02 $ (0.32) $ 0.00 $ (1.15)
========== ======== =========== ========== ============
Weighted average shares used in
basic and diluted net income
(loss) per common share
calculation.................. 7,515,788 8,142,676 8,622,739 8,350,876 9,090,876
========== ========= =========== ========== ============
Pro forma per common share data
(unaudited):
Pro forma net loss per common
share-basic and diluted.... $ (0.16) $ (0.08)
----------- ------------
Pro forma weighted average
basic and diluted shares
outstanding................ 14,460,230 18,375,407
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 66
OPENSITE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES RETAINED
COMMON STOCK ADDITIONAL RECEIVABLE EARNINGS
--------------------- PAID-IN DEFERRED FROM TREASURY (ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS STOCK DEFICIT)
---------- -------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception
(July 24, 1996)........ 7,515,788 $ 75,158 $ -- $ -- $ -- $ -- $ (75,158)
Net loss for the period
from inception (July
24, 1996) to December
31, 1996............. -- -- -- -- -- -- (466)
---------- -------- --------- --------- -------- ----------- ------------
Balance at December 31,
1996................... 7,515,788 75,158 -- -- -- -- (75,624)
Issuance of common
stock................ 835,088 8,351 21,649 -- -- -- --
Net income............. -- -- -- -- -- -- 129,827
---------- -------- --------- --------- -------- ----------- ------------
Balance at December 31,
1997................... 8,350,876 83,509 21,649 -- -- -- 54,203
Dividends paid to S
corporation
stockholders......... -- -- -- -- -- -- (141,053)
Distribution to Series
A preferred
stockholders......... -- -- -- -- -- -- (39,457)
Issuance of common
stock................ 740,000 7,400 71,100 -- (78,500) -- --
Accretion of
mandatorily
redeemable
convertible preferred
stock................ -- -- (92,749) -- -- -- (231,912)
Net loss............... -- -- -- -- -- -- (2,360,717)
---------- -------- --------- --------- -------- ----------- ------------
Balance at December 31,
1998................... 9,090,876 90,909 -- -- (78,500) -- (2,718,936)
Deferred compensation
related to grant of
stock options
(unaudited).......... -- -- 118,450 (118,450) -- -- --
Amortization of
deferred compensation
(unaudited).......... -- -- -- 2,968 -- -- --
Repurchase of common
stock (unaudited).... -- -- -- (2,795,274)
Termination of put
provision of
redeemable common
stock warrants
(unaudited).......... -- -- 322,737 -- -- -- --
Accretion of
mandatorily
redeemable
convertible preferred
stock (unaudited).... -- -- (441,187) -- -- -- (8,482,999)
Net loss (unaudited)... -- -- -- -- -- -- (1,493,806)
---------- -------- --------- --------- -------- ----------- ------------
Balance at March 31, 1999
(unaudited)............ 9,090,876 $ 90,909 $ -- $(115,482) $(78,500) $(2,795,274) $(12,695,741)
========== ======== ========= ========= ======== =========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at inception
(July 24, 1996)........ $ --
Net loss for the period
from inception (July
24, 1996) to December
31, 1996............. (466)
------------
Balance at December 31,
1996................... (466)
Issuance of common
stock................ 30,000
Net income............. 129,827
------------
Balance at December 31,
1997................... 159,361
Dividends paid to S
corporation
stockholders......... (141,053)
Distribution to Series
A preferred
stockholders......... (39,457)
Issuance of common
stock................ --
Accretion of
mandatorily
redeemable
convertible preferred
stock................ (324,661)
Net loss............... (2,360,717)
------------
Balance at December 31,
1998................... (2,706,527)
Deferred compensation
related to grant of
stock options
(unaudited).......... --
Amortization of
deferred compensation
(unaudited).......... 2,968
Repurchase of common
stock (unaudited).... (2,795,274)
Termination of put
provision of
redeemable common
stock warrants
(unaudited).......... 322,737
Accretion of
mandatorily
redeemable
convertible preferred
stock (unaudited).... (8,924,186)
Net loss (unaudited)... (1,493,806)
------------
Balance at March 31, 1999
(unaudited)............ $(15,594,088)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 67
OPENSITE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION THREE MONTHS ENDED
(JULY 24, 1996) YEAR ENDED DECEMBER 31, MARCH 31,
TO DECEMBER 31, ----------------------- -------------------------
1996 1997 1998 1998 1999
--------------- -------- ----------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................. $ (466) $129,827 $(2,360,717) $ (1,114) $ (1,493,806)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Bad debt expense................ -- 5,099 164,092 -- 107,490
Depreciation expense............ 80 6,519 78,220 4,218 62,432
Deferred revenue................ -- -- 354,802 34,657 365,063
Non-cash consulting expense..... -- 17,000 54,221 -- 268,516
Amortization of deferred
compensation.................. -- -- -- -- 2,968
Changes in operating assets and
liabilities:
Increase in accounts
receivable................. (863) (27,949) (443,691) (17,803) (312,825)
Increase (decrease) in prepaid
expenses and other
assets..................... -- (1,838) (70,785) 936 (111,481)
Increase (decrease) in
accounts payable........... 2,949 16,553 56,040 (11,232) 1,797
Increase in accrued expenses
and taxes other than
income..................... -- 14,571 394,268 6,244 548,692
------ -------- ----------- --------- ------------
Net cash provided by (used in)
operating activities.......... 1,700 159,782 (1,773,550) 15,906 (561,154)
------ -------- ----------- --------- ------------
Cash flows from investing
activities:
Purchases of property and
equipment....................... (715) (39,422) (387,610) (31,798) (53,193)
------ -------- ----------- --------- ------------
Net cash used in investing
activities.................... (715) (39,422) (387,610) (31,798) (53,193)
------ -------- ----------- --------- ------------
Cash flows from financing
activities:
Repayment of note payable......... -- -- (17,000) -- --
Principal payment on capital lease
obligation...................... -- -- (9,875) -- (5,225)
Repurchase of common stock........ -- -- -- -- (2,795,274)
Repurchase of mandatorily
redeemable convertible preferred
stock........................... -- -- -- -- (1,397,636)
Loan to officer................... -- -- -- -- (300,000)
Dividends paid.................... -- -- (180,510) (141,053) --
Proceeds from issuance of
mandatorily redeemable
convertible preferred stock,
net............................. -- -- 4,493,231 555,171 21,375,000
Proceeds from issuance of common
stock........................... -- 30,000 -- -- --
------ -------- ----------- --------- ------------
Net cash provided by financing
activities.................... -- 30,000 4,285,846 414,118 16,876,865
------ -------- ----------- --------- ------------
Net increase in cash and cash
equivalents................... 985 150,360 2,124,686 398,226 16,262,518
Cash and cash equivalents at
beginning of period............... -- 985 151,345 151,345 2,276,031
------ -------- ----------- --------- ------------
Cash and cash equivalents at end of
period............................ $ 985 $151,345 $ 2,276,031 $ 549,571 $ 18,538,549
====== ======== =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 68
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND PRESENTATION
OpenSite Technologies, Inc. (the "Company") develops and markets Internet
auction technology that enables organizations to create branded, interactive,
real-time Internet auctions. The Company offers a range of products and services
including its OpenSite Auction software as well as its BidStream.com Web site.
The Company's predecessor was incorporated on July 24, 1996 in North Carolina
and was merged into OpenSite Technologies, Inc., a Delaware corporation, in
January 1998. This merger was accounted for in a manner similar to a pooling of
interests as the transaction represented a transfer of assets and liabilities
between entities under common control.
All of the Company's software licensing and services and other revenue
during the period from inception (July 24, 1996) through December 31, 1998 and
the three month period ended March 31, 1999 are from sales transactions
originating in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial statements as of March 31, 1998 and 1999 and for the three
month periods then ended are unaudited and reflect all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of the Company's
management, necessary for a fair presentation of financial position, results of
operations and cash flows. All information related to the three month periods
ended March 31, 1997 and 1998 is unaudited.
UNAUDITED PRO FORMA BALANCE SHEET
The board of directors has authorized the Company to file a registration
statement with the Securities and Exchange Commission permitting the Company to
sell shares of common stock in an initial public offering ("IPO"). If the IPO is
consummated as presently anticipated, all shares of the Series A, Series B, and
Series C convertible preferred stock will automatically convert into an equal
number of shares of common stock. The unaudited pro forma balance sheet reflects
the subsequent conversion of Series A, Series B, and Series C convertible
preferred stock into common stock as if such conversion had occurred as of March
31, 1999. The unaudited pro forma balance sheet does not include the sale of
1,250,000 shares of Series C convertible preferred stock in April 1999 for
approximately $2,500,000 (see Note 9).
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at date of purchase to be cash equivalents.
F-7
<PAGE> 69
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH FLOW
The Company had the following non-cash investing and financing activities
during 1998:
<TABLE>
<S> <C>
Non-cash investing and financing activities:
Capital lease obligations................................. $74,795
Issuance of common stock for notes receivable............. $78,500
</TABLE>
There were no non-cash financing and investing activities during the period
from inception (July 24, 1996) to December 31, 1996 or the year ended December
31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, which are comprised of cash in demand
deposit accounts, accounts receivable, investments in short term commercial
paper and accounts payable, are carried at cost which approximates their fair
market value at December 31, 1997 and 1998.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Expenditures for maintenance and repairs are charged to
operations. Major expenditures for renewals and betterments are capitalized and
depreciated. Property and equipment under capital leases are initially recorded
at the present value of minimum lease payments at the inception of the lease.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the assets. Property and equipment held under capital leases and
leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful life of the asset or the lease term.
Depreciation periods for property and equipment are as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... 2-3 years
Furniture and fixtures...................................... 5 years
Leasehold improvements...................................... 1-3 years
Assets under capital leases................................. 1-3 years
</TABLE>
OTHER ASSETS
The costs of trademarks are capitalized and are amortized using the
straight-line method over the remaining lives of the trademarks from the date
the trademarks are purchased, which are up to ten years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its property and equipment and
other assets in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of,"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the estimated
future undiscounted cash flows attributable to such assets or the business to
which such intangible assets relate. No impairments were required to be
recognized during the period from inception (July 24, 1996) to December 31, 1996
and the years ended December 31, 1997 and 1998 or the three month period ended
March 31, 1999.
F-8
<PAGE> 70
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the temporary
differences between financial reporting and tax bases of the Company's assets
and liabilities and for tax carryforwards. A valuation allowance is recorded, if
necessary, to reduce net deferred tax assets to their realizable values if
management does not believe it is more likely than not that the net deferred tax
assets will be realized.
Prior to January 1, 1998, the Company had elected subchapter S status for
Federal income tax purposes and, accordingly, no income tax provision is
presented for periods prior to 1998 as income was taxable personally to the
stockholders.
REVENUE RECOGNITION
The Company's revenue is derived from software licenses as well as support
and maintenance, training and consulting services. The Company adopted American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-4
effective January 1, 1998. The adoption did not have a material effect on the
timing of the Company's revenue recognition or cause changes to its revenue
recognition policies.
Revenue from software licenses is recognized when there is evidence of an
arrangement, the product has been shipped, fees are fixed and determinable and
collection of the related receivable is probable. Support and maintenance
revenue, which is included in services and other revenue, is deferred and
recognized ratably over the service period. When software and services are sold
under one contract, revenue is allocated to each element based on their
respective fair values, with these fair values being determined using the price
charged when that element is sold separately. Partner fees, another component of
services and other revenue, are deferred and recognized ratably over a period of
twelve months. Consulting and training service revenue, which is also included
in services and other revenue, is deferred and recognized as the services are
performed.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of costs, including salaries and sales
commissions, of all personnel involved in the sales process. Sales and marketing
expenses also include costs of advertising, trade shows and certain indirect
costs.
SOFTWARE DEVELOPMENT COSTS
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has substantially coincided; therefore, software
development costs qualifying for capitalization have been immaterial.
Accordingly, the Company has not capitalized any software development costs and
has charged all such costs to product development expense.
ADVERTISING COSTS
All costs of advertising the services and products offered by the Company
are expensed as incurred. Advertising expense totaled $0, $16,475 and $200,713
for the period from inception (July 24, 1996) to December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively.
F-9
<PAGE> 71
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock based compensation based on the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB No. 25") which states that no compensation expense is recorded
for stock options or other stock-based awards to employees that are granted with
an exercise price equal to or above the estimated fair value per share of the
Company's common stock on the grant date. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," ("SFAS No. 123") which requires compensation
expense to be recognized for disclosure purposes, based on the fair value of the
options granted at the date of the grant.
SIGNIFICANT CUSTOMERS AND CREDIT RISK
The Company performs ongoing credit evaluations to reduce credit risk and
requires no collateral from its customers. Management estimates the allowance
for uncollectible accounts based on their credit evaluation.
NET LOSS PER COMMON SHARE
Historical
The Company computes net income (loss) per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS No. 128") and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under
the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per
common share ("Basic EPS") is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted net income (loss)
available to common stockholders per common share ("Diluted EPS") is computed by
dividing net income (loss) by the weighted average number of common shares and
dilutive common share equivalents then outstanding.
Pro forma (unaudited)
Pro forma net loss per common share is calculated assuming conversion of
all mandatorily redeemable convertible preferred stock which converts
automatically upon the completion of the initial public offering (see Note 9).
Therefore, accretion of mandatorily redeemable preferred stock of $324,661 and
$8,924,186 for the year ended December 31, 1998 and the three months ended March
31, 1999, respectively, and the distribution to preferred stockholders of
$39,457 during the year ended December 31, 1998 are excluded from the
calculation of pro forma net loss per common share. The calculations of pro
forma net loss per common share for the year ended December 31, 1998 and the
three months ended March 31, 1999 do not include 213,216 and 634,496 equivalent
shares, respectively, of common stock as their impact would be anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") effective January 1, 1998.
SFAS No. 130 requires the Company to display an amount representing
comprehensive income for the year in a financial statement which is displayed
with the same prominence as other financial statements. The Company had no items
of other comprehensive income (loss) during the years ended December 31, 1998
and 1997 and the period from inception (July 24, 1996) to December 31, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). This statement requires
companies to report information about operating segments in annual
F-10
<PAGE> 72
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements. It also requires segment disclosures about products and
services, geographic areas and major customers. The disclosures prescribed by
SFAS No. 131 are effective for fiscal years beginning after December 15, 1997.
Management has determined that the Company does not have any separately
reportable operating segments as of December 31, 1998.
In March 1998, the AICPA issued Statement of Position No. 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
("SOP No. 98-1") which provides guidance regarding when software developed or
obtained for internal use should be capitalized. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Management expects that the adoption of SOP No. 98-1 will not have a material
impact on the Company's financial position or results of operations.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition, With Respect to Certain Transactions," ("SOP
No. 98-9"). SOP No. 98-9 amended SOP No. 97-2 to require recognition of revenue
using the "residual method" in circumstances outlined in SOP No. 97-2. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by Vendor Specific Objective Evidence
("VSOE") is deferred and subsequently recognized in accordance with the relevant
sections of SOP No. 97-2 and (2) the difference between the total arrangement
fee and the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements.
SOP No. 98-9 is effective for fiscal years beginning after March 15, 1999.
Also, the provisions of SOP No. 97-2 that were deferred by Statement of Position
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition," ("SOP No. 98-4") will continue to be deferred until the
date SOP No. 98-9 becomes effective. The Company does not expect that the
adoption of SOP No. 98-9 will have a material impact on the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
is effective for financial statements for all fiscal quarters of all fiscal
years beginning after June 15, 1999. The Company intends to adopt SFAS No. 133
when required; however, SFAS No. 133 is not expected to have a material impact
on the Company's financial position or results of operations.
3. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
of $3,500, $108,500 and $190,250 at December 31, 1997 and 1998 and March 31,
1999, respectively.
F-11
<PAGE> 73
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the allowance for doubtful accounts consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, THREE MONTHS
------------------- ENDED
1997 1998 MARCH 31, 1999
------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for doubtful accounts at beginning of period... $ -- $ 3,500 $108,500
Additions charged to costs and expenses.................. 5,099 164,092 107,490
Deductions............................................... (1,599) (59,092) (25,740)
------- -------- --------
Allowance for doubtful accounts at end of period......... $ 3,500 $108,500 $190,250
======= ======== ========
</TABLE>
The Company had no allowance for doubtful accounts during 1996.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 and March 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment......................................... $34,139 $377,354 $420,421
Office furniture and equipment............................. 5,998 87,944 87,944
Leasehold improvements..................................... -- 37,244 47,370
------- -------- --------
40,137 502,542 555,735
Less accumulated depreciation.............................. (6,599) (84,819) (147,251)
------- -------- --------
$33,538 $417,723 $408,484
======= ======== ========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1997 1998 1999
------ -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation........................................ $ -- $ 50,000 $160,000
Professional services....................................... 3,000 96,532 331,980
Stock issuance costs........................................ -- -- 125,000
Marketing................................................... -- 116,264 311,264
Other....................................................... -- 80,038 29,287
------ -------- --------
$3,000 $342,834 $957,531
====== ======== ========
</TABLE>
6. INCOME TAXES
There is no current income tax provision or benefit for the year ended
December 31, 1998 or the three months ended March 31, 1999 because the Company
has generated a net operating loss for which there is no carryback potential.
There is no deferred income tax provision or benefit recorded for the year ended
December 31, 1997 or the period from inception (July 24, 1996) to December 31,
1996 because prior to
F-12
<PAGE> 74
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1998, the Company had elected subchapter S status for Federal income tax
purposes. Therefore, the Company was not liable for income taxes and all profit
and loss was taxable to the shareholders.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Domestic net operating loss carryforwards................. $709,084
Accounts receivable....................................... 42,261
Research and development credit........................... 37,783
Deferred revenue.......................................... 49,077
Compensation related items................................ 21,119
Other..................................................... 839
--------
Gross deferred tax assets.............................. 860,163
Less: Valuation allowance.............................. (859,698)
--------
Net deferred tax assets................................ 465
--------
Deferred tax liabilities:
Fixed and intangible assets............................... 465
--------
Total deferred tax liabilities.................... 465
--------
Net deferred tax asset (liability)..................... $ --
========
</TABLE>
For 1998, the Company has provided a full valuation allowance against its
net deferred tax assets since realization of these benefits could not be
reasonably assured. The increase in valuation allowance of $859,698 resulted
primarily from the generation of net operating loss carryforwards. There were no
deferred tax assets or liabilities for the year ended December 31, 1997 or the
period ended December 31, 1996 because the Company had elected subchapter S
status prior to 1998.
As of December 31, 1998, the Company had Federal and state net operating
loss carryforwards of approximately $1,900,000. The net operating loss
carryforwards expire in various amounts starting in 2018 and 2013 for Federal
and state tax purposes, respectively. The utilization of the Federal net
operating loss carryforward may be subject to limitation under the rules
regarding a change in stock ownership as determined by the Internal Revenue
Code. If the Company's utilization of its net operating loss carryforwards is
limited, and the Company has taxable income which exceeds the permissible yearly
net operating loss carryforward, the Company would incur a Federal income tax
liability even though its net operating loss carryforwards exceed its taxable
income.
Taxes computed at the statutory Federal income tax rate of 34% are
reconciled to the provision for income taxes for the year ended December 31,
1998 as follows:
<TABLE>
<CAPTION>
% OF
PRETAX
AMOUNT LOSS
--------- ------
<S> <C> <C>
United States Federal tax at statutory rate................. $(753,344) (34)%
State taxes (net of federal benefit)........................ (62,301) (5)
Research and development credit............................. (37,783) (2)
Other, net.................................................. (6,270) (0)
Change in valuation allowance............................... 859,698 41
--------- ---
Provision for income taxes.................................. $ -- 0%
========= ===
</TABLE>
F-13
<PAGE> 75
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTE PAYABLE
During December 1997, the Company recorded a note payable to one of its
common stockholders for $17,000, related to the cost of terminating a consulting
agreement. This note accrued interest at 10% and was repaid in 1998.
8. CAPITAL STOCK
In August 1998, the Company declared a 6,959 for 1 stock split for all
common and preferred stockholders. The financial statements for all periods
presented have been restated to reflect the stock split as of inception (July
24, 1996).
During the year ended December 31, 1998, the Company's Articles of
Incorporation were amended and restated to authorize 20,000,000 shares of common
stock with a par value of $0.01 and 9,175,439 shares of preferred stock with a
par value of $0.01, of which 4,175,439 were designated as Series A preferred
stock and 5,000,000 were designated as Series B preferred stock. In March 1999,
the Company's Articles of Incorporation were again amended and restated to
increase the number of authorized shares of common stock to 40,000,000, and to
authorize 12,000,000 shares of Series C preferred stock with a par value of
$0.01. At all times, the Company shall reserve a number of shares of unissued
common stock for the purpose of effecting the conversion of its issued and
outstanding shares of all series of preferred stock and the exercise of all
outstanding warrants and options to purchase the Company's common stock.
In August 1998, the Company issued 650,000 restricted shares of the
Company's common stock at a price of $0.10 per share to an employee of the
Company in exchange for a note payable to the Company of $65,000. In October
1998, the Company entered into an agreement with another employee, whereby the
employee was issued 90,000 restricted shares of common stock at a price of $0.15
per share in exchange for a note payable to the Company of $13,500. If the
employees are terminated for "cause," as defined in their respective employment
agreements, the Company has the option to repurchase the shares at the original
purchase price. If the employees are terminated for "good reason," as defined in
their respective employment agreements, the Company has the option to repurchase
the shares at the greater of the original purchase price, or the fair value of
the common stock, according to the terms of the agreement. If the employees are
terminated "without cause," as defined in their respective employment
agreements, the employees have the right to sell the shares back to the Company
at the greater of the original purchase price or the fair market value of the
stock, according to the terms of the agreement.
At inception, the Company issued 7,515,788 shares of common stock to the
Company's founders. In April 1997, the Company sold 835,088 shares of common
stock in exchange for proceeds of $30,000.
9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1998, the Company sold 4,175,439 shares of Series A preferred
stock in a private placement transaction in exchange for proceeds of $555,171,
net of issuance costs of $44,829. In August and September 1998, the Company sold
5,000,000 shares of Series B preferred stock in a private placement transaction
in exchange for proceeds of $3,938,060, net of issuance costs of $61,940.
In March 1999, the Company sold 10,750,000 shares of Series C preferred
stock in a private placement transaction for proceeds of $21,375,000, net of
issuance costs of $125,000. In April 1999, the Company sold an additional
1,250,000 shares of Series C preferred stock in a private placement transaction,
receiving proceeds of $2,500,000. Total proceeds from these transactions were
$23,875,000, net of issuance costs of $125,000.
As of December 31, 1998 and March 31, 1999, the Series A preferred stock
had an aggregate liquidation preference of $600,000 and the Series B preferred
stock had an aggregate liquidation preference of
F-14
<PAGE> 76
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$4,000,000. As of March 31, 1999, the Series C preferred stock had an aggregate
liquidation preference of $32,250,000.
Rights, Preferences and Terms of Preferred Stock
The following is a summary of the rights, preferences, and terms of the
Company's outstanding series of preferred stock:
Dividends
The holders of the Series A, Series B, and Series C preferred stock shall
be entitled to receive dividends in any fiscal year in an amount determined by
the board of directors, when, and if declared by the board of directors. No
dividends may be paid to any to the holders of shares of common stock or Series
A, Series B, or Series C preferred stock unless an equivalent dividend has been
declared and paid on all outstanding shares of the Series A, Series B, and
Series C preferred stock.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company,
holders of Series C preferred stock are entitled to receive an amount equal to
$3.00 per share if such event were to occur prior to December 31, 1999, or an
amount equal to $4.00 per share if such event were to occur subsequent to
December 31, 1999. After payment has been made to the holders of Series C
preferred stock, the holders of Series A and Series B preferred stock are
entitled to receive an amount equal to $0.1437 and $0.80 per share,
respectively. In the event that assets of the Company are not sufficient to
provide payments to the holders of Series A and Series B preferred stock, any
remaining assets shall be distributed to holders of the Series A and Series B
preferred stock on a pro rata basis, based on their respective liquidation
preferences. After payments have been made to the holders of Series A, Series B,
and Series C preferred stock, and remaining assets of the Company will be
distributed to the holders of common stock.
Conversion
Each share of Series A, Series B, and Series C preferred stock is
convertible at the option of the holder into common shares of the Company at a
one to one conversion ratio, subject to certain adjustments as defined.
Conversion is automatic for holders of Series A, Series B, and Series C
preferred stock upon the closing of a firm commitment for an underwritten public
offering with net proceeds to the Company of at least $25,000,000. Conversion is
also automatic for any class of Series A, Series B, or Series C preferred stock
upon the election of holders of at least 75% of the total number of shares in
any class to convert their preferred shares into common shares.
Voting
Holders of Series A, Series B, and Series C preferred shares have voting
rights on an if converted basis.
Redemption
In the event that the Series A, Series B, and Series C preferred stock has
not been converted into common stock prior to the fifth anniversary of the
issuance date of the Series C preferred stock, the Series A preferred shares or
the Series B preferred shares are redeemable at the option of at least a
two-thirds vote of the holders of the respective series, and the Series C
preferred stock shall be redeemable upon the written request of any holder of
Series C preferred stock. The redemption price for the Series A and Series B
preferred stock shall be an amount equal to the greater of the appraised per
share value of the Company's common stock, or an amount equal to the original
purchase price plus an amount equal to 12.5% per annum,
F-15
<PAGE> 77
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
less the aggregate amount of all dividends actually paid since the issuance
date. The redemption price for the Series C preferred stock shall be two times
the original purchase price.
As the redemption price of the Series A and Series B preferred stock is
variable in amount, its carrying value is adjusted to the redemption amount at
each balance sheet date. The Company recorded a charge to stockholders' equity
of $324,661 for the year ended December 31, 1998 and $8,924,186 for the three
months ended March 31, 1999 to reflect the Series A and Series B preferred stock
at its fair value.
10. STOCK OPTIONS AND WARRANTS
Stock Options
In July 1998, the Company adopted a stock option plan (the "Plan") which
provided for the grant of up to 2,000,000 stock options. In May 1999, the
Company increased the number of options authorized under the Plan to 3,500,000.
Stock options granted under the Plan have exercise periods not to exceed ten
years. Options granted under the Plan during the year ended December 31, 1998
vest over a period of four years.
The Company continues to apply APB No. 25 and related interpretations in
accounting for the Plan. Had compensation costs for the Plan been determined
based on the fair value at the grant dates for awards under the Plan consistent
with the methods of SFAS No. 123, the Company's net loss for the year ended
December 31, 1998 would have increased from $2,360,717 to $2,375,472. The
Company's net loss per share for the year ended December 31, 1998 would be the
same as reported under APB No. 25.
The fair value of each option is estimated on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the year ended December 31, 1998: risk free
interest of 5.5%, expected life of four years, dividend yield of 0%, and a
volatility factor of 0%.
A summary of the status of the Plan as of December 31, 1998 and March 31,
1999 and changes during the year ended December 31, 1998 and the three months
ended March 31, 1999 is presented below:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Outstanding at December 31, 1997............................ -- $ --
Granted..................................................... 580,500 0.12
------- -----
Outstanding at December 31, 1998............................ 580,500 0.12
Granted (unaudited)......................................... 176,500 0.38
Forfeited................................................... (15,000) 0.15
------- -----
Outstanding at March 31, 1999 (unaudited)................... 742,000 $0.18
======= =====
</TABLE>
The Company did not grant any stock options during the year ended December
31, 1997 or the period from inception (July 24, 1996) to December 31, 1996.
F-16
<PAGE> 78
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
All options granted during the year ended December 31, 1998 were granted
with an exercise price equal to the fair value of the underlying common stock on
the grant date, as determined by the board of directors. During the three months
ended March 31, 1999, the Company recognized $118,450 in deferred compensation
related to options granted at an exercise price less than fair values. All
options granted subsequent to March 31, 1999 were at fair value, as determined
by the board of directors. The weighted average fair value of options granted
during the year ended December 31, 1998 was $0.03. The following table
summarizes information about the Company's stock options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
AT DECEMBER 31, 1998
------------------------- OPTIONS EXERCISABLE
REMAINING --------------------------
NUMBER CONTRACTUAL DECEMBER 31, MARCH 31,
EXERCISE PRICE OUTSTANDING LIFE 1998 1999
- -------------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
$0.08.......................................... 266,000 9.5 years 64,000 120,000
$0.15.......................................... 314,500 10 years -- --
------- ------ -------
580,500 64,000 120,000
======= ====== =======
</TABLE>
The following summarizes stock options granted subsequent to December 31,
1998 (unaudited):
<TABLE>
<CAPTION>
NUMBER GRANTED EXERCISE PRICE
-------------- --------------
<S> <C> <C>
January................................................... 85,000 $0.15
February.................................................. 30,000 0.35
March..................................................... 61,500 0.70
April..................................................... 141,500 2.25
May....................................................... 30,000 3.20
May....................................................... 48,000 4.50
May....................................................... 220,000 5.00
-------
616,000
=======
</TABLE>
Warrants
In August 1998, the Company entered into a consulting agreement with a
director of the Company. Pursuant to this agreement, the Company issued warrants
to purchase 252,632 shares of common stock at an exercise price of $0.21 per
share. These warrants expire on December 31, 2002. The Company also issued
warrants to this director to purchase 221,053 shares of common stock at an
exercise price of $0.04. These warrants expire on December 31, 2004. In the
event that the holders of Series A preferred stock request the redemption of
their shares pursuant to the terms described in Note 9, this director can elect
to put any outstanding warrants back to the Company at the per share redemption
value of the Series A preferred stock, less the exercise price of the warrants.
During the year ended December 31, 1998 and the three months ended March
31, 1999, the Company recognized consulting expense of $54,221 and $268,516,
respectively, to reflect the increase in value of the put feature of these
warrants. In conjunction with the issuance of the Series C preferred stock and
the directors resignation from the board of directors in March 1999, the
warrants were amended such that the redemption provision expired on March 31,
1999. Accordingly, the carrying amount of the remaining outstanding warrants was
transferred to additional paid in capital as of that date.
F-17
<PAGE> 79
OPENSITE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company entered into a capital lease for furniture and equipment that
expires in 2001. The gross amount of furniture and equipment and related
accumulated depreciation recorded under capital leases and included in property
and equipment was as follows at December 31, 1998:
<TABLE>
<S> <C>
Furniture and equipment..................................... $74,795
Less accumulated depreciation............................... (6,402)
-------
$68,393
=======
</TABLE>
There were no capital leases at December 31, 1997.
The Company also has several non-cancelable operating leases, primarily for
office space and office equipment, that extend through August 2001. Rental
expense, including maintenance charges, for operating leases during 1998 and
1997 was $72,295 and $7,227, respectively.
The future minimum lease payments under the non-cancelable lease agreements
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending December 31:
1999...................................................... $ 30,588 $ 90,244
2000...................................................... 30,588 61,644
2001...................................................... 17,843 30,802
-------- --------
Total future minimum lease payments......................... 79,019 $182,690
========
Less amount representing interest........................... (14,099)
--------
Present value of future minimum lease payments.............. 64,920
Less current portion........................................ (22,155)
--------
Obligations under capital leases, excluding current
portion................................................... $ 42,765
========
</TABLE>
In March 1999, the Company entered into an agreement with Protege Software
Limited ("Protege"), whereby Protege will provide a general manager for the
Company's European operations and will provide certain back office and
administrative functions. The initial term of the agreement is an 18 month
period beginning April 1, 1999. However, the agreement will be automatically
extended for a subsequent 12 month period unless the agreement is terminated by
either Protege or the Company.
The Company will pay Protege a fee of approximately $23,000 per month, plus
out-of-pocket costs, for these services. In addition, Protege can earn an
additional fee based on 7.5% of net revenue from support and maintenance
services and 15% of net revenue from software licensing related to sales within
Protege's territory, as defined in the agreement.
12. SUBSEQUENT EVENTS
In conjunction with the sale of the Series C preferred stock in March and
April 1999 (see Note 9), the Company repurchased, in March 1999, 1,863,516
shares of common stock at a purchase price of $1.50 per share, 931,758 shares of
Series A preferred stock at a purchase price $1.50 per share, and 56,375
warrants at a price of $1.50 per warrant, less the exercise price of the
warrant, for an aggregate purchase price of $4,265,635.
In March 1999, an officer of the Company borrowed $300,000 from the Company
in exchange for a promissory note due upon the earlier of the termination of the
officer's employment with the Company or December 31, 2002 with an interest rate
of 6% per annum. The promissory note is collateralized by 650,000 shares of
restricted stock owned by the officer.
F-18
<PAGE> 80
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[OPENSITE LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
SG COWEN
SOUNDVIEW TECHNOLOGY GROUP
WACHOVIA SECURITIES, INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 81
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $12,510
National Association of Securities Dealers, Inc. fee........ 5,000
Nasdaq National Market listing fee.......................... *
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent's fees and expenses.......................... *
Printing and engraving expenses............................. *
Miscellaneous............................................... $ *
-------
Total Expenses.................................... $ *
=======
</TABLE>
- ------------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Restated Certificate of Incorporation limits personal liability for
breach of the fiduciary duty of its directors to the fullest extent provided by
the General Corporation Law of the State of Delaware. Such provisions provide
that no director of OpenSite shall have personal liability to us or to our
stockholders for monetary damages for breach of fiduciary duty of care or other
duty as a director. However, such provisions shall not eliminate or limit the
liability of a director
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for voting or assenting to unlawful distributions; or
- for any transaction from which the director derived an improper personal
benefit.
Any amendment, modification or repeal of such provisions will not eliminate
or reduce the effect of such provisions in respect of any act or failure to act,
or any cause of action, suit or claim that would accrue or arise prior to any
amendment, repeal or adoption of such an inconsistent provision. If the General
Corporation Law of the State of Delaware is subsequently amended to provide for
further limitations on the personal liability of directors of corporations for
breach of duty of care or other duty as a director, then the personal liability
of the directors of OpenSite will be so further limited to the greatest extent
permitted by the General Corporation Law of the State of Delaware.
Section of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The share numbers presented below are provided with respect to our shares
of common stock and Series A preferred stock, Series B preferred stock and
Series C preferred stock and reflect (1) various stock splits and (2) the
recapitalization of the Series A preferred stock, Series B preferred stock and
Series C preferred stock into common stock, which will occur immediately prior
to completion of this offering.
In January 1998, we sold an aggregate 4,175,440 shares of Series A
preferred stock to Auction Ventures, LLC for an aggregate offering price of
$600,000.
In August 1998, we sold 650,000 shares of restricted common stock to Kip A.
Frey for an aggregate offering price of $65,000.
II-1
<PAGE> 82
In August 1998, we issued warrants to purchase an aggregate 417,310 shares
of common stock to Bandrowski Enterprises LLC in exchange for services.
In August and September 1998, we sold an aggregate 5,000,000 shares of
Series B preferred stock to Intersouth Partners IV, L.P., Noro-Moseley Partners,
L.P., Southeast Interactive Technology Fund II, LLC, and Wakefield Group II, LLC
for an aggregate offering price of $4,000,000.
In October 1998, we sold 90,000 shares of restricted common stock to James
R. Ford for an aggregate offering price of $13,500.
In March and April 1999, we sold an aggregate 12,000,000 shares of Series C
preferred stock to CNET, Inc., GE Capital Equity Investments, Inc., Intersouth
Partners IV, L.P., Noro-Moseley Partners, IV, L.P., Noro-Moseley Partners IV B,
L.P., Societe General Capital Corporation, Southeast Interactive Technology Fund
II, LLC, and Wakefield Group II, LLC for an aggregate offering price of
$24,000,000.
We issued the securities described above in reliance on one or more of the
exemptions from registration provided by Sections 3(a)(11), 4(2) and 4(6) of the
Securities Act, Regulation D and Rule 701, as promulgated by the SEC under the
Securities Act. Recipients of securities in these transactions represented their
intention to acquire the securities for investment purposes only and not with a
view to or for the sale in connection with any distribution of those securities,
and we affixed appropriate legends to the share certificates issued in those
transactions. All recipients of these securities had adequate access, through
their relationships with us or otherwise, to information about us.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
3.1* -- Amended and Restated Articles of Incorporation of the
Registrant.
3.3* -- Amended and Restated Bylaws of the Registrant.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of
Common Stock of the Registrant.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Morris, Manning & Martin, L.L.P., Counsel to the
Registrant, as to the legality of the shares being
registered.
10.1 -- Office Space Lease dated May 15, 1998 by Ticon, Inc. and
OpenSite.
10.2 -- Office Space Lease dated August 31, 1998 by Ticon
Properties, LLC and OpenSite.
10.3 -- Commercial Lease (Office) dated October 26, 1998 by and
between K.K.G.R.H. Assoc. L.P. and OpenSite.
10.4 -- Office Space Lease dated February 16, 1999 by Ticon
Properties, LLC and OpenSite.
10.5 -- OpenSite Stock Option Plan.
10.6 -- Amendment No. 1 to OpenSite Stock Option Plan.
10.7* -- Executive Employment Agreement dated as of August 10, 1998
by and between OpenSite and Kip A. Frey.
10.8* -- Restricted Stock Agreement dated as of October 15, 1998 by
and between OpenSite and Kip A. Frey.
10.9 -- Registration Rights Agreement dated as of March 30, 1999.
10.10 -- Agreement dated as of March 30, 1999, by and between
OpenSite and Kip A. Frey
10.11 -- Pledge Agreement, dated as of March 30, 1999, by and among
OpenSite, Kip A. Frey and Gross, Shuman, Brizdle &
Gilgillan, P.C.
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
21.1 -- List of Subsidiaries.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ------------------------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
(a) 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.
(b) 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 foregoing provisions, 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.
(c) The Registrant hereby undertakes that:
(i) 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 the
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 the
Registration Statement as of the time it was declared effective.
(ii) For purposes 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-3
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina on the 28th day of May, 1999.
OPENSITE TECHNOLOGIES, INC.
By: /s/ KIP A. FREY
------------------------------------
Kip A. Frey
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kip A. Frey and Richard E. Widin and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any subsequent registration
statements pursuant to Rule 462 of the Securities Act and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorney-in-fact
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this 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>
/s/ KIP A. FREY President, Chief Executive Officer May 28, 1999
- -------------------------------------- (Principal Executive Officer) and
Kip A. Frey Director
/s/ JAMES R. FORD Vice President of Finance (Principal May 28, 1999
- -------------------------------------- Financial and Accounting Officer)
James R. Ford
/s/ JUSTIN HALL-TIPPING Director May 28, 1999
- --------------------------------------
Justin Hall-Tipping
/s/ ROGER HURWITZ Director May 28, 1999
- --------------------------------------
Roger Hurwitz
/s/ MARK JAUQUET Director May 28, 1999
- --------------------------------------
Mark Jauquet
/s/ ROSS B. KENZIE Director May 28, 1999
- --------------------------------------
Ross B. Kenzie
Director
- --------------------------------------
Mitchell Mumma
/s/ ALAN J. TAETLE Director May 28, 1999
- --------------------------------------
Alan J. Taetle
</TABLE>
II-4
<PAGE> 1
EXHIBIT 10.1
STATE OF NORTH CAROLINA OFFICE SPACE LEASE
COUNTY OF DURHAM
This lease, dated the 15th day of May, 1998, is entered into by Ticon,
Inc., hereinafter referred to as Landlord, and OpenSite Technologies,
hereinafter collectively referred to as Tenant.
1. PROPERTY. The Landlord hereby leases to the Tenant Suites 101, 102,
107 and 108, Building 5315 of Highgate Centre, located on Highgate Drive,
Durham, North Carolina. It contains approximately 3,461 square feet. The leased
space is shown on Exhibit A attached hereto. Places for motor vehicle access and
parking are provided at the property. Their use is nonexclusive as set forth in
Paragraph 25.
2. CONDITION OF PROPERTY. The Landlord will provide standard fit-up as
shown on Exhibit B. Mini-blinds will be furnished on all windows. At the
commencement of the term, the Tenant shall accept the building, improvements,
and any fixtures on or in the Leased Premises, in their existing condition
except for punch list items mutually agreed upon by Landlord and Tenant. All
foregoing renovations or improvements shall be completed by the Landlord prior
to commencement of the Lease.
3. TERM. The term of this Lease shall commence on the 1st day of July
1998, and shall expire three (3) year(s) from the commencement date, or in the
event that the Leased Premises cannot be made available to the Tenant on the
date above mentioned, this Lease shall commence ten (10) days after the Landlord
has notified the Tenant that the Leased Premises are available for occupancy by
the Tenant. If such expiration date shall be on any other day than the last day
of the month, the term of the lease shall be extended to and expire on the last
day of that month.
4. RENT. The Tenant shall pay to the Landlord the monthly rent of
$3,677.31 during Year 1 of the Lease which shall be payable in advance on the
1st day of each month during the lease term. The monthly rent will increase by
5% on each anniversary date. If the rent has not been paid by the fifth of each
month, it shall be considered overdue. A late charge of 5% shall be due along
with full rental payment. This remedy is in addition to any other rights which
the Landlord has by North Carolina law or as set out herein. The rent shall be
payable to Ticon, Inc. at 3622 Lyckan Parkway, Suite 1006, Durham, NC 27707.
5. TENANT'S USE. The Tenant may use and occupy the leased property for
office purposes.
6. SIGNS. The Tenant will not place any signs or other advertising
matter or material on the exterior of the Leased Premises or on the building in
which the Leased Premises are located, without the prior written consent of the
Landlord. No signs shall be placed in windows for view from outside the premises
without written permission of Landlord.
7. COVENANT OF QUIET ENJOYMENT. The Tenant, upon paying the basic rent
and any additional charges herein provided for, and performing all the other
terms of this Lease, shall quietly have and enjoy the leased property during the
term of this Lease.
<PAGE> 2
8. REPAIR AND MAINTENANCE. The Tenant, at its sole expense, shall
keep the leased property, including the interior walls, ceilings, floors and
floor coverings, clean and in good condition, reasonable wear and tear excepted.
Touch-up painting, carpet stains, cigarette burns, and cleaning or repairs of
these items is the financial responsibility of the Tenant. The Landlord agrees
that it will, at its sole cost and expense, keep and maintain the building and
its common or public areas including the parking lot in good working order and
repair.
9. SURRENDER OF LEASED PROPERTY. At the expiration of the Lease term,
the Tenant shall surrender the leased property in as good condition as it was at
the beginning of the term, normal wear and tear excepted.
10. ALTERATIONS. No alterations, additions or improvements to the
leased property other than a security alarm system, shall be made by the Tenant
without the written consent of the Landlord. This includes any interior painting
or other acts of a fairly permanent nature. In the event Landlord consents to
the proposed alterations, additions, or improvements, the same shall be at
Tenant's sole cost and expense, and Tenant shall hold Landlord harmless on
account of the cost thereof. Any such alterations shall be made at such time and
in such manner as not to unreasonably interfere with the occupation, use and
enjoyment of the remainder of the building by the other occupants. If required
by Landlord, such alterations shall be removed by Tenant upon the termination or
sooner expiration of the term of this Lease and Tenant shall be financially
responsible for repairs to the premises caused by such removal.
11. UTILITIES. The Tenant shall pay all charges for electricity used,
rendered or supplied upon or in connection with the leased property. The Tenant
will pay all charges for telephone or other communication service used, rendered
or supplied upon or in connection with the leased property, and shall indemnify
the Landlord against any liability or damages on such account. Landlord will
provide water for normal office use.
12. JANITORIAL. The Tenant shall pay for routine janitorial service
related to interior cleaning of the unit.
13. COMMON AREA MAINTENANCE. The Landlord will be responsible for all
maintenance and cleaning of the exterior of the building, grounds, and parking
lot.
14. INSURANCE. The Landlord shall secure for its own account, fire and
extended coverage insurance on the leased property in an amount satisfactory to
it or as required by the mortgage lender.
The Tenant shall secure an insurance policy covering the contents of
the premises and providing public liability insurance naming the Landlord as an
additional insured. Tenant further shall provide Landlord with evidence of said
coverage.
The Tenant agrees that the Tenant will not do or suffer to be done,
anything objectionable to the fire insurance companies whereby the fire
insurance or any other insurance now in force or hereafter to be placed on the
demised premises, or any part thereof, or on the building of which the demised
premises may be a part, to become void or suspended, or whereby the same shall
be rated as a more hazardous risk than at the date of the execution of this
lease. Tenant agrees not to employ any person or persons objectionable to the
fire insurance companies, or carry or have any benzine or explosive material of
any kind in and about the demised premises. In case of a breach of this covenant
(in addition to all other
-2-
<PAGE> 3
covenants of this lease) the Tenant agrees to pay to the Landlord as additional
rent, upon demand, any and all increase or increases of premiums on insurance
carried by the Landlord on the demised premises, or any part thereof, or on the
building of which the demised premises may be a part, caused in any way by the
occupancy of the Tenant.
15. TAXES. The Landlord will pay ad valorem taxes on the real property.
Tenant will pay ad valorem taxes on its contents.
16. DEFAULT OF TENANT - EVENTS OF DEFAULT. The happening of any one or
more of the following listed events shall be an event of default.
A. The failure of Tenant to pay any rent payable hereunder and the
continued failure to pay the same for five (5) days after such payment is due,
whether or not Landlord notifies Tenant that such payment is due.
B. The failure of Tenant to fully and promptly perform any act
agreed to be done and performed or pay any sum (other than rent) due to be paid
pursuant to the terms of this lease.
C. The commencement in any court or tribunal of any proceedings,
voluntary or involuntary, to declare Tenant insolvent or unable to pay its
debts; or the filing by or on behalf of or against Tenant of any petition or
pleading to declare Tenant bankrupt under any bankruptcy law or act; or the
appointment by any court or under any law of a receiver, trustee or other
custodian of the property, assets or business of Tenant; or the assignment by
Tenant of all or any part of its property or assets for the benefit of
creditors.
D. The levy of execution, attachment or other taking of
property, assets or the leasehold interest of tenant by process of law or
otherwise in satisfaction of any judgment, debt, claim or lien.
Landlord's Responses to Events of Default. Upon the happening of any
event of default, Landlord, at Landlord's option, may at any time thereafter but
only during the continuance of such event of default (1) terminate this lease,
or (2) terminate Tenant's right to possession and occupancy of the premises,
without terminating the term of this lease, and in the event Landlord shall
exercise such right of election the same shall be effective as of the date of
such event of default upon written notice of Landlord's election given by the
Landlord to the Tenant at any time after the date of such event of default. Upon
any termination of the term hereof, whether by lapse of time or otherwise, or
upon any termination of Tenant's right of possession or occupancy of the
premises without terminating the term hereof, Tenant shall promptly and
peaceably surrender possession and vacate the premises and deliver possession
thereof to Landlord, and the Tenant hereby grants to Landlord full and free
license to enter into and upon the premises in such event and with or without
process of law to repossess the premises as of Landlord's former estate and to
expel or remove Tenant and any others who may be occupying the premises and to
remove therefrom any and all property, using for such purpose such force as may
be necessary without being guilty of or liable for trespass, eviction, forcible
entry or detainer or any other tort, and without relinquishing Landlord's right
to rent or any other right given to Landlord hereunder or by operation of law.
Except as expressly provided in this lease to the contrary, Tenant hereby
expressly waives the service of any demand by Landlord for the payment of rent
or for possession of the premises or to reenter the premises, including any and
every form of demand and notice now or hereafter prescribed by any statute or
any other law or ordinance, to the extent that any such statutory demand
requirement may be waived.
-3-
<PAGE> 4
17. PERFORMANCE OF TENANT'S OBLIGATION. If the Tenant shall be in
default hereunder, the Landlord may cure such default on behalf of the Tenant,
in which event, the Tenant shall reimburse the Landlord for all sums paid to
effect such cure, together with interest at the rate of 18% per annum and
reasonable attorney's fees, should an attorney's services be required. In order
to collect such reimbursement, the Landlord shall have all the remedies
available under this lease for a default in the payment of rent.
18. RIGHT OF ENTRY. The Landlord and its representatives may enter the
leased property, at any reasonable time, for the purpose of inspecting the
leased property, performing any work called for by this lease or which the
Landlord elects to undertake made necessary by reason of the Tenant's default
under the terms of this lease, exhibiting the leased property for sale, lease or
mortgage financing. Landlord shall notify Tenant prior to entry under this
Article and allow Tenant the opportunity to accompany Landlord during the entry.
19. FIRE OR CASUALTY. If all or a substantial part (50% or more) of
the leased property or the building of which the leased property is a part is
damaged or destroyed by fire or any other casualty, then either party may
terminate this lease. If less than a substantial part (less than 50%) of the
leased property is damaged or destroyed by fire or other casualty insured under
the standard fire insurance policy with approved standard extended coverage
endorsement applicable to the leased property, the Landlord may, at its option,
repair and rebuild the leased property with reasonable diligence, and if there
is an interference with the operation of the Tenant's business in the leased
property, the rent shall be equitably apportioned for the duration of such
repairs in proportion to the extent to which there is interference with the
operation of the Tenant's business.
20. CONDITIONAL MUTUAL RELEASE OF LIABILITY TO EXTENT OF SPECIFIC
INSURANCE COVERAGE. Neither the Landlord nor the Tenant shall be liable to the
other for any loss or damage to property or injury to or death of persons
occurring on the leased property or the adjoining property, or in any manner
growing out of or connected with the Tenant's use or occupation of the leased
property, whether or not caused by the negligence or other fault of the Landlord
or the Tenant or of their respective agents, employees, subtenants, Licensees,
or assignees. This release shall apply only to the extent that such loss or
damage to property, or injury to or death of persons is covered by insurance,
regardless of whether such insurance is payable to or protects the Landlord or
the Tenant or both. Nothing in this paragraph shall be construed to impose any
other or greater liability upon either the Landlord or the Tenant than would
have existed in the absence of this paragraph. This release shall be in effect
only so long as this release does not affect the right of the insured to recover
under such policies.
21. ASSIGNMENT. The Tenant may not assign this lease or sublet the
leased property without the written consent of the Landlord this consent will
not be unreasonably withheld. Such assignment or sublet shall in no way relieve
the Lessee from any obligations for the payment of rents or the performance of
the conditions, covenants and provisions of this lease.
22. SECURITY DEPOSIT. Upon commencement of this Lease as provided for
in Paragraph 3 herein, Tenant will deposit with Landlord the sum of Twenty-seven
Hundred Dollars & 00/100 ($2,700.00) (hereinafter referred to as the "Security
Deposit") as additional security for the full performance of every provision of
this Lease by Tenant. Landlord and Tenant agree to transfer a previous security
deposit of $976.50 for 6015-116 Pine Ridge into the deposit funds for 5315-101,
107, 108 Highgate. Landlord may apply all or any part of the Security Deposit to
cure any default by Tenant
-4-
<PAGE> 5
hereunder and Tenant shall promptly restore to the Security Deposit all amounts
so applied upon invoice. If Tenant shall fully perform each provision of this
Lease, any portion of the Security Deposit which has not been appropriated by
Landlord in accordance with the provisions hereof shall be returned to Tenant
without interest within thirty (30) days after the expiration of the full stated
term of this Lease.
23. RISK OF LOSS. The Landlord shall not be held responsible for, and
is hereby relieved from all liability by reason of any injury or damage to any
person, persons, or property in the demised premises, whether belonging to the
Tenant or any other person, caused by any fire or by any breakage or leakage in
any part or portion of the demised premises, or in any part or portion of the
building of which the demised premises are a part, unless such breakage,
leakage, injury, or damage be caused by or result from the negligence of the
Landlord or his agent.
24. CONDEMNATION. In the event that the demised premises, or any of the
parking areas, or any part thereof, are taken or condemned for a public or
quasi-public use or conveyed under threat of such condemnation, this lease
shall, as to the part so taken, terminate as of the date title shall vest in the
condemnor. No part of any award or compensation shall belong to the Tenant. In
no event shall the Lessor be liable to the Lessee for any business interruption,
diminution in use or for the value of any unexpired term of this lease.
25. MOTOR VEHICLE ACCESS AND PARKING. There are areas for motor
vehicles access to the Leased Premises and for parking near the Leased Premises.
Motor vehicles access and parking rights will be non-exclusive and will be
shared by Landlord and other Tenants and their invitees and customers.
26. SUBORDINATION. This lease shall be subject and subordinate at all
times to the lien of any deeds of trust or other encumbrances now or hereafter
placed on the land and buildings demised or of which the demised premises form a
part without the necessity of any further instrument or act on the part of the
Tenant to effectuate such subordination, but the Tenant covenants and agrees to
execute and deliver upon demand such further instrument or instruments
evidencing such subordination of this lease to the lien of any such deed of
trust or other encumbrances as shall be desired by any mortgagee or proposed
mortgagee or by Landlord. The Tenant hereby appoints the Landlord the
attorney-in-fact of the Tenant irrevocably to execute and deliver any such
subordination instrument or instruments for and in the name of the Tenant.
27. BENDING EFFECT. The covenants, terms, conditions, provisions, and
undertakings in this lease or in any renewals thereof shall extend to and be
binding upon the heirs, executors, administrators, successors and assigns of the
respective parties hereto.
28. ENTIRE AGREEMENT. This lease contains the entire agreement between
the parties and cannot be changed or terminated orally. It may be changed by a
statement signed by the party whose interest is adversely affected or who is to
be bound by such change or by a writing signed by both parties.
29. ENVIRONMENTAL COMPLIANCE. Tenant will not do anything on the
premises or the common or public areas of the Property that poses a hazard to
the environment or violates environmental laws, ordinances or regulations.
30. HOLDING OVER AFTER LEASE EXPIRATION. Either party hereto may
terminate this Lease Agreement at the end of the term by giving the other party
written notice sixty (60) days prior thereto; but in default of such notice,
this Lease shall continue, upon the same terms and
-5-
<PAGE> 6
conditions as are herein contained, for a further period of thirty (30) days,
and so on from month to month until terminated by either party hereto, giving to
the other party thirty (30) days written notice prior to the expiration of the
term.
31. NOTICES. For the purpose of notice or demand, the respective
parties shall be served by certified or registered mail addressed to the Tenant
or to the Landlord at their respective principal office addresses as shown at
the beginning of this Lease. Written notice may be given by any other means with
the burden of showing delivery on the sender.
32. STRICT PERFORMANCE. The failure of either party to insist in any
instance on strict performance of any covenant hereof or to exercise any option
herein contained, shall not be construed is a waiver of such covenant or option.
33. OBSERVATION OF LAWS. Tenant agrees to comply with all public laws,
ordinances, rules or regulations related to use of the Leased Premises. Should
any installation of fire prevention apparatus, electrical rewiring, plumbing
changes or structural changes in the building or the Leased Premises be required
by law, they shall be made by Landlord. Fees charged for inspections for fire
prevention and installation of fire extinguishers will be the responsibility of
the Tenant. Fire extinguishers provided by Tenant will be deemed personal
property belonging to the Tenant to be taken by the Tenant upon vacating the
office space.
34. Upon commencement of the Lease as provided for in Paragraph 3
herein, Landlord and Tenant agree to cancel any and all rights and obligations
of Landlord and Tenant in 6015-116, Pine Ridge, by a lease last executed
9/12/97, a copy of which is attached hereto.
LANDLORD: Ticon, Inc.
BY: /s/ W. Jack McGhee
---------------------------------
W. Jack McGhee
Date: 5/19/98
TENANT: OpenSite Technologies, Inc.
Attest:
By: /s/ Michael Brader-Araje, President
-----------------------------------
/s/ Dawn Birdsell Michael Brader-Araje
Date: 5/19/98
-6-
<PAGE> 7
GUARANTY
As acknowledge by the signature below, Michael Brader-Araje personally
guarantees all terms and conditions of the foregoing lease for a period of one
(1) year from the commencement date identified in Paragraph 3 herein.
By: /s/ Michael Brader-Araje
--------------------------------
Michael Brader-Araje
Date: 5/19/98
-7-
<PAGE> 8
LANDLORD'S ACKNOWLEDGMENT
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, a Notary Public for the County and State aforesaid, certify that
James B. Hall personally appeared before me this day and acknowledged that he is
Assistant Secretary of Ticon, Inc., a North Carolina corporation, and that by
authority duly given and as the act of the corporation, the foregoing instrument
was signed in its name by its President, sealed with its corporate seal, and
attested by himself as its Assistant Secretary.
Witness my hand and official seal this 19th day of May, 1998.
/s/ Mina C. Takasu
---------------------------------
Notary Public
[Notary Seal]
My Commission Expires: 01-15-02
INDIVIDUAL TENANT'S ACKNOWLEDGMENT
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, a Notary Public for the County and State aforesaid, certify that
Michael Brader-Araje personally appeared before me this day and acknowledged the
execution of the foregoing instrument.
Witness my hand and official seal this 15th day of May, 1998
/s/ Kimberly H. Hudson
------------------------------------
Notary Public
[Notary Seal]
My Commission Expires: 7/15/2002
-8-
<PAGE> 9
[Architectural Design of Office Space]
<PAGE> 10
HIGHGATE CENTRE
NC 54@ HIGHGATE DRIVE
DURHAM, NORTH CAROLINA
[Map of Highgate Drive]
<PAGE> 11
[Architectural Design of Office Space]
<PAGE> 12
EXHIBIT B
HIGHGATE CENTRE OFFICE PARK
Fayetteville Road
Durham, North Carolina
SPACE PLAN AND SPECIFICATIONS
The following allowances and building standard materials will be used.*
<TABLE>
<S> <C>
T-Bar Ceiling: 2' x 4' Standard grill and tile @ 9 ft. AFF
Lighting Fixture: 2' x 4' Four tube - Fluorescent fixture, one per 60 Sq. Ft.
Light Switch: One per office, one per entrance, one per 20' linear feet of hallway.
Outlets: One per 60 Sq. Ft. or two per office.
Phone Outlets: One per office, one per receptionist/secretarial area. Owner provides
boxes, cover plats, pull springs, and conduit (as required by Code.)
Paint: All exposed wall surfaces. Two coats of white
Carpet: $12 per yard allowance - carpet & installation
Base: 4" rubber base or carpet base
Framing: 3-5/8" metal studs to ceiling grid system
Walls: 10% of floor space
Wall Materials: 1/2" gypsum board, except where 5/8" "Fire Code" is required by the
Code. Walls to be taped and finished.
Windows: Double pane insulated operable windows with mini-blinds
Bathrooms: Per plans
Doors: One door per 150 square feet of floor space
Door Types: Interiors doors - 3' x 6' 8" x 1-3/8" hollow core doors - Masonite 6 panel
"elite"
HVAC: Individual electric heat pump heating and air conditions systems. One
ton per 400 Sq. Ft. of usable tenant space.
Security System: Pre-wire
Space Planning: Up to $300 by Landlord
</TABLE>
*The above allowances are general guidelines and are subject to some flexibility
based on final unit layout design.
<PAGE> 1
EXHIBIT 10.2
STATE OF NORTH CAROLINA
OFFICE SPACE LEASE
COUNTY OF DURHAM
This lease, dated the 31st day of August, 1998, is entered into by
Ticon Properties, LLC, hereinafter referred to as Landlord, and OpenSite
Technologies, hereinafter collectively referred to as Tenant.
1. PROPERTY. The Landlord hereby leases to the Tenant Suite 202,
Building 5315 of Highgate Centre, located on Highgate Drive, Durham, North
Carolina. It contains approximately 872 square feet of office space and an
unfinished attic storage space. The attic storage space is to be delivered "As
Is Where Is" as of 8/18/98. The leased space is shown on Exhibit A attached
hereto. Places for motor vehicle access and parking are provided at the
property. Their use is nonexclusive as set forth in Paragraph 25.
2. CONDITION OF PROPERTY. The Landlord will provide standard
fit-up as shown on Exhibit B and will replace the existing two (2) wooden doors
in office A with two (2) wood and glass or comparable quality metal and glass
doors. Mini-blinds will be furnished on all windows. At the commencement of the
term, the Tenant shall accept the building, improvements, and any fixtures on or
in the Leased Premises, in their existing condition except for punch list items
mutually agreed upon by Landlord and Tenant. All foregoing renovations or
improvements shall be completed by the Landlord prior to commencement of the
Lease.
3. TERM. The term of this Lease shall commence on the 24th day of
August, 1998, and shall expire three (3) year(s) from the commencement date, or
in the event that the Leased Premises cannot be made available to the Tenant on
the date above mentioned, this Lease shall commence ten (10) days after the
Landlord has notified the Tenant that the Leased Premises are available for
occupancy by the Tenant. If such expiration date shall be on any other day than
the last day of the month, the term of the Lease shall be extended to and expire
on the last day of that month.
4. RENT. The Tenant shall pay to the Landlord the monthly rent of
$872.00 during Year 1 of the Lease which shall be payable in advance on the 1st
day of each month during the lease term. The monthly rent will increase by 5% on
each anniversary date. If the rent has not been paid by the fifth of each month,
it shall be considered overdue. A late charge of 5% shall be due along with full
rental payment. This remedy is in addition to any other rights which the
Landlord has by North Carolina law or as set out herein. The rent shall be
payable to Ticon, Inc. at 3622 Lyckan Parkway, Suite 1006, Durham, NC 27707.
5. TENANT'S USE. The Tenant may use and occupy the leased
property for office purposes.
6. SIGNS. The Tenant will not place any signs or other
advertising matter or material on the exterior of the Leased Premises or on the
building in which the Leased Premises are located, without the prior written
consent of the Landlord. No signs shall be placed in windows for view from
outside the premises without written permission of Landlord.
<PAGE> 2
7. COVENANT OF QUIET ENJOYMENT. The Tenant, upon paying the basic
rent and any additional charges herein provided for, and performing all the
other terms of this Lease, shall quietly have and enjoy the leased property
during the term of this Lease.
8. REPAIR AND MAINTENANCE. The Tenant, at its sole expense, shall
keep the leased property, including the interior walls, ceilings, floors and
floor coverings, clean and in good condition, reasonable wear and tear excepted.
Touch-up painting, carpet stains, cigarette burns, and cleaning or repairs of
these items is the financial responsibility of the Tenant. The Landlord agrees
that it will, at its sole cost and expense, keep and maintain the building and
its common or public areas including the parking lot in good working order and
repair.
9. SURRENDER OF LEASED PROPERTY. At the expiration of the Lease
term, the Tenant shall surrender the leased property in as good condition as it
was at the beginning of the term, normal wear and tear excepted.
10. ALTERATIONS. No alterations, additions or improvements to the
leased property, other than a security alarm system, shall be made by the Tenant
without the written consent of the Landlord. This includes any interior painting
or other acts of a fairly permanent nature. In the event Landlord consents to
the proposed alterations, additions, or improvements, the same shall be at
Tenant's sole cost and expense, and Tenant shall hold Landlord harmless on
account of the cost thereof. Any such alterations shall be made at such time and
in such manner as not to unreasonably interfere with the occupation, use and
enjoyment of the remainder of the building by the other occupants. If required
by Landlord, such alterations shall be removed by Tenant upon the termination or
sooner expiration of the term of this Lease and Tenant shall be financially
responsible for repairs to the premises caused by such removal.
11. UTILITIES. The Tenant shall pay all charges for electricity
used, rendered or supplied upon or in connection with the leased property. The
Tenant will pay all charges for telephone or other communication service used,
rendered or supplied upon or in connection with the leased property, and shall
indemnify the Landlord against any liability or damages on such account.
Landlord will provide water for normal office use.
12. JANITORIAL. The Tenant shall pay for routine janitorial
service related to interior cleaning of the unit.
13. COMMON AREA MAINTENANCE. The Landlord will be responsible for
all maintenance and cleaning of the exterior of the building, grounds, and
parking lot.
14. INSURANCE. The Landlord shall secure for its own account, fire
and extended coverage insurance on the leased property in an amount satisfactory
to it or as required by the mortgage lender.
The Tenant shall secure an insurance policy covering the contents of
the premises and providing public liability insurance naming the Landlord as an
additional insured. Tenant further shall provide Landlord with evidence of said
coverage.
The Tenant agrees that the Tenant will not do or suffer to be done,
anything objectionable to the fire insurance companies whereby the fire
insurance or any other insurance now in force or hereafter to be placed on the
demised premises, or any part thereof, or on the building of which the demised
premises
-2-
<PAGE> 3
may be a part, to become void or suspended, or whereby the same shall be rated
as a more hazardous risk than at the date of the execution of this lease. Tenant
agrees not to employ any person or persons objectionable to the fire insurance
companies, or carry or have any benzine or explosive material of any kind in and
about the demised premises. In case of a breach of this covenant (in addition to
all other covenants of this lease) the Tenant agrees to pay to the Landlord as
additional rent, upon demand, any and all increase or increases of premiums on
insurance carried by the Landlord on the demised premises, or any part thereof,
or on the building of which the demised premises may be a part, caused in any
way by the occupancy of the Tenant.
15. TAXES. The Landlord will pay ad valorem taxes on the real
property. Tenant will pay ad valorem taxes on its contents.
16. DEFAULT OF TENANT - EVENTS OF DEFAULT. The happening of any
one or more of the following listed events shall be an event of default.
A. The failure of Tenant to pay any rent payable
hereunder and the continued failure to pay the same for five (5) days after such
payment is due, whether or not Landlord notifies Tenant that such payment is
due.
B. The failure of Tenant to fully and promptly perform
any act agreed to be done and performed or pay any sum (other than rent) due to
be paid pursuant to the terms of this lease.
C. The commencement in any court or tribunal of any
proceedings, voluntary or involuntary, to declare Tenant insolvent or unable to
pay its debts; or the filing by or on behalf of or against Tenant of any
petition or pleading to declare Tenant bankrupt under any bankruptcy law or act;
or the appointment by any court or under any law of a receiver, trustee or other
custodian of the property, assets or business of Tenant; or the assignment by
Tenant of all or any part of its property or assets for the benefit of
creditors.
D. The levy of execution, attachment or other taking of
property, assets or the leasehold interest of tenant by process of law or
otherwise in satisfaction of any judgment, debt, claim or lien.
Landlord's Responses to Events of Default. Upon the happening of any
event of default, Landlord, at Landlord's option, may at any time thereafter but
only during the continuance of such event of default (1) terminate this lease,
or (2) terminate Tenant's right to possession and occupancy of the premises,
without terminating the term of this lease, and in the event Landlord shall
exercise such right of election the same shall be effective as of the date of
such event of default upon written notice of Landlord's election given by the
Landlord to the Tenant at any time after the date of such event of default. Upon
any termination of the term hereof, whether by lapse of time or otherwise, or
upon any termination of Tenant's right of possession or occupancy of the
premises without terminating the term hereof, Tenant shall promptly and
peaceably surrender possession and vacate the premises and deliver possession
thereof to Landlord, and the Tenant hereby grants to Landlord full and free
license to enter into and upon the premises in such event and with or without
process of law to repossess the premises as of Landlord's former estate and to
expel or remove Tenant and any others who may be occupying the premises and to
remove therefrom any and all property, using for such purpose such force as may
be necessary without being guilty of or liable for trespass, eviction, forcible
entry or detainer or any other tort, and without relinquishing Landlord's right
to rent or any other right given to Landlord hereunder or by operation of law.
Except as expressly provided in this lease to the contrary, Tenant hereby
expressly waives the
-3-
<PAGE> 4
service of any demand by Landlord for the payment of rent or for possession of
the premises or to re-enter the premises, including any and every form of demand
and notice now or hereafter prescribed by any statute or any other law or
ordinance, to the extent that any such statutory demand requirement may be
waived.
17. PERFORMANCE OF TENANT'S OBLIGATION. If the Tenant shall be in
default hereunder, the Landlord may cure such default on behalf of the Tenant,
in which event, the Tenant shall reimburse the Landlord for all sum paid to
effect such cure, together with interest at the rate of 18% per annum and
reasonable attorney's fees, should an attorney's services be required. In order
to collect such reimbursement, the Landlord shall have all the remedies
available under this lease for a default in the payment of rent.
18. RIGHT OF ENTRY. The Landlord and its representatives may enter
the leased property, at any reasonable time, for the purpose of inspecting the
leased property, performing any work called for by this lease or which the
Landlord elects to undertake made necessary by reason of the Tenant's default
under the terms of this lease, exhibiting the leased property for sale, lease or
mortgage financing. Landlord shall notify Tenant prior to entry under this
Article and allow Tenant the opportunity to accompany Landlord during the entry.
19. FIRE OR CASUALTY. If all or a substantial part (50% or more)
of the leased property or the building of which the leased property is a part is
damaged or destroyed by fire or any other casualty, then either party may
terminate this lease. If less than a substantial part (less than 50%) of the
leased property is damaged or destroyed by fire or other casualty insured under
the standard fire insurance policy with approved standard extended coverage
endorsement applicable to the leased property, the Landlord may, at its option,
repair and rebuild the leased property with reasonable diligence, and if there
is an interference with the operation of the Tenant's business in the leased
property, the rent shall be equitably apportioned for the duration of such
repairs in proportion to the extent to which there is interference with the
operation of the Tenant's business.
20. CONDITIONAL MUTUAL RELEASE OF LIABILITY TO EXTENT OF SPECIFIC
INSURANCE COVERAGE. Neither the Landlord nor the Tenant shall be liable to the
other for any loss or damage to property or injury to or death of persons
occurring on the leased property or the adjoining property, or in any manner
growing out of or connected with the Tenant's use or occupation of the leased
property, whether or not caused by the negligence or other fault of the Landlord
or the Tenant or of their respective agents, employees, subtenants, Licensees,
or assignees. This release shall apply only to the extent that such loss or
damage to property, or injury to or death of persons is covered by insurance,
regardless of whether such insurance is payable to or protects the Landlord or
the Tenant or both. Nothing in this paragraph shall be construed to impose any
other or greater liability upon either the Landlord or the Tenant than would
have existed in the absence of this paragraph. This release shall be in effect
only so long as this release does not affect the right of the insured to recover
under such policies.
21. ASSIGNMENT. The Tenant may not assign this lease or sublet the
leased property without the written consent of the Landlord. This consent will
not be unreasonably withheld. Such a assignment or sublet shall in no way
relieve the Lessee from any obligations for the payment of rents or the
performance of the conditions, covenants and provisions of this lease.
22. SECURITY DEPOSIT. Tenant will upon execution of this lease,
deposit with Landlord the sum of Eight Hundred Seventy Two Dollars and 00/100
($872.00) (hereinafter referred to as the
-4-
<PAGE> 5
"Security Deposit") as additional security for the full performance of every
provision of this Lease by Tenant. Landlord may apply all or any part of the
Security Deposit to cure any default by Tenant hereunder and Tenant shall
promptly restore to the Security Deposit all amounts so applied upon invoice. If
Tenant shall fully perform each provision of this Lease, any portion of the
Security Deposit which has not been appropriated by Landlord in accordance with
the provisions hereof shall be returned to Tenant without interest within thirty
(30) days after the expiration of the full stated term of this Lease.
23. RISK OF LOSS. The Landlord shall not be held responsible for,
and is hereby relieved from all liability by reason of any injury or damage to
any person, persons, or property in the demised premises, whether belonging to
the Tenant or any other person, caused by any fire or by any breakage or leakage
in any part or portion of the demised premises, or in any part or portion of the
building of which the demised premises are a part, unless such breakage,
leakage, injury, or damage be caused by or result from the negligence of the
Landlord or his agent.
24. CONDEMNATION. In the event that the demised premises, or any
of the parking areas, or any part thereof, are taken or condemned for a public
or quasi-public use or conveyed under threat of such condemnation, this lease
shall, as to the part so taken, terminate as of the date title shall vest in the
condemnor. No part of any award or compensation shall belong to the Tenant. In
no event shall the Lessor be liable to the Lessee for any business interruption,
diminution in use or for the value of any unexpired term of this lease.
25. MOTOR VEHICLE ACCESS AND PARKING. There are areas for motor
vehicles access to the Leased Premises and for parking near the Leased Premises.
Motor vehicles access and parking rights will be non-exclusive and will be
shared by Landlord and other Tenants and their invitees and customers.
26. SUBORDINATION. This lease shall be subject and subordinate at
all times to the lien of any deeds of trust or other encumbrances now or
hereafter placed on the land and buildings demised or of which the demised
premises form a part without the necessity of any further instrument or act on
the part of the Tenant to effectuate such subordination, but the Tenant
covenants and agrees to execute and deliver upon demand such further instrument
or instruments evidencing such subordination of this lease to the lien of any
such deed of trust or other encumbrances as shall be desired by any mortgagee or
proposed mortgagee or by Landlord. The Tenant hereby appoints the Landlord the
attorney-in-fact of the Tenant irrevocably to execute and deliver any such
subordination instrument or instruments for and in the name of the Tenant.
27. BINDING EFFECT. The covenants, terms, conditions, provisions,
and undertakings in this lease or in any renewals thereof shall extend to and be
binding upon the heirs, executors, administrators, successors and assigns of the
respective parties hereto.
28. ENTIRE AGREEMENT. This lease contains the entire agreement
between the parties and cannot be changed or terminated orally. It may be
changed by a statement signed by the party whose interest is adversely affected
or who is to be bound by such change or by a writing signed by both parties.
29. ENVIRONMENTAL COMPLIANCE. Tenant will not do anything on the
premises or the common or public areas of the Property that poses a hazard to
the environment or violates environmental laws, ordinances or regulations.
-5-
<PAGE> 6
30. HOLDING OVER AFTER LEASE EXPIRATION. Either party hereto may
terminate this Lease Agreement at the end of the term by giving the other party
written notice sixty (60) days prior thereto; but in default of such notice,
this Lease shall continue, upon the same terms and conditions as are herein
contained, for a further period of thirty (30) days, and so on from month to
month until terminated by either party hereto, giving to the other party thirty
(30) days written notice prior to the expiration of the term.
31. NOTICES. For the purpose of notice or demand, the respective
parties shall be served by certified or registered mail addressed to the Tenant
or to the Landlord at their respective principal office addresses as shown at
the beginning of this Lease. Written notice may be given by any other means with
the burden of showing delivery on the sender.
32. STRICT PERFORMANCE. The failure of either party to insist in
any instance on strict performance of any covenant hereof or to exercise any
option herein contained, shall not be construed as a waiver of such covenant or
option.
33. OBSERVATION OF LAWS. Tenant agrees to comply with all public
laws, ordinances, rules or regulations related to use of the Leased Premises.
Should any installation of fire prevention apparatus, electrical rewiring,
plumbing changes or structural changes in the building or the Leased Premises be
required by law, they shall be made by Landlord. Fees charged for inspections
for fire prevention and installation of fire extinguishers will be the
responsibility of the Tenant. Fire extinguishers provided by Tenant will be
deemed personal property belonging to the Tenant to be taken by the Tenant upon
vacating the office space.
34. Tenant shall have the option to expand this property to
include the adjoining 330 square feet, identified as Expansion Space on Exhibit
A. Landlord shall upfit the expansion space in keeping with provisions of
Exhibit B. Upon completion of the upfit and delivery of expansion space to the
Tenant, the monthly rent identified in Paragraph 4 of this lease shall be
modified to $1,202.00 per month and all other provisions of this lease will
remain the same.
LANDLORD: Ticon Properties, LLC
By: /s/ W. Jack McGhee
--------------------------------------
Date: 9/25/98
TENANT: OpenSite Technologies, Inc.
By: /s/ Michael Brader-Araje
--------------------------------------
Michael Brader-Araje
Date: 8/31/98
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<PAGE> 7
GUARANTY
As acknowledged by the signature below, Michael Brader-Araje personally
guarantees all terms and conditions of the foregoing lease for a period of one
(1) year from the commencement date identified in Paragraph 3 herein.
By: /s/ Michael Brader-Araje
--------------------------------------
Michael Brader-Araje
Date: 8/31/98
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<PAGE> 8
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, a Notary Public for the County and State aforesaid, certify that
Michael Brader-Araje personally appeared before me this day and acknowledged the
executed of the foregoing instrument.
Witness my hand and official seal this 18th day September, 1998.
/s/ Mark E. Micol
------------------------------------
Notary Public
My Commission Expires: 5-17-99
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, a Notary Public for the County and State aforesaid, certify that W.
Jack McGhee, manager of Ticon Properties, LLC, personally appeared before me
this day and acknowledged the execution of the foregoing instrument.
Witness my hand and official seal this 25th day September, 1998.
/s/ Mark E. Micol
------------------------------------
Notary Public
My Commission Expires: 5-17-99
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<PAGE> 9
INDIVIDUAL TENANT'S ACKNOWLEDGMENT
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, a Notary Public for the County and State aforesaid, certify that
__________________________________ personally appeared before me this day and
acknowledged the execution of the foregoing instrument.
Witness my hand and official seal this __ day of ______________, 199__.
-------------------------------
Notary Public
My Commission Expires:
---------------------
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<PAGE> 10
EXHIBIT A
HIGHGATE CENTRE OFFICE PARK
Highgate Drive
Durham, North Carolina
[Architectural Design of Office Space]
-10-
<PAGE> 11
EXHIBIT 10.2
EXHIBIT B
HIGHGATE CENTRE OFFICE PARK
Highgate Drive
Durham, North Carolina
SPACE PLAN AND SPECIFICATIONS
The following allowances and building standard materials will be used.*
<TABLE>
<S> <C>
T-Bar Ceiling: 2' x 4' Standard grill and tile @ 9 ft. AFF
Lighting Fixture: 2' x 4' Four tube - Fluorescent fixture, one per 60 Sq. Ft.
Light Switch: One per office, one per entrance, one per 20' linear feet of hallway.
Outlets: One per 60 Sq. Ft. or two per office
Phone Outlets: One per office, one per receptionist/secretarial area. Owner provides boxes,
cover plats, pull springs, and conduit (as required by Code.)
Paint: All exposed wall surfaces. Two coats of white
Carpet: $12 per yard allowance - carpet & installation
Base: 4" rubber base or carpet base
Framing: 3-5/8" metal studs to ceiling grid system
Walls: 10% of floor space
Wall Materials: 1/2" gypsum board, except where 5/8" "Fire Code" is required by the Code.
Walls to be taped and finished.
Windows: Double pane insulated operable windows with mini-blinds
Bathrooms: Per plans
Doors: One door per 150 square feet of floor space
Door Types: Interiors doors - 3' x 6' 8" x 1-3/8" hollow core doors - Masonite 6 panel
"elite"
HVAC: Individual electric heat pump heating and air conditions systems. One ton per
40 Sq. Ft. of usable tenant space.
Security System: Pre-wire
Space Planning: Up to $300 by Landlord
</TABLE>
*The above allowances are general guidelines and are subject to some flexibility
based on final unit layout design.
<PAGE> 1
EXHIBIT 10.3
COMMERCIAL LEASE (OFFICE)
THIS AGREEMENT, made this 26th day of October in the year 1998 BY AND BETWEEN
K.K.G.R.H. ASSOC. L.P., hereinafter known and referred to as the owner, and
OPENSITE TECHNOLOGIES, INC. hereinafter known and referred to as the tenant,
PREMISES - WITNESSETH, that the said owner has agreed to let, and by these
presents does hereby grant, demise and lease unto the said tenant, and the said
tenant has agreed to take, and hereby doth take the following described
premises, to-wit: Approximately 2,600.00 square feet of office space located at
1868 Niagara Falls Boulevard, Tonawanda, NY 14150 known as Suite #203 and #209.
TERM - for the term of one year to commence on the 1st day of December, 1998,
and to end on the 30th day of November 1999 at eight o'clock in the forenoon.
RENTAL - the tenant agrees to pay to the owner at 1345 Millersport Highway,
Williamsville, New York 14221 the rent of Thirty One Thousand Two Hundred
Dollars ($31,200.00) in monthly payments of Two Thousand Six Hundred and No/100
Dollars ($2,600.00) in advance on the 1st day of each and every month during the
term of this lease.
SECURITY DEPOSIT - $1,025.00 1/22/98.
COVENANTS -
1. PROVIDED ALWAYS, and the tenant hereby covenants as follows:
(a) Not to use said premises, or any part thereof, for
any purpose than office space.
(b) Not to let, sell, underlet or assign over the said
premises, or any part thereof, for the whole or any part of said terms, without
the written consent of the owner.
(c) To punctually pay said rent as the same accrues.
(d) To allow the owner, in person or by agent, to enter
the said premises at all reasonable times of the day and to allow the owner, or
his agent to place on or about said premises, notices indicating that the
premises are for sale or rent; and to allow the owner, or his agent, to enter
upon and pass through and over said premises for the purpose of showing the same
to persons wishing to purchase or lease the same.
(e) To obey and carry out all Federal, State, County and
Municipal laws, regulations, rules and ordinances in regard to the premises
(hereby leased) and their use, and to take such care of said premises as may be
required by any and all Federal, State, County and Municipal authorities and
departments, or any of them; and to obey all lawful requirements of the New York
Fire Insurance Rating Organization, or any similar body, with reference to the
premises and the use thereof; and in the event that the insurance premium rate
upon the building shall be increased, by reason of an act of omission or
commission of the part of the tenant or by reason of the nature of the occupancy
of the premises the tenant agrees to pay the amount of any such increase; and to
save the owner and hold the owner harmless from any expense, loss or damage by
reason of the violation of such laws, regulations, rules, ordinances
<PAGE> 2
and requirements, or by reason of any damage that might be sustained by reason
of the tenant's negligence.
(f) To take care that no damage happens to the building
or any fixtures therein, in the tenants' use of electricity, water or gas and be
liable for all damages occasioned by the tenants, their agents or servants, in
the commission or omission of any acts causing such damage; and to observe and
keep all the rules and regulations of the electric, gas and water companies and
the sewer authority, supplying such premises with electricity, gas, water and
use of sewer, landlord to pay bills for same.
(g) To return the premises broom-clean at the expiration
of the lease to the owner and in the same condition as when taken, reasonable
wear and tear thereof excepted.
2. Every covenant herein contained shall be deemed and is hereby
made a condition.
3. In the event of the violation by the tenant of any covenant,
agreement or condition contained in this lease, after written notice to tenant
and tenants failure to cure in a reasonable time then, in either case the owner
shall have the right at the owner's election to terminate this lease, on first
giving to the tenant seven days' notice of such election, to be served
personally or by posting a notice in some conspicuous place in or about the
premises hereby let, and the above mentioned term shall thereupon cease at the
expiration of the said three days, in the manner and to the same effect as if
that were the expiration of the original term of this lease. It is further
agreed that such election shall be in the discretion of the owner and when
exercised shall be conclusive upon the tenant and in case the tenant shall
violate the covenant not to underlet or assign, or to use the premises only for
the purpose aforesaid, then the owner in addition to terminating the lease as
heretofore provided, may also recover as damages for the violation of said
covenants, or either of them, a sum equal to the amount of six months' rent of
the premises as herein reserved, as stipulated and liquidated damages, and not
as a penalty.
4. If the said premises shall at any time become vacant during
the said term in consequence of the removal of the tenant, for non-payment of
rent, by legal process, or any other cause, the owner may re-enter the same, and
use such force for that purpose as the owner shall think fit, without being
liable to any prosecution therefor, and may thereupon threat the said lease as
terminated, and re-let the said premises for his own use; or the owner may
re-let said premises as the agent of the tenant applying avails thereof; first,
to the expenses that may accrue in re-entering and then to payment of the rent
due as herein provided, and the balance to pay over to the tenant; or may hold
the tenant for any balance remaining due after so applying the proceeds, and the
right to hold the tenant for such balance shall survive the issuance of any
warrant of dispossess or re-entry by the owner or other termination or
cancellation of this lease.
5. In case the premises herein leased shall be partially damaged
by fire, the same shall be repaired as speedily as possible by the owner. In
case the premises shall be totally destroyed by fire, or so much damaged as to
render them untenable, either party hereto may serve personally, or by
registered mail, upon the other party within ten days after such fire, a
thirty-day written notice of the intention of such party to terminate this lease
and the term therein provided for and at the end of such thirty days the tenant
shall pay all rent to the date of said fire and surrender up to the owner said
premises discharges of this lease.
6. No signs are to be placed on the outside of the building
and/or rented office space except with the prior written consent of the
landlord. No exterior signs will be allowed unless space in existing sign is
available and permission is given by Landlord, all interior signs that will be
allowed by Landlord will be supplied by Landlord.
2
<PAGE> 3
7. Any and all equipment for communication and telephone service,
other than New York Telephone Co. Trunk Terminal Boards, must be contained in
space rented by tenant.
8. All remodeling, redecoration, repainting, etc. to be done at
tenants expense and will require owner's prior approval and consent, except as
provided in paragraph 12 below.
9. Landlord is responsible for repairs within the office space
rented as they pertain to the original structure only. Any items installed by
the tenant must be maintained and repaired by the tenant at their expense.
10. The tenant agrees that the landlord may retain a pass key to
all the premises and no lock shall be changed or a new lock installed and that
no additional lock or fastening shall be placed upon any door without the prior
written consent of the landlord.
11. In the event rent is not paid by the 5th of the month, a late
charge of $5.00 shall be added to that month's rent and if rent is not paid by
the 15th of the month, a late charge of $15.00 shall be added to that month's
rent. These late charges are not a penalty but service charges for extra
bookkeeping and handling charges involved.
12. Landlord to paint all walls, trim, etc. Carpet to be replaced
with similar. Three doorways to be installed and one wall opening to be made.
One wall to be erected. All per landlord and tenant agreement in the space
(approximately 1,600 square feet) that is being added to the already occupied
area.
13. As of 12/1/98 the original lease dated 1/23/98 and 9/28/98
becomes void and that space is incorporate into this lease.
IN WITNESS WHEREOF, the parties hereto have affixed their hands the day
and year first above mentioned.
K.K.G.R.H. ASSOC. L.P. OPENSITE TECHNOLOGIES, INC.
/s/ K.K.G.R.H. ASSOC. L.P. /s/ Mark Jauquet
- ---------------------------- ---------------------------
3
<PAGE> 1
EXHIBIT 10.4
STATE OF NORTH CAROLINA
OFFICE SPACE LEASE
COUNTY OF DURHAM
This lease, dated the 16th of February, 1999, is entered into by Ticon
Properties, LLC, hereinafter referred to as Landlord, and Open Site
Technologies, hereinafter collectively referred to as Tenant.
1. PROPERTY. The Landlord hereby leases to the Tenant Suite 201,
Building 5315 of Highgate Centre, located on Highgate Drive, Durham, North
Carolina. It contains approximately 1,130 square feet of office space. The
leased space is shown on Exhibit A attached hereto. Places for motor vehicle
access and parking are provided at the property. Their use is nonexclusive as
set forth in Paragraph 25. Tenant shall use his best efforts to insure that
Tenant's employees housed in Highgate Centre and the newly leased Suite 201 do
not park in any space identified on the property as "Visitor" parking. Parking
is available to Tenant in the gravel lot west of 5315 Highgate Centre and in the
adjacent parking at Triangle Medical Center.
2. CONDITION OF PROPERTY. The Landlord will provide standard
fit-up as shown on Exhibit B and install a standard 3' wide opening on the
common wall separating expansion areas of Suite 201 and Suite 202. Tenant shall
reimburse to the Landlord the cost of installing said opening by payment of same
with the payment of the Tenant's first month's rent on Suite 201. Mini-blinds
will be furnished on all windows. At the commencement of the term, the Tenant
shall accept the building, improvements, and any fixtures on or in the Leased
Premises, in their existing condition except for punch list items mutually
agreed upon by Landlord and Tenant. All foregoing renovations or improvements
shall be completed by the Landlord prior to commencement of the Lease.
3. TERM. The term of this Lease shall commence on the 1st day of
March 1999, and shall expire on September 30th, 2001, or in the event that the
Leased Premises cannot be made available to the Tenant on the date above
mentioned, this Lease shall commence ten (10) days after the Landlord has
notified the Tenant that the Leased Premises are available for occupancy by the
Tenant.
4. RENT. The Tenant shall pay to the Landlord the monthly rent of
$1,224.00 during Year 1 of the Lease which shall be payable in advance on the
1st day of each month during the lease term. The monthly rent will increase by
5% on each anniversary date. If the rent has not been paid by the fifth of each
month, it shall be considered overdue. A late charge of 5% shall be due along
with full rental payment. This remedy is in addition to any other rights which
the Landlord has by North Carolina law or as set out herein. The rent shall be
payable to Ticon, Inc. at 3622 Lyckan Parkway, Suite 1006, Durham, NC 27707.
5. TENANT'S USE. The Tenant may use and occupy the leased
property for office purposes.
6. SIGNS. The Tenant will not place any signs or other
advertising matter or material on the exterior of the Leased Premises or on the
building in which the Leased Premises are located, without the prior written
consent of the Landlord. No signs shall be placed in windows for view from
outside the premises without written permission of Landlord.
<PAGE> 2
7. COVENANT OF QUIET ENJOYMENT. The Tenant, upon paying, the
basic rent and any additional charges herein provided for, and performing all
the other terms of this Lease, shall quietly have and enjoy the leased property
during the term of this Lease.
8. REPAIR AND MAINTENANCE. The Tenant, at its sole expense, shall
keep the leased property, including the interior walls, ceilings, floors and
floor coverings, clean and in good condition, reasonable wear and tear excepted.
Touch-up painting, carpet stains, cigarette burns, and cleaning or repairs of
these items is the financial responsibility of the Tenant. The Landlord agrees
that it will, at its sole cost and expense, keep and maintain the building and
its common or public areas including the parking lot in good working order and
repair.
9. SURRENDER OF LEASED PROPERTY. At the expiration of the Lease
term, the Tenant shall surrender the leased property in as good condition as it
was at the beginning of the term, normal wear and tear excepted.
10. ALTERATIONS. No alterations, additions or improvements to the
leased property, other than a security alarm system, shall be made by the Tenant
without the written consent of the Landlord. This includes any interior painting
or other acts of a fairly permanent nature. In the event Landlord consents to
the proposed alterations, additions, or improvements, the same shall be at
Tenant's sole cost and expense, and Tenant shall hold Landlord harmless on
account of the cost thereof. Any such alterations shall be made at such time and
in such manner as not to unreasonably interfere with the occupation, use and
enjoyment of the remainder of the building by the other occupants. If required
by Landlord, such alterations shall be removed by Tenant upon the termination or
sooner expiration of the term of this Lease and Tenant shall be financially
responsible for repairs to the premises caused by such removal.
11. UTILITIES. The Tenant shall pay all charges for electricity
used, rendered or supplied upon or in connection with the leased property. The
Tenant will pay all charges for telephone or other communication service used,
rendered or supplied upon or in connection with the leased property, and shall
indemnify the Landlord against any liability or damages on such account.
Landlord will provide water for normal office use.
12. JANITORIAL. The Tenant shall pay for routine janitorial
service related to interior cleaning of the unit.
13. COMMON AREA MAINTENANCE. The Landlord will be responsible for
all maintenance and cleaning of the exterior of the building, grounds, and
parking lot.
14. INSURANCE. The Landlord shall secure for its own account, fire
and extended coverage insurance on the leased property in an amount satisfactory
to it or as required by the mortgage lender.
The Tenant shall secure an insurance policy covering the contents of
the premises and providing public liability insurance naming the Landlord as an
additional insured. Tenant further shall provide Landlord with evidence of said
coverage.
The Tenant agrees that the Tenant will not do or suffer to be done,
anything objectionable to the fire insurance companies whereby the fire
insurance or any other insurance now in force or hereafter to be placed on the
demised premises, or any part thereof, or on the building of which the demised
premises
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<PAGE> 3
may be a part, to become void or suspended, or whereby the same shall be rated
as a more hazardous risk than at the date of the execution of this lease. Tenant
agrees not to employ any person or persons objectionable to the fire insurance
companies, or carry or have any benzine or explosive material of any kind in and
about the demised premises. In case of a breach of this covenant (in addition to
all other covenants of this lease) the Tenant agrees to pay to the Landlord as
additional rent, upon demand, any and all increase or increases of premiums on
insurance carried by the Landlord on the demised premises, or any part thereof,
or on the building of which the demised premises may be a part, caused in any
way by the occupancy of the Tenant.
15. TAXES. The Landlord will pay ad valorem taxes on the real
property. Tenant will pay ad valorem taxes on its contents.
16. DEFAULT OF TENANT - EVENTS OF DEFAULT. The happening of any
one or more of the following listed events shall be an event of default.
A. The failure of Tenant to pay any rent payable
hereunder and the continued failure to pay the same for five (5) days
after such payment is due, whether or not Landlord notifies Tenant that
such payment is due.
B. The failure of Tenant to fully and promptly perform
any act agreed to be done and performed or pay any sum (other than
rent) due to be paid pursuant to the terms of this lease.
C. The commencement in any court or tribunal of any
proceedings, voluntary or involuntary, to declare Tenant insolvent or
unable to pay its debts; or the filing by or on behalf of or against
Tenant of any petition or pleading to declare Tenant bankrupt under any
bankruptcy law or act; or the appointment by any court or under any law
of a receiver, trustee or other custodian of the property, assets or
business of Tenant; or the assignment by Tenant of all or any part of
its property or assets for the benefit of creditors.
D. The levy of execution, attachment or other taking of
property, assets or the leasehold interest of tenant by process of law
or otherwise in satisfaction of any judgment, debt, claim or lien.
Landlord's Responses to Events of Default. Upon the happening of any
event of default, Landlord, at Landlord's option, may at any time thereafter but
only during the continuance of such event of default (1) terminate this lease,
or (2) terminate Tenant's right to possession and occupancy of the premises,
without terminating the term of this lease, and in the event Landlord shall
exercise such right of election the same shall be effective as of the date of
such event of default upon written notice of Landlord's election given by the
Landlord to the Tenant at any time after the date of such event of default. Upon
any termination of the term hereof, whether by lapse of time or otherwise, or
upon any termination of Tenant's right of possession or occupancy of the
premises without terminating the term hereof, Tenant shall promptly and
peaceably surrender possession and vacate the premises and deliver possession
thereof to Landlord, and the Tenant hereby grants to Landlord full and free
license to enter into and upon the premises in such event and with or without
process of law to repossess the premises as of Landlord's former estate and to
expel or remove Tenant and any others who may be occupying the premises and to
remove therefrom any and all property, using for such purpose such force as may
be necessary without being guilty of or liable for trespass, eviction, forcible
entry or detainer or any other tort, and without relinquishing Landlord's right
to rent or any other right given to Landlord hereunder or by operation of law.
Except as expressly provided in this lease to the contrary, Tenant hereby
expressly waives the
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<PAGE> 4
service of any demand by Landlord for the payment of rent or for possession of
the premises or to re-enter the premises, including any and every form of demand
and notice now or hereafter prescribed by any statute or any other law or
ordinance, to the extent that any such statutory demand requirement may be
waived.
17. PERFORMANCE OF TENANT'S OBLIGATION. If the Tenant shall be in
default hereunder, the Landlord may cure such default on behalf of the Tenant,
in which event, the Tenant shall reimburse the Landlord for all sums paid to
effect such cure, together with interest at the rate of 18% per annum and
reasonable attorney's fees, should an attorney's services be required. In order
to collect such reimbursement, the Landlord shall have all the remedies
available under this lease for a default in the payment of rent.
18. RIGHT OF ENTRY. The Landlord and its representatives may enter
the leased property, at any reasonable time, for the purpose of inspecting the
leased property, performing any work called for by this lease or which the
Landlord elects to undertake made necessary by reason of the Tenant's default
under the terms of this lease, exhibiting the leased property for sale, lease or
mortgage financing. Landlord shall notify Tenant prior to entry under this
Article and allow Tenant the opportunity to accompany Landlord during the entry.
19. FIRE OR CASUALTY. If all or a substantial part (50% or more)
of the leased property or the building of which the leased property is a part is
damaged or destroyed by fire or any other casualty, then either party may
terminate this lease. If less than a substantial part (less than 50%) of the
leased property is damaged or destroyed by fire or other casualty insured under
the standard fire insurance policy with approved standard extended coverage
endorsement applicable to the leased property, the Landlord may, at its option,
repair and rebuild the leased property with reasonable diligence, and if there
is an interference with the operation of the Tenant's business in the leased
property, the rent shall be equitably apportioned for the duration of such
repairs in proportion to the extent to which there is interference with the
operation of the Tenant's business.
20. CONDITIONAL MUTUAL RELEASE OF LIABILITY TO EXTENT OF SPECIFIC
INSURANCE COVERAGE. Neither the Landlord nor the Tenant shall be liable to the
other for any loss or damage to property or injury to or death of persons
occurring on the leased property or the adjoining property, or in any manner
growing out of or connected with the Tenant's use or occupation of the leased
property, whether or not caused by the negligence or other fault of the Landlord
or the Tenant or of their respective agents, employees, subtenants, Licensees,
or assignees. This release shall apply only to the extent that such loss or
damage to property, or injury to or death of persons is covered by insurance,
regardless of whether such insurance is payable to or protects the Landlord or
the Tenant or both. Nothing in this paragraph shall be construed to impose any
other or greater liability upon either the Landlord or the Tenant than would
have existed in the absence of this paragraph. This release shall be in effect
only so long as this release does not affect the right of the insured to recover
under such policies.
21. ASSIGNMENT. The Tenant may not assign this lease or sublet the
leased property without the written consent of the Landlord. This consent will
not be unreasonably withheld. Such assignment or sublet shall in no way relieve
the Lessee from any obligations for the payment of rents or the performance of
the conditions, covenants and provisions of this lease.
22. SECURITY DEPOSIT. Tenant will upon execution of this lease,
deposit with Landlord the sum of One Thousand Two Hundred Twenty-four Dollars
and 00/100 ($1,224.00) (hereinafter
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<PAGE> 5
referred to as the "Security Deposit") as additional security for the full
performance of every provision of this Lease by Tenant. Landlord may apply all
or any part of the Security Deposit to cure any default by Tenant hereunder and
Tenant shall promptly restore to the Security Deposit all amounts so applied
upon invoice. If Tenant shall fully perform each provision of this Lease, any
portion of the Security Deposit which has not been appropriated by Landlord in
accordance with the provisions hereof shall be returned to Tenant without
interest within thirty (30) days after the expiration of the full stated term of
this Lease.
23. RISK OF LOSS. The Landlord shall not be held responsible for,
and is hereby relieved from all liability by reason of any injury or damage to
any person, persons, or property in the demised premises, whether belonging to
the Tenant or any other person, caused by any fire or by any breakage or leakage
in any part or portion of the demised premises, or in any part or portion of the
building of which the demised premises are a part, unless such breakage,
leakage, injury, or damage be caused by or result from the negligence of the
Landlord or his agent.
24. CONDEMNATION. In the event that the demised premises, or any
of the parking areas, or any part thereof, are taken or condemned for a public
or quasi-public use or conveyed under threat of such condemnation, this lease
shall, as to the part so taken, terminate as of the date title shall vest in the
condemnor. No part of any award or compensation shall belong to the Tenant. In
no event shall the Lessor be liable to the Lessee for any business interruption,
diminution in use or for the value of any unexpired term of this lease.
25. MOTOR VEHICLE ACCESS AND PARKING. There are areas for motor
vehicles access to the Leased Premises and for parking near the Leased Premises.
Motor vehicles access and parking rights will be non-exclusive and will be
shared by Landlord and other Tenants and their invitees and customers.
26. SUBORDINATION. This lease shall be subject and subordinate at
all times to the lien of any deeds of trust or other encumbrances now or
hereafter placed on the land and buildings demised or of which the demised
premises form a part without the necessity of any further instrument or act on
the part of the Tenant to effectuate such subordination, but the Tenant
covenants and agrees to execute and deliver upon demand such further instrument
or instruments evidencing such subordination of this lease to the lien of any
such deed of trust or other encumbrances as shall be desired by any mortgagee or
proposed mortgagee or by Landlord. The Tenant hereby appoints the Landlord the
attorney-in-fact of the Tenant irrevocably to execute and deliver any such
subordination instrument or instruments for and in the name of the Tenant.
27. BINDING EFFECT. The covenants, terms, conditions, provisions,
and undertakings in this lease or in any renewals thereof shall extend to and be
binding upon the heirs, executors, administrators, successors and assigns of the
respective parties hereto.
28. ENTIRE AGREEMENT. This lease contains the entire agreement
between the parties and cannot be changed or terminated orally. It may be
changed by a statement signed by the party whose interest is adversely affected
or who is to be bound by such change or by a writing signed by both parties.
29. ENVIRONMENTAL COMPLIANCE. Tenant will not do anything on the
premises or the common or public areas of the Property that poses a hazard to
the environment or violates environmental laws, ordinances or regulations.
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<PAGE> 6
30. HOLDING OVER AFTER LEASE EXPIRATION. Either party hereto may
terminate this Lease Agreement at the end of the term by giving the other party
written notice sixty (60) days prior thereto; but in default of such notice,
this Lease shall continue, upon the same terms and conditions as are herein
contained, for a further period of thirty (30) days, and so on from month to
month until terminated by either party hereto, giving to the other party thirty
(30) days written notice prior to the expiration of the term.
31. NOTICES. For the purpose of notice or demand, the respective
parties shall be served by certified or registered mail addressed to the Tenant
or to the Landlord at their respective principal office addresses as shown at
the beginning of this Lease. Written notice may be given by any other means with
the burden of showing delivery on the sender.
32. STRICT PERFORMANCE. The failure of either party to insist in
any instance on strict performance of any covenant hereof or to exercise any
option herein contained, shall not be construed as a waiver of such covenant or
option.
33. OBSERVATION OF LAWS. Tenant agrees to comply with all public
laws, ordinances, rules or regulations related to use of the Leased Premises.
Should any installation of fire prevention apparatus, electrical rewiring,
plumbing changes or structural changes in the building or the Leased Premises be
required by law, they shall be made by Landlord. Fees charged for inspections
for fire prevention and installation of fire extinguishers will be the
responsibility of the Tenant. Fire extinguishers provided by Tenant will be
deemed personal property belonging to the Tenant to be taken by the Tenant upon
vacating the office space.
34. TENANT'S BROKER. Tenant shall be responsible for payment of
any real estate commissions to Tenant's broker - Corporate Realty Advisor.
Landlord shall be responsible for payment of any real estate commission to
Pickett/Sprouse Real Estate.
35. LANDLORD UPFIT. Per Exhibit A as attached, Landlord agrees to:
(1) Relocate Wall "A" as shown and add door Al; (2) add framed wall openings B
and C to be 4' wide and standard door height, but no door; and (3) add
electrical outlets and phone boxes per Exhibit A. Landlord's cost to upfit Suite
201 is $1,700 which will be paid by Tenant to Landlord prior to Tenant's
occupancy of space.
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<PAGE> 7
LANDLORD: Ticon Properties, LLC
By: /s/ W. Jack McGhee Date: 2/17/99
----------------------------
TENANT
Open Site Technologies, Inc. [Corporate Seal]
By: /s/ Michael Brader-Araje 2/16/99
---------------------------- ----------------
Date
Attest:
- --------------------------------
Secretary
GUARANTY
As acknowledged by the signature below, Michael Brader-Araje personally
guarantees all terms and conditions of the foregoing lease for a period of one
(1) year from the commencement date identified in Paragraph 3 herein.
By:
---------------------------------
Michael Brader-Araje
Date:
-------------------------------
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<PAGE> 8
LANDLORD'S ACKNOWLEDGMENT
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, a Notary Public for the County and State aforesaid, certify that W.
Jack McGhee, Manager of Ticon Properties, LLC, a North Carolina Limited
Liability Company personally appeared before me this day and executed the
foregoing instrument.
Witness my hand and official seal this 17th day February, 1999.
/s/ S. Ana Marracci
-------------------------
Notary Public
My Commission Expires: 10-27-03
TENANT'S ACKNOWLEDGMENT
STATE OF NORTH CAROLINA
COUNTY OF DURHAM
I, Mikita Sloan a Notary Public for the County and State aforesaid, do
hereby certify that Michael Brader-Araje personally appeared before me this day
and acknowledge that he is CEO of OpenSite Technologies, Inc., a Delaware
Corporation and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by its CEO, sealed with its
corporate seal, and attested by him as its CEO.
Witness my hand and official seal this 16th day of February, 1999.
/s/ Mikita Sloan
-------------------------
Notary Public
My Commission Expires: 10-27-99
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<PAGE> 9
EXHIBIT A
[Architectural Design of Space]
<PAGE> 1
EXHIBIT 10.5
OPENSITE TECHNOLOGIES, INC.
STOCK OPTION PLAN
1. Purpose.
OpenSite Technologies, Inc., a Delaware corporation (the
"Corporation"), has adopted the OpenSite Technologies, Inc. Stock Option Plan,
effective as of July 10, 1998.
The purpose of the OpenSite Technologies, Inc. Stock Option Plan (the
"Plan") is to enable the Corporation to attract, retain, and reward employees
and consultants ("Eligible Persons") by offering them an opportunity to have a
greater proprietary interest in and closer identity with the Corporation and
with its financial success. An option granted under the Plan to an Eligible
Person to purchase shares of the Corporation's common stock, $.01 par value
("Common Stock"), may be an incentive stock option ("ISO") as defined in Section
422 of the Internal Revenue Code of 1986 as heretofore or hereafter amended
("Code") or a nonqualified stock option ("NSO") (collectively referred to as
"Options") and may be accompanied by stock appreciation rights ("SARs"). An
Option that is not an ISO shall be an NSO. Shares of Common Stock ("Restricted
Stock") may be granted or offered for sale to Eligible Persons either separately
from or in tandem with the grant of an Option. Grants of Options and SARs, and
grants of Restricted Stock to Eligible Persons, shall be collectively referred
to as "Awards." Proceeds received by the Corporation from the sale of Restricted
Stock, or shares of Common Stock pursuant to Options granted under the Plan,
shall be used for general corporate purposes.
2. Administration.
The Plan shall be administered by a committee ("Committee") appointed
by the Board. The Committee shall be composed of not fewer than two members. The
Committee Members shall not be eligible to receive Awards under the Plan.
Subject to the express provisions of the Plan, the Committee may interpret the
Plan, prescribe, amend and rescind rules and regulations relating to it,
determine the terms and provisions of Awards to Eligible Persons under the Plan
(which need not be identical), and make such other determinations as it deems
necessary and advisable for the administration of the Plan. The Committee may
delegate decisions with respect to Awards to Eligible Persons who are not
elected officers or directors of the Corporation to such elected officer or
officers of the Corporation as the Committee determines. The decisions of the
Committee under the Plan shall be conclusive and binding. No member of the Board
or the Committee shall be liable for any action taken or determination made
hereunder in good faith. Service on the Committee shall constitute service as a
director of the Corporation so that the members of the Committee shall be
entitled to indemnification and reimbursement as directors of the Corporation
pursuant to its bylaws.
3. Eligibility.
Eligible Persons who have been selected by the Committee to receive an
Award shall participate in the Plan. (Eligible Persons who participate in the
Plan shall be referred to as "Participants"). SARs may be granted only to an
Eligible Person to whom an Option has been granted. Shares of Restricted Stock
may be granted or sold to Eligible Persons. ISO's may be granted only to an
employee of the Corporation ("Employee"). The Committee shall determine, within
the limits of the express provisions of the Plan, those Eligible Persons to
whom, and the time or times at which Awards shall be granted. The Committee
shall also determine, with respect to Awards to Eligible Persons, the number of
shares of Common Stock to be subject to each such Award; the type of Options
(ISO or NSO); the duration of each
<PAGE> 2
Option; the exercise price under each Option; the time or times within which
(during the term of the Option) all or portions of each Option may be exercised;
whether cash, Common Stock, Options or other property may be accepted in full or
partial payment upon exercise of an Option; whether an Option shall include SARs
and the terms of the SARs; the base price with respect to each Nontandem SAR
(hereinafter defined); the restrictions to be imposed on shares of Restricted
Stock; whether the shares of Restricted Stock shall be granted or sold; and any
other terms and conditions of such Awards. In making such determinations, the
Committee may take into account the nature of the services rendered by the
Eligible Person, his present and potential contributions to the Corporation's
success and such other factors as the Committee in its discretion shall deem
relevant.
4. Common Stock.
The total number of shares of Common Stock that may be subject to
Awards (including ISOs) under the Plan shall be 2,000,000 shares. Such total
number of shares shall be adjusted in accordance with the provisions of Section
12 hereof, and a share of Common Stock subject to an Option and its related
Tandem SAR (hereinafter defined) shall only be counted once. Such shares may be
either authorized but unissued shares or reacquired shares. In the event that
(a) any Option granted under the Plan expires unexercised or is terminated,
surrendered or canceled (other than in connection with the exercise of a Tandem
SAR) without being exercised, in whole or in part, for any reason, or (b) any
Non-Tandem SAR granted under the Plan expires unexercised or is terminated,
surrendered or canceled without being exercised, in whole or in part, for any
reason, or (c) any Restricted Stock granted under the Plan is forfeited or
reacquired by the Corporation in connection with the violation of any
restrictions imposed upon such shares pursuant to the Plan, then the number of
shares of Common Stock theretofore subject to such Option, or SAR, or
constituting such Restricted Stock, or the unexercised, terminated, surrendered,
forfeited, canceled or reacquired portion thereof shall be added to the
remaining number of shares of Common Stock that may be made subject to Awards
under the Plan. Such Awards include Awards to former holders of such Options,
SARs, or Restricted Stock and, with respect to Awards to Eligible Persons, upon
such terms and conditions as the Committee shall determine, which terms may be
more or less favorable than those applicable to such former holders of Options,
SARs or Restricted Stock.
5. Options.
The following provisions shall apply to each Option granted to an
Eligible Person:
(a) Options may be granted to Eligible Persons at any time and
from time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number of
shares of Common Stock subject to Options granted to each Eligible
Person. The Committee may grant any type of Option to purchase Common
Stock that is permitted by law at the time of the grant, including
ISOs. Unless otherwise expressly provided at the time of grant, Options
granted under the Plan will not be ISOs.
(b) Each Option shall be evidenced by a written agreement
specifying the type of Option granted, the Option exercise price, the
terms for payment of the exercise price, the duration of the Option,
the number of shares of Common Stock to which the Option pertains and
the terms of related SARs, if any (the "Option Agreement"). An Option
Agreement may also contain a vesting schedule, a noncompetition
agreement, a confidentiality provision, provisions for forfeiture in
the event of termination of the Eligible Person's employment by the
Corporation and such restrictions and conditions and other terms as the
Committee shall determine. Option Agreements need not be identical.
2
<PAGE> 3
(c) The Committee, in its discretion, shall have the power to
accelerate the dates for exercise of any or all Options, or any part
thereof, granted to an Eligible Person under the Plan.
(d) In the discretion of the Committee, the grant of any
Option may be accompanied by a Reload Option. A Reload Option may be
granted to an Eligible Person who is an Option holder and who satisfies
all or part of the exercise price of the Option with shares of Common
Stock. The Reload Option represents an additional Option to acquire the
same number of shares of Common Stock as is used by the Eligible Person
to pay for the original Option. A Reload Option is subject to all of
the same terms and conditions as the original Option except that (i)
the exercise price of the shares of Common Stock subject to the Reload
Option will be determined at the time the original Option is exercised
and (ii) such Reload Option will conform to all provisions of the Plan
at the time the original Option is exercised.
6. Required Terms and Conditions of ISOs.
The provisions of each ISO granted to an Employee under this Section 6
shall be interpreted in a manner consistent with Section 422 of the Code and
with all regulations issued thereunder. Each ISO granted to an Employee shall be
in such form and subject to such restrictions and conditions and other terms as
the Committee may determine at the time of grant, subject to the general
provisions of the Plan, Section 422 of the Code, the applicable Option Agreement
and the following specific rules:
(a) Exercise Price. Except as otherwise provided, the per
share exercise price of each ISO shall be at least 100% of the Fair
Market Value of the Common Stock at the time such ISO is granted,
provided that in the case of an ISO granted to an Employee who at the
time of grant owns (as defined in Section 424(d) of the Code) stock of
the Corporation or its parent or subsidiaries possessing more than 10%
of the total combined voting power of all classes of stock of any such
corporation, the exercise price shall be at least 110% of the Fair
Market Value of the Common Stock subject to the ISO at the time such
ISO is granted and the ISO by its terms shall not be exercisable after
the expiration of five years from the date the ISO is granted. In no
event may the exercise price be less than the par value of the Common
Stock subject to such ISO.
(b) Maximum Term. Subject to earlier termination as provided
in Section 8, each ISO shall expire on the date determined in the
applicable Option Agreement at the time the ISO is granted, provided
that no ISO shall be exercisable after the expiration of 10 years from
the date it is granted, except as otherwise provided in subsection (a)
next above.
(c) Time of Exercise. The Committee shall specify in the
Option Agreement, at the time each ISO is granted, the duration of each
ISO and the time or times within which (during the term of the ISO) all
or portions of each ISO may be exercised, except to the extent that
other terms of exercise are specifically provided by other provisions
of the Plan.
(d) Value of Shares. The aggregate Fair Market Value
(determined at the time of grant) of Common Stock with respect to which
IS0s are exercisable for the first time by an Employee during any
calendar year (under all option plans of the Corporation or of a
corporation which, at the time such ISO was granted, is a parent or
subsidiary of the Corporation, or is a predecessor corporation of any
such corporation) shall not exceed $100,000. If the aggregate Fair
Market Value (determined at the time of grant) of the stock subject to
an Option, which first becomes exercisable in any calendar year and
during this period exceeds the limitation of this subsection, so much
of the Option that does not exceed the applicable dollar limit shall be
an ISO
3
<PAGE> 4
and the remainder shall be an NSO; but in all other respects, the
original Option Agreement shall remain in full force and effect.
(e) Conversion. The Committee may, in its sole discretion,
cause the Corporation to convert an ISO to an NSO upon such terms and
conditions and in such manner as the Committee deems equitable.
7. Required Terms and Conditions of NSOs.
Each NSO granted to an Eligible Person shall be in such form and
subject to such restrictions and conditions and other terms as the Committee may
determine at the time of grant, subject to the general provisions of the Plan,
the applicable Option Agreement, and the following specific rules:
(a) Exercise Price. The number of shares of Common Stock
subject to each NSO and the per share exercise price of each NSO shall
be determined by the Committee at the time the NSO is granted, provided
that such exercise price shall not be less than 80% of the Fair Market
Value of the Common Stock on the date the NSO is granted, and further
provided that the Board shall approve any exercise price that is less
than 50% of the Fair Market Value of the Common Stock on the date of
grant. In no event may the exercise price be less than the par value of
the Common Stock subject to such NSO.
(b) Maximum Term. Subject to earlier termination as provided
in Section 8, each such NSO shall expire on the date determined in the
applicable Option Agreement at the time the NSO is granted, provided
that such date shall not be more than ten years after the date of
grant.
(c) Time of Exercise. The Committee shall specify in the
Option Agreement at the time each NSO is granted, the duration of each
NSO and the time or times within which (during the term of the NSO) all
or portions of each NSO may be exercised, except to the extent that
other terms of exercise are specifically provided by other provisions
of the Plan.
8. Expiration of Options Granted to Eligible Persons; Termination
of Employment, Disability or Death, or Retirement.
(a) General Rule. Except with respect to Options expiring
pursuant to subsection 8(b), (c) or (d) below, each Option granted to
an Eligible Person shall, expire on the expiration date or dates set
forth in the applicable Option Agreement. Each Option expiring pursuant
to subsection 8(b), (c) or (d) below shall expire on the date set forth
in subsection 8(b), (c) or (d) notwithstanding any restrictions and
conditions that may be contained in an Eligible Person's Option
Agreement.
(b) Expiration Upon Termination of Employment. An Option
granted to an Eligible Person shall expire on the first to occur of (i)
the applicable date or dates determined pursuant to subsection 8(a) or
(ii) the date that the employment or period of service of the Eligible
Person with the Corporation terminates for any reason other than death
or disability pursuant to subsection 8(c) or retirement pursuant to
subsection 8(d). Notwithstanding the preceding provisions of this
subsection 8(b), the Committee, in its sole discretion, may permit an
Eligible Person (i) to exercise an Option that is exercisable
immediately prior to the termination of employment or termination of
his period of service, notwithstanding any restrictions and conditions
that may be contained in his Option Agreement during a period not to
exceed ninety
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days following his termination of employment, and/or (ii) to exercise
an Option that becomes exercisable after termination of employment or
termination of his period of service and prior to the termination of
such ninety day period, during such period. In no event, however, may
the Committee permit such Eligible Person to exercise an Option under
this subsection 8(b) after the expiration date or dates set forth in
the applicable Option Agreement.
(c) Expiration Upon Disability or Death. If the employment or
period of service of an Eligible Person with the Corporation terminates
by reason of disability (as determined by the Committee) or death, his
unexpired Options or portions thereof, if any, held on the date of
disability or death that would expire pursuant to the terms of his
Option Agreement during the 12-month period commencing on the date of
disability or death, shall expire on the last day of such 12-month
period. During such 12-month period, any such Option or portion thereof
referred to in the preceding sentence may be exercised by such Eligible
Person, or the person specified in Section 9, with respect to the same
number of shares and in the same manner and to the same extent as if
the Eligible Person had continued as a full-time employee or consultant
of the Corporation during such 12-month period. Any unexpired Option or
portion thereof held by the Eligible Person on the date of disability
or death, that would expire pursuant to the terms of his Option
Agreement on a date more than 12 months after the date of disability or
death, shall expire unexercised on the date of disability or death.
(d) Expiration Upon Retirement. If the employment of an
Eligible Person with the Corporation terminates due to retirement under
any qualified retirement plan maintained by the Corporation, his Option
shall expire on the earlier to occur of (i) the applicable expiration
date or dates set forth in the applicable Option Agreement(s) or (ii)
the first anniversary of the date of such termination of employment. If
an Eligible Person who has so retired dies prior to exercising in full
an Option that has not expired pursuant to the preceding sentence, then
notwithstanding the preceding sentence, such Option shall expire on the
first anniversary of the date of the Eligible Person's death. During
the period commencing on the date of retirement or death, as the case
may be, and ending on the applicable later expiration date, the Options
may be exercised by such Eligible Person, or the person specified in
Section 9, with respect to the same number of shares and in the same
manner and to the same extent as if the Eligible Person had continued
as a full-time employee of the Corporation during such period.
9. Method of Exercise of Options.
Any Option granted under the Plan may be exercised by the Participant,
by a legatee or legatees of such Option under the Participant's last will, by
his executors, personal representatives or distributees, or by his assignee or
assignees as provided in Section 14 below, by delivering to the Secretary of the
Corporation written notice of the number of shares of Common Stock with respect
to which the Option is being exercised, accompanied by full payment to the
Corporation of the exercise price of the shares being purchased under the
Option, and by satisfying all other conditions provided for in the Plan. Except
as otherwise provided in the Plan or in any Option Agreement, the exercise price
of Common Stock upon exercise of any Option by an Eligible Person shall be paid
in full (i) in cash, (ii) in Common Stock valued at its Fair Market Value on the
date of exercise, (iii) in cash by a broker-dealer to whom the holder of the
Option has submitted an exercise notice consisting of a fully endorsed Option,
(iv) by agreeing to surrender SARs then exercisable by him valued pursuant to
subsection 10(b) below on the date of exercise, (v) by agreeing to surrender
Options then exercisable by him valued at the excess of the aggregate Fair
Market Value of the Common Stock subject to such Options on the date of exercise
over the aggregate option price of such Common Stock, (vi) by directing the
Corporation to withhold such
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number of shares of Common Stock otherwise issuable upon exercise of such Option
having an aggregate Fair Market Value on the date of exercise equal to the
exercise price of the Option, or (vii) by such other medium of payment as the
Committee, in its discretion, shall authorize, or by any combination of (i),
(ii), (iii), (iv), (v) and (vi), at the discretion of the Committee or in any
manner provided in the Option Agreement. In the case of payment pursuant to
(ii), (iii), (iv), (v) or (vi) above, the Participant's election must be made on
or prior to the date of exercise of the Option and must be irrevocable. In lieu
of a separate election governing each exercise of an Award, a Participant may
file a blanket election which shall govern all future exercises of Awards until
revoked by the Participant. The Corporation shall issue, in the name of the
Participant (or, if applicable, the legatee(s), executor(s), personal
representative(s), or distributee(s) of a deceased Participant, or the
assignee(s) as provided in Section 14), stock certificates representing the
total number of shares of Common Stock issuable pursuant to the exercise of any
Option as soon as reasonably practicable after such exercise, provided that any
Common Stock purchased by an Eligible Person through a broker-dealer pursuant to
clause (iii) above shall be delivered to such broker-dealer in accordance with
12 CFR ss. 220.3(e)(4).
10. Required Terms of Stock Appreciation Rights.
If deemed by the Committee to be in the best interests of the
Corporation, an Eligible Person who receives an Option may also be granted an
SAR. Each SAR shall be granted subject to such restrictions and conditions and
other terms as the Committee may specify in the Option Agreement at the time the
Option is granted, or as the Committee may determine at the time of grant,
subject to the general provisions of the Plan, and the following specific rules:
(a) Grant of SARs. SARs will be granted, if at all, at the
time of granting of an Option and may be granted either in addition to
the related Option ("Nontandem SAR") or in tandem with the related
Option ("Tandem SAR"). At the time of grant of a Nontandem SAR, the
Committee shall specify the base price of Common Stock to be used in
connection with the calculation described in subsection (b)(i) below.
The base price of a Nontandem SAR shall not be less than 80% of the
Fair Market Value of a share of Common Stock on the date of grant,
provided that the Board shall approve any base price that is less than
100% of the Fair Market Value of the Common Stock on the date of grant.
The number of shares of Common Stock subject to a Tandem SAR shall not
exceed one for each share of Common Stock subject to the Option. The
number of shares of Common Stock subject to a Nontandem SAR shall be
one for each share of Common Stock subject to the Option. No Tandem SAR
may be granted to an Eligible Person in connection with an IS0 in a
manner that will disqualify the ISO under Section 422 of the Code
unless the Eligible Person consents thereto.
(b) Value of SARs. Upon exercise, an SAR shall entitle the
Eligible Person to receive from the Corporation the number of shares of
Common Stock having an aggregate Fair Market Value equal to the
following:
(i) in the case of a Nontandem SAR, the excess of the
Fair Market Value of one share of Common Stock as of the date
on which the SAR is exercised over the base price specified in
such SAR, multiplied by the number of shares of Common Stock
then subject to the SAR, or the portion thereof being
exercised.
(ii) in the case of a Tandem SAR, the excess of the
Fair Market Value of one share of Common Stock as of the date
on which the SAR is exercised over the exercise
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price per share specified in such Option, multiplied by the
number of shares then subject to the Option, or the portion
thereof as to which the SAR is being exercised.
Cash shall be delivered in lieu of any fractional shares. The
Committee, in its discretion, shall be entitled to cause the
Corporation to elect to settle any part or all of its obligation
arising out of the exercise of an SAR by the payment of cash in lieu of
all or part of the shares of Common Stock it would otherwise be
obligated to deliver in an amount equal to the Fair Market Value of
such shares on the date of exercise.
(c) Exercise of Tandem SARs. A Tandem SAR shall be exercisable
during such time, and be subject to such restrictions and conditions
and other terms, as the Committee shall specify in the applicable
Option Agreement at the time such Tandem SAR is granted.
Notwithstanding the preceding sentence, the Tandem SAR shall be
exercisable only at such time as the Option to which it relates is
exercisable and shall be subject to the restrictions and conditions and
other terms applicable to such Option. Upon the exercise of a Tandem
SAR, the unexercised Option, or the portion thereof to which
the exercised portion of the Tandem SAR is related, shall expire. The
exercise of any Option shall cause the expiration of the Tandem SAR
related to such Option, or portion thereof, that is exercised.
(d) Exercise of Nontandem SARs.
(i) A Nontandem SAR granted under the Plan shall be
exercisable during such time, and be subject to such
restrictions and conditions and other terms, as the Committee
shall specify in the Option Agreement at the time the
Nontandem SAR is granted, which restrictions and conditions
and other terms need not be the same for all Eligible Persons.
Without limiting the generality of the foregoing, the
Committee may specify a minimum number of full shares with
respect to which any exercise of a Nontandem SAR must be made.
(ii) Subject to earlier termination as provided in
the last sentence of this paragraph (ii), a Nontandem SAR
granted under the Plan shall expire on the date specified by
the Committee in the Option Agreement, provided that such date
shall not be more than ten years after the date of grant. The
Committee shall specify in the Option Agreement at the time
each Nontandem SAR is granted, the time during which the
Nontandem SAR may be exercised prior to its expiration and
other provisions relevant to the SAR. The Committee, in its
discretion, shall have the power to accelerate the dates for
exercise of any or all Nontandem SARs or any part thereof,
granted under the Plan. Notwithstanding the foregoing, any
Nontandem SAR granted to an Eligible Person under the Plan
shall expire, notwithstanding any restrictions and conditions
that may be contained in his applicable Option Agreement,
following a termination of his employment with the Corporation
in the same manner as an Option held by such Eligible Person
would expire pursuant to the provisions of Section 8.
(e) Parties Entitled to Exercise SARs. An SAR may be exercised
only by the Eligible Person (or by a legatee or legatees of such SAR
under his last will, by his executors, personal representatives or
distributees, or by an assignee or assignees pursuant to Section 14
below).
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(f) Settlement of SARs. As soon as is reasonably practicable
after the exercise of an SAR, the Corporation shall (i) issue, in the
name of the Eligible Person, stock certificates representing the total
number of full shares of Common Stock to which the Eligible Person is
entitled pursuant to subsection (b) hereof and cash in an amount equal
to the Fair Market Value, as of the date of exercise, or any resulting
fractional shares, and (ii) if the Committee causes the Corporation to
elect to settle all or part of its obligations arising out of the
exercise of the SAR in cash, deliver to the Eligible Person an amount
in cash equal to the Fair Market Value, as of the date of exercise, of
the shares of Common Stock it would otherwise be obligated to deliver.
11. Restricted Stock Awards to Eligible Persons.
The Committee may from time to time cause the Corporation to grant, or
sell for such amount of cash, Common Stock or such other consideration as the
Committee deems appropriate (which amount may be less than the Fair Market Value
of the Common Stock on the date of grant or sale), shares of Restricted Stock
under the Plan to such Eligible Persons, and subject to such restrictions and
conditions and other terms as the Committee may determine at the time of grant
or sale, subject to the general provisions of the Plan, the applicable
Restricted Stock Agreement, and the following specific rules:
(a) Grant or Sale. Restricted Stock may be granted or sold to
an Eligible Person either separately from, or in tandem with, the grant
of an Option (with or without SAR's) to Eligible Persons. In the case
of Restricted Stock granted or sold in tandem with the grant of an
Option: (i) the exercise of the Option shall cause the forfeiture (or
sale at the purchase price paid for the Restricted Stock) to the
Corporation of the Restricted Stock related to the Option, or portion
thereof that is exercised, and (ii) the lapse of restrictions
applicable to such Restricted Stock shall cause the expiration of the
unexercised Option, or pro rata portion thereof, related to such
Restricted Stock. Restricted Stock not granted or sold in tandem with
the grant of an Option shall have no effect on, and shall not be
affected by, the exercise of any Option by the holder of such
Restricted Stock.
(b) Restricted Stock Agreements. Shares of Restricted Stock
issued to an Eligible Person under the Plan shall be governed by a
Restricted Stock Agreement which shall specify whether the shares of
Restricted Stock are granted or sold to the Eligible Persons and
whether such Restricted Stock is issued separate from, or in tandem
with, the grant of an Option and such other provisions as the Committee
shall determine.
(c) Issuance of Restricted Stock. The Corporation shall issue,
in the name of the Eligible Person, stock certificates representing the
total number of shares of Restricted Stock granted or sold to the
Eligible Person, as soon as may be reasonably practicable after such
grant or sale, which shall be held by the Secretary of the Corporation
as provided in subsection (h) hereof.
(d) Rights of Stockholders. Subject to the provisions of
subsections (c) and (e) hereof and subsection 13(b), and the
restrictions set forth in the related Restricted Stock Agreement, the
Eligible Persons receiving a grant of or purchasing Restricted Stock
shall thereupon be a stockholder with respect to all of the shares
represented by such certificate or certificates and shall have the
rights of a stockholder with respect to such shares, including the
right to vote such shares and to receive dividends and other
distributions paid with respect to such shares.
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(e) Restrictions; Forfeiture or Resale. Any share of
Restricted Stock granted to an Eligible Person pursuant to the Plan
shall be forfeited, and any share of Restricted Stock sold to an
Eligible Person pursuant to the Plan shall, at the Corporation's
option, be resold to the Corporation for an amount equal to the value
of the cash and/or property paid therefor, and, in either case, such
shares shall revert to the Corporation, if (i) the Eligible Person
violates a non-competition or confidentiality agreement or other
condition set forth in the Restricted Stock Agreement, (ii) the
Eligible Person's employment with the Corporation or its subsidiaries
terminates prior to a date or dates for expiration of the forfeiture or
resale provisions set forth in his Restricted Stock Agreement, which
date shall not be earlier than the first anniversary of such grant or
sale, (iii) the date the Eligible Person's employment with the
Corporation terminates for cause, or (iv) the date there occurs a
violation of any provision of the applicable Restricted Stock
Agreement. The Corporation shall exercise its right to require a
forfeiture, and exercise its right to require a resale of the
Restricted Stock pursuant to this subsection (e), by giving notice to
the Eligible Persons at any time within the 30-day period following (i)
the date that the Corporation acquires knowledge of his violation of a
noncompetition or confidentiality agreement or other condition, or (ii)
his termination of employment with the Corporation or its subsidiaries
prior to such date set forth in the Restricted Stock Agreement. Upon
receipt of such notice, the Secretary of the Corporation shall promptly
cancel shares of Restricted Stock that are forfeited or resold to the
Corporation, and the Corporation shall make payment therefor, if
applicable, as soon as reasonably practicable after the date of said
surrender.
(f) Acceleration. The Committee, in its discretion, shall have
the power to accelerate the date on which the restrictions of this
Section 11 or contained in any Restricted Stock Agreements shall lapse
with respect to any or all shares of Restricted Stock granted or sold
under the Plan that have been outstanding for at least one year.
(g) Termination of Employment. Notwithstanding the foregoing,
if the Eligible Person's employment terminates (i) upon the Eligible
Person's retirement [as described in subsection 10(d)], (ii) because of
his death or disability (as determined by the Committee), or (iii)
under circumstances described in subsection 10(e), any restrictions of
this Section 11 or in any Restricted Stock Agreement shall lapse.
(h) Restricted Stock Certificates. The Secretary of the
Corporation shall hold the certificate or certificates representing
shares of Restricted Stock issued under the Plan on behalf of each
Participant who holds such shares, whether by grant or sale, until such
time as the Restricted Stock is forfeited, resold to the Corporation,
or the restrictions lapse.
(i) Terms and Conditions. The Committee may prescribe such
other restrictions and conditions and other terms applicable to the
shares of Restricted Stock issued to an Eligible Person under the Plan
that are neither inconsistent with nor prohibited by the Plan or any
Restricted Stock Agreement, including, without limitation, terms
providing for a lapse of the restrictions of this Section 11 or in any
Restricted Stock Agreement, in installments.
12. Adjustments.
(a) Appropriate adjustment in the maximum number of shares of
Common Stock issuable pursuant to the Plan, the number of shares
subject to Awards under the Plan, the exercise price with respect to
Options and Tandem SARs and the base price with respect to Nontandem
SARs, shall be made to give effect to any increase or decrease in the
number of shares of issued
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Common Stock resulting from a subdivision or consolidation of shares
whether through reorganization, recapitalization, stock split, reverse
stock split, spin-off, split off, spin-out, or other distribution of
assets to stockholders, stock distributions or combination of shares,
assumption and conversion of outstanding Awards due to an acquisition
by the Corporation of the stock or assets of any other corporation,
payment of stock dividends, other increase or decrease in the number of
such shares outstanding effected, without receipt of consideration by
the Corporation, or any other occurrence for which the Committee
determines an adjustment is appropriate; provided, however, that no
adjustment in the number of shares with respect to which Awards may be
granted under the Plan, or in the number of shares subject to
outstanding Awards, shall be made except in the event, and then only to
the extent that such adjustment together with all respective prior
adjustments which were not made as a result of this provision, involve
a net change of more than ten percent (i) from the number of shares of
Common Stock with respect to which Awards may be granted under the
Plan, or (ii) with respect to each outstanding Option, from the
respective number of shares of Common Stock subject thereto on the date
of grant thereof. Without limiting the generality of the foregoing
provisions of this paragraph, any such adjustment shall be deemed to
have prevented any dilution and enlargement of an Eligible Person's
rights, if such Eligible Person receives in any such adjustment, rights
that are substantially similar (after taking into account the fact that
the Eligible Person has not paid the applicable exercise price) to the
rights the Eligible Person would have received had he exercised his
outstanding Awards, and become a stockholder of the Corporation
immediately prior to the event giving rise to such adjustment.
Adjustments under this paragraph shall be made by the Committee whose
decision as to the amount and timing of any such adjustment shall be
conclusive and binding on all persons.
(b) In the event that:
(i) Any person (as such term is used in Section 12
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder and including any Affiliate or
Associate of such person, as defined in Rule 12b-2 under said
Act, and any person acting in concert with such person)
directly or indirectly acquires or otherwise become entitled
to vote more than 50 percent of the voting power entitled to
be cast at elections for directors ("Voting Power") of the
Corporation; or
(ii) There occurs any merger or consolidation of the
Corporation, or any sale, lease or exchange of all or any
substantial part of the consolidated assets of the Corporation
and its subsidiaries to any other person and (A) in the case
of a merger or consolidation, the holders of outstanding stock
of the Corporation entitled to vote in elections of directors
immediately before such merger or consolidation hold less than
50% of the Voting Power of the survivor of such merger or
consolidation or its parent; or (B) in the case of any such
sale, lease or exchange, the Corporation does not own at least
50% of the Voting Power of the other person;
The Committee may, in its discretion, revise, alter, amend or
modify any Option Agreement or Restricted Stock Agreement with
an Eligible Person and any then outstanding and unexercised
Option granted to an Eligible Person, any SAR, and any share
of Restricted Stock granted or sold to an Eligible Person, in
any manner that it deems appropriate, including, but not
limited to, any of the following respects:
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(A) The Option and SAR may be deemed to
pertain to and apply to the securities to which a
holder of the number of shares of Common Stock
subject to the unexercised portion of the Option
would be entitled if he actually owned such shares
immediately prior to the record date or other time
any such event became effective, and the number of
SARs may be adjusted as necessary to maintain the
ratio between the number of SARs and the securities,
cash and other property subject to the Option; and
(B) Subject to subsection 6(d), the dates
upon which outstanding and unexercised Options may be
exercised may be advanced (without regard to
installment exercise limitations, if any);
(C) The dates upon which restrictions and
conditions applicable to outstanding Restricted Stock
shall lapse may be advanced (without regard to any
installment limitations); and
(D) Shares of Restricted Stock may be
surrendered in a merger, consolidation or share
exchange involving the Corporation, notwithstanding
any restrictions and conditions applicable to such
shares, provided that the securities and/or other
consideration received in exchange therefor shall be
subject to the restrictions and conditions applicable
to the Restricted Stock at the time of surrender and
that the surrendering Eligible Persons agrees to any
reasonable provisions requested by the Corporation to
assure that any consideration received as a result of
such surrender is subject to the same restrictions
and conditions as those imposed on the Restricted
Stock surrendered and that the consideration cannot
be transferred in violation of any such restrictions.
If the Committee believes that any such event is
reasonably likely to occur, the Committee may so
revise, alter, amend or modify as set forth above at
any time before and contingent upon the consummation
of such an event.
(c) In the case of dissolution of the Corporation, (i)
every Option and SAR granted to an Eligible Person outstanding
hereunder shall terminate notwithstanding any restrictions and
conditions that may be contained in his Option Agreement and (ii) the
restrictions and conditions on Restricted Stock held by an Eligible
Person shall lapse and the holders of such Restricted Stock shall have
all the rights of a stockholder with respect to participation in the
dissolution. Each such Option and SAR holder shall have 30 days prior
written notice of such event, during which time he shall have a right,
subject to subsection 7(d), to exercise his partly or wholly
unexercised Option and SAR (without regard to installment exercise
limitations, if any).
(d) On the basis of information known to the Corporation,
the Committee shall make all determinations relating to the
applicability and interpretation of this Section 12, and all such
determinations shall be conclusive and binding.
13. Terms and Conditions of Awards.
(a) Each Eligible Person shall agree to such restrictions
and conditions and other terms in connection with the exercise of an
Option or SAR, or the grant or sale of Restricted Stock, including
restrictions and conditions on the disposition of the Common Stock
acquired
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upon the exercise, grant or sale thereof, as the Committee may deem
appropriate. The certificates delivered to a Participant or to the
Secretary of the Corporation evidencing the shares of Common Stock
acquired upon exercise of an Option may, and in the case of a grant or
a sale of Restricted Stock to a Participant shall, bear a legend
referring to the restrictions and conditions and other terms contained
in the respective Option Agreement or Restricted Stock Agreement and
the Plan, and the Corporation may place a stop transfer order with its
transfer agent against the transfer of such shares. If requested to do
so by the Committee at the time of exercise of an Option or sale of
Restricted Stock, each Participant shall execute a written instrument
stating that he is purchasing the Common Stock for investment and not
with any present intention to sell the same.
(b) The obligation of the Corporation to sell and deliver
Common Stock under the Plan shall be subject to all applicable laws,
regulations, rules and approvals, including, but not by way of
limitation, the effectiveness of a registration statement under the
Securities Act of 1933, if deemed necessary or appropriate by the
Committee, of the Common Stock, Options, SARs and other securities
reserved for issuance or that may be offered under the Plan. A
Participant shall have no rights as a stockholder with respect to any
shares covered by an Option granted to, or exercised by, him until the
date of delivery of a stock certificate to him for such shares, or with
respect to Restricted Stock granted or sold to him, until the date of
delivery of a stock certificate representing such Restricted Stock to
the Secretary of the Corporation on his behalf. No adjustment other
than pursuant to Section 12(a) hereof shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is delivered.
14. Nontransferability.
(a) Except as provided in subsection 12(b)(iii)(D) and in
subsection (b) next below, or in connection with unrestricted Common
Stock issued pursuant to an Award, Awards granted under the Plan and
any rights and privileges pertaining thereto, may not be transferred,
assigned, pledged or hypothecated in any manner, by operation of law or
otherwise, other than by will or by the laws of descent and
distribution and shall not be subject to execution, attachment or
similar process. The granting of an Option or SAR shall impose no
obligation upon the applicable Participant to exercise such Option or
SAR.
(b) Notwithstanding the provisions of subsection (a) above, a
Participant, at any time prior to his death, may assign all or any
portion of an Award granted to him (other than an ISO) to (i) his
spouse or lineal descendant, (ii) the trustee of a trust for the
primary benefit of his spouse or lineal descendant, (iii) a partnership
of which his spouse and lineal descendants are the only partners, or
(iv) a tax exempt organization as described in Section 501(c)(3) of the
Code. In such event, the spouse, lineal descendant, trustee,
partnership or tax exempt organization will be entitled to all of the
rights of the Participant with respect to the assigned portion of such
Award, and such portion of the Award will continue to be subject to all
of the terms, conditions and restrictions applicable to the Award, as
set forth herein and in the related Option Agreement or Restricted
Stock Agreement immediately prior to the effective date of the
assignment. Any such assignment will be permitted only if (i) the
Participant does not receive any consideration therefore, and (ii) the
assignment is expressly permitted by the applicable Option Agreement or
Restricted Stock Agreement as approved by the Committee. Any such
assignment shall be evidenced by an appropriate written document
executed by the Participant, and a copy thereof shall be delivered to
the Corporation on or prior to the effective date of the assignment.
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15. Indemnification of the Committee.
In addition to such other rights of indemnification as they may have as
members of the Board, or as members of the Committee, or as its delegatees, the
members of the Committee and its delegatees shall be indemnified by the
Corporation against (a) the reasonable expenses (as such expenses are incurred),
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding (or in connection with any appeal
therein), to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, any Option or SAR
granted hereunder or any grant or sale of shares of Restricted Stock; and (b)
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Corporation) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee member or delegatee is liable for gross
negligence or misconduct in the performance of his duties; provided that within
60 days after institution of any such action, suit or proceeding a Committee
member or delegatee shall in writing offer the Corporation the opportunity, at
its own expense, to handle and defend the same.
16. No Contract of Employment.
Neither the adoption of the Plan nor the grant of any Award shall be
deemed to obligate the Corporation to continue the employment or period of
service of any Eligible Person for any particular period, nor shall the granting
of an Award constitute a request or consent to postpone the retirement date of
any Eligible Person.
17. Termination and Amendment of Plan.
(a) No IS0s shall be granted under the Plan more than ten
years after the first to occur of (i) the date the Plan was adopted by
the Board, or (ii) the date the Plan was approved by the stockholders
of the Corporation. The Board may at any time terminate, suspend or
modify the Plan without the authorization of stockholders to the extent
allowed by law, including, with respect to IS0s, Section 422 of the
Code and regulations issued thereunder.
(b) No termination, suspension or modification of the Plan
shall adversely affect any right acquired by any Participant under an
Award granted before the date of such termination, suspension or
modification, unless such Participant shall consent; but it shall be
conclusively presumed that any adjustment for changes in capitalization
as provided for herein does not adversely affect any such right. Any
member of the Board who is an officer or employee of the Corporation
shall be without vote on any proposed amendment to the Plan, or on any
other matter which might affect that member's individual interest under
the Plan.
18. Effective Date of Plan.
The Plan shall become effective upon adoption by the Board; provided,
however, that it shall be submitted for approval by either written consent of
all of holders of the outstanding Common Stock or by the holders of a majority
of the outstanding shares of Common Stock of the Corporation present, or
represented, and entitled to vote at a stockholders' meeting held within 12
months thereafter, and Awards granted prior to such stockholder approval shall
become null and void if such stockholder approval is not obtained.
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<PAGE> 14
19. Withholding Taxes.
Whenever the Corporation proposes or is required to issue or transfer
shares of Common Stock to a Participant under the Plan, the Corporation shall
have the right to require the Participant to remit to the Corporation an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares. If
such certificates have been delivered prior to the time a withholding obligation
arises, the Corporation shall have the right to require the Participant to remit
to the Corporation an amount sufficient to satisfy all federal, state or local
withholding tax requirements at the time such obligation arises and to withhold
from other amounts payable to the Participant, as compensation or otherwise, as
necessary. Whenever payments under the Plan are to be made to a Participant in
cash, such payments shall be net of any amounts sufficient to satisfy all
federal, state and local withholding tax requirements. In connection with an
Award in the form of shares of Common Stock, a Participant may elect to satisfy
his tax withholding obligation incurred with respect to the Taxable Date of the
Award by (a) directing the Corporation to withhold a portion of the shares of
Common Stock otherwise distributable to the Participant, or (b) by transferring
to the Corporation a certain number of shares (either subject to a restricted
Stock Award or previously owned), such shares being valued at the Fair Market
Value thereof on the Taxable Date. Notwithstanding any provisions of the Plan to
the contrary, a Participant's election pursuant to the preceding sentence (a)
must be made on or prior to the Taxable Date with respect to such Award, and (b)
must be irrevocable. In lieu of a separate election on each Taxable Date of an
Award, a Participant may make a blanket election with the Committee that shall
govern all future Taxable Dates until revoked by the Participant. If the holder
of shares of Common Stock purchased in connection with the exercise of an ISO
disposes of such shares within two years of the date such ISO was granted or
within one year of such exercise, he shall notify the Corporation of such
disposition and remit an amount necessary to satisfy applicable withholding
requirements including those arising under federal income tax laws. If such
holder does not remit such amount, the Corporation may withhold all or a portion
of any salary then or in the future owed to such holder as necessary to satisfy
such requirements. Taxable Date means the date a Participant recognizes income
with respect to an Award under the Code or any applicable state income tax law.
20. Leaves of Absence.
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan regarding any leave of
absence taken by an Eligible Person who is the recipient of any Award. Without
limiting the generality of the foregoing, the Committee shall be entitled to
determine (a) whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan, and (b) the impact, if
any, of any such leave of absence on Awards under the Plan theretofore made to
any Eligible Person who takes such leave of absence.
21. Governing Law.
The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Delaware and, in the
case of IS0s, Section 422 of the Code and regulations issued thereunder.
22. Fair Market Value.
"Fair Market Value" as of a given date for all purposes of the Plan and
any Option Agreement or Restricted Stock Agreement means (a) if the Common Stock
is listed on a national securities exchange, the average of the closing prices
of the Common Stock on the Composite Tape for the 10 consecutive
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<PAGE> 15
trading days immediately preceding such given date; (b) if the Common Stock is
traded on an exchange or market in which prices are reported on a bid and asked
price, the average of the mean between the bid and the asked price for the
Common Stock at the close of trading for the ten consecutive trading days
immediately preceding such given date; and (c) if the Common Stock is not listed
on a national securities exchange nor traded on the over-the-counter market,
such value as the Committee, in good faith, shall determine. Notwithstanding any
provision of the Plan to the contrary, no determination made with respect to the
Fair Market Value of Common Stock subject to an ISO shall be inconsistent with
Section 422 of the Code or regulations issued thereunder.
23. Successors.
In the event of a sale of substantially all of the assets of the
Corporation, or a merger, consolidation or share exchange involving the
Corporation, all obligations of the Corporation under the Plan with respect to
Awards granted hereunder shall be binding on the successor to the transaction.
Employment or continuation of service of an Eligible Person with such a
successor shall be considered employment or period of service of the Eligible
Person with the Corporation for purposes of the Plan.
24. Notices.
Notices given pursuant to the Plan shall be in writing and shall be
deemed received when personally delivered or five days after mailed by United
States registered or certified mail, return receipt requested, addressee only,
postage prepaid.
Notice to the Corporation shall be directed to:
OpenSite Technologies, Inc.
6015 Fayetteville Road, Suite 116
Durham, North Carolina 27713
Notices to or with respect to a Participant shall be directed
to the Participant, or the executors, personal representatives or distributees
of a deceased Participant, at the Participant's home address on the records of
the Corporation.
As adopted by the Board of Directors on July 10, 1998.
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<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 1
TO
OPENSITE TECHNOLOGIES, INC. STOCK OPTION PLAN
AMENDMENT made this 25th day of May, 1999 to the OpenSite Technologies,
Inc. Stock Option Plan originally adopted by the Board of Directors of OpenSite
Technologies, Inc. on July 10, 1998 (the "Plan"). (Capitalized words not defined
in this Amendment shall have the meanings assigned to them in the Plan).
NOW, THEREFORE, the Plan is hereby amended to increase the total number
of shares of Common Stock that may be subject to Awards from 2,000,000 to
3,500,000 shares by amending the first sentence of Section 4 - Common Stock of
the Plan to read as follows:
4. Common Stock
The total number of shares of Common Stock that may be subject to
Awards (including ISOs) under the Plan shall be 3,500,000 shares....
Except as expressly provided in this Amendment, all other terms and
provisions of the Plan shall continue in full force and effect.
The foregoing Amendment was adopted by the Board of Directors on May
25, 1999 and approved by the Shareholders on May , 1999.
IN WITNESS WHEREOF,
OPENSITE TECHNOLOGIES, INC.
By: /s/ Kip A. Frey
--------------------------------
Kip A. Frey, President
<PAGE> 1
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT, dated as of March 30, 1999,
among OpenSite Technologies, Inc., a Delaware corporation
(the "Company") and the parties listed on Schedule I attached
hereto (the "Investors")
INTRODUCTION
The Company and certain of the Investors have entered into a Share
Purchase Agreement, dated as of March 30, 1999 (the "Share Purchase
Agreement"), pursuant to which, among other things, the Company is issuing, and
the Investors are acquiring, shares of Series C Preferred Stock, par value
$0.01 per share (the "Series C Preferred Stock"), of the Company which are
convertible into shares of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"). Certain of the Investors own shares of Series A
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), of
the Company, or shares of Series B Preferred Stock, par value $0.01 per share
(the "Series B Preferred Stock" and, together with the Series A Preferred Stock
and the Series C Preferred Stock, the "Preferred Stock" and, together with the
Common Stock, the "Capital Stock"), of the Company.
The execution and delivery of this Agreement by the Company is a
condition precedent to the obligations of the Investors under the Share
Purchase Agreement.
In consideration of the foregoing, the covenants and obligations set
forth below, the parties agree as follows:
1. Registration on Request.
(a) Request. Subject to the limitations set forth in Section 1(b),
at any time after the earlier of (x) the third year anniversary of this
agreement and (y) six months after the effective date of the Company's
registration statement for its Initial Public Offering , a Holder or Holders
(as defined in Section 9(b)) may require, upon written notice to the Company,
the Company to effect the registration under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act") of all or part of the Registrable Securities (as defined in Section 9(b))
held by such requesting Holder or Holders; provided, however, that Holders of
Series A Preferred Stock or Series B Preferred Stock shall not, in the
aggregate, be permitted to exercise any demand right until an Initial Public
Offering of the Company; and provided, further, that Holders of Series A
Preferred Stock or Series B Preferred Stock shall not be permitted to make more
than one demand right for a registration on a Registration Statement on Form
S-1 and the Holders of Series C Preferred Stock shall not be permitted to make
more than three demand rights for a registration on a Registration Statement on
Form S-1. The Company promptly shall give notice of such requested registration
to all Holders of Registrable Securities who are entitled to join in such
registration and thereupon, the Company shall use its best efforts to effect,
on the earliest possible date, the registration under the Securities Act for
public sale (in accordance with the method of disposition specified in the
notice from the requesting Holders), of the Registrable Securities that the
Company has been requested to register by such requesting Holders and the other
Registrable Securities that the Company has been requested to register by the
Holders thereof by written notice given to the Company within 20 days after the
giving of such notice by the Company.
(b) Limitations. The Company shall not be required to effect a
registration pursuant to Section 1(a):
<PAGE> 2
(i) unless either (A) the reasonably anticipated
aggregate offering price to the public (net of underwriting
commissions and discounts) of all Registrable Securities for which
registration has been requested by Holders, together with any shares
sold by the Company for its own account, will be in excess of
$20,000,000 in the case of a Registration Statement on Form S-1 and
$10,000,000 if a Registration Statement on Form S-3 is used or (B) the
aggregate amount of Registrable Securities for which registration has
been requested includes all of the Registrable Securities held by the
Investors;
(ii) within 60 days after the effective date of a
registration statement (a "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission")
for a public offering and sale of equity securities of the Company
(other than a registration of securities (A) pursuant to a
Registration Statement on Form S-8 or Form S-4, any Registration
Statement covering only securities proposed to be issued in exchange
for securities or assets of another corporation or any Registration
Statement relating solely to, a dividend reinvestment plan, employee
stock option, stock purchase, benefit or similar plans (a "Special
Registration Statement") or (B) effected pursuant to a Registration
Statement on Form S-3); provided that the Company shall use its best
efforts to achieve effectiveness of a registration requested hereunder
promptly following such 60 day period if such request is made during
such 60 day period; and
(iii) on more than four occasions it being understood and
agreed that a registration effected using a Registration Statement on
Form S-3 shall not be counted as a registration under this Section;
(c) Effective Registration Statement. A registration requested
pursuant to this Section 1 shall not be deemed to have been effected, and shall
not be deemed a requested registration for purposes of Section 1, (i) unless a
Registration Statement covering at least 90% of the Registrable Securities
specified in the notices from the requesting Holders has become effective and
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
Registration Statement for the requisite time period as set forth in this
Agreement; provided that a registration which does not become effective after
the Company has filed a Registration Statement with respect thereto solely by
reason of the refusal to proceed of the requesting Holders (other than a
refusal to proceed based upon the advice of counsel relating to a material
matter with respect to the Company) shall be deemed to have been effected by
the Company at the request of such requesting Holders unless the requesting
Holders shall have elected to pay all Registration Expenses in connection with
such registration, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to the Holders, or (iii) if the conditions to closing specified in
the underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure on
the part of the Holders.
(d) Priority in Requested Registration. The Company shall have the
right to include in any Registration Statement initiated by the Holders
pursuant to this Section 1, for sale in accordance with the method of
disposition specified by the requesting Holders, securities to be sold by the
Company for its own account and Registrable Securities to be sold by any other
stockholder pursuant to incidental registration rights granted to such
stockholder in accordance with Section 16 ("Other Holders"). If, in the
good-faith judgment of the managing underwriter of any underwritten offering,
if any, the inclusion of all of the Registrable Securities requested for
inclusion pursuant to Section 1(a) would adversely affect the successful
marketing of the proposed offering or a reduction in the number of shares of
Common Stock
2
<PAGE> 3
to be sold is otherwise advisable, then the number of shares of Common Stock to
be included in the offering shall be reduced to the required level, first, by
excluding securities to be sold by the Company for its own account unless such
offering constitutes an Initial Public Offering, for which there shall be no
reduction by the Company, second, by reducing the participation of Other
Holders of Registrable Securities in such offering pro rata among such Other
Holders of Registrable Securities in such offerings based upon the total number
of Registrable Securities owned by such Other Holders, third, by reducing the
participation of Holders of Series A Preferred Stock, Holders of Series B
Preferred Stock and Holders of Series C Preferred Stock (including Holders of
Common Stock received upon prior conversion of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock) such that the
total number of shares to be registered in such offering shall be pro rata
among such Holders based upon the following formula:
O - C* H/T
O = the total number of shares that the underwriter in its
good faith judgment agrees can be sold in the offering.
C = the total number of shares to be included in the
offering by the Company and the Other Holders after exclusions and reductions,
if any, of shares to be offered by the Company and Other Holders pursuant to
this Section 1(d).
H = the total number of Registrable Securities owned by each
such Holder, who has given proper notice to participate in the offering, as of
the date of the First Closing (as defined in the Share Purchase Agreement), or,
in the case of Southeast Interactive Technology Fund II, LLC ("Southeast
Interactive"), as of the date of the Second Closing (as defined in the Share
Purchase Agreement).
T = the total number of Registrable Securities owned by
Holders, who have given proper notice to participate in the offering, as of the
date of the Second Closing, or if no such closing occurs, then as of the date
of the First Closing.
Except for Special Registration Statements, the Company shall not
cause any other Registration Statement with respect to its Registrable
Securities for its own account to become effective less than 120 days after the
effective date of any registration requested pursuant to this Section 1. In the
event that (A) (i) a Holder of Series A Preferred Stock or Series B Preferred
Stock exercises a demand right pursuant to Section 1(a) and (ii) the
participation of Holders of Series A Preferred Stock or Series B Preferred
Stock in such offering is reduced pursuant to this Section 1(d), then the
demand registration exercised by the Holder of Series A Preferred Stock and
Series B Preferred Stock shall not count toward the limit on demand
registration rights of the Holders of Series A Preferred Stock and Series B
Preferred Stock contained in Section 1(a) or (B) a Holder of Series C Preferred
Stock exercises a demand right pursuant to Section 1(a) and (ii) the
participation of Holders of Series C Preferred Stock in such offering is
reduced pursuant to this Section 1(d), then the demand registration exercised
by the Holder of Series C Preferred Stock shall not count toward the limit on
demand registration rights of the Holders of Series C Preferred Stock contained
in Section 1(a).
(e) Registration on Form S-3. Following an Initial Public
Offering, the Company shall use its best efforts to become eligible to use the
Registration Statement on Form S-3 for public offerings of its capital stock.
3
<PAGE> 4
2. Incidental Registration.
(a) Right to Include Registrable Securities. If at any time the
Company proposes to register any shares of Capital Stock under the Securities
Act, whether or not for sale of its own account, on a form and in the manner
that would permit registration of Registrable Securities for the sale to the
public under the Securities Act (other than in connection with Special
Registration Statements), the Company shall give written notice to all Holders
of its intention to do so. Upon the written request of a Holder given within 30
days after the giving of any such notice by the Company, the Company shall use
its best efforts to cause to be included in such Registration Statement all of
the Registrable Securities requested by Holders. If the Registration Statement
is to cover, in whole or in part, any underwritten distribution, the Company
shall use its best efforts to cause the Registrable Securities requested for
inclusion pursuant to this Section to be included in the underwriting on the
same terms and conditions as the securities otherwise being sold through the
underwriters.
(b) Priority in Incidental Registrations. If, in the good-faith
judgment of the managing underwriter of any underwritten offering, if any, the
inclusion of all of the Registrable Securities requested for inclusion pursuant
to Section 2(a) would adversely affect the successful marketing of the proposed
offering or a reduction in the number of shares of Common Stock to be sold is
otherwise advisable, then the number of shares of Common Stock to be included
in the offering shall be reduced to the required level, first, by excluding
securities to be sold by the Company for its own account unless (i) such
offering constitutes an initial public offering or (ii) the Board of Directors
of the Company makes a good-faith determination that the Company needs all of
the proceeds from the securities to be sold by the Company in the offering for
working capital purposes, capital expenditures or acquisitions for which in
both cases there shall be no reduction by the Company, second, by reducing the
participation of Other Holders of Registrable Securities in such offering pro
rata among such Other Holders of Registrable Securities in such offerings based
upon the total number of Registrable Securities owned by such Other Holders,
third, by reducing the participation of Holders of Series A Preferred Stock,
Holders of Series B Preferred Stock and Holders of Series C Preferred Stock
(including Holders of Common Stock received upon prior conversion of shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock) such that the total number of shares to be registered in such offering
shall be pro rata among such Holders based upon the following formula:
(O - C) * H/T
O = the total number of shares proposed to be sold in the
offering after reductions pursuant to the exclusions and reductions to shares
that have been proposed to be sold by the Company and Other Holders pursuant to
this Section 2(b).
C = the total number of shares to be included in the offering
by the Company and the Other Holders after the exclusions and reductions, if
any, of shares to be offered by the Company and Other Holders pursuant to this
Section 2(b).
H = the total number of Registrable Securities owned by each
such Holder, who has given proper notice to participate in the offering, as of
the date of the Second Closing.
T = the total number of Registrable Securities owned by
Holders, who have given proper notice to participate in the offering, as of the
date of the Second Closing, or if no such closing occurs, then as of the date
of the First Closing.
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<PAGE> 5
3. Registration Procedures. If and whenever the Company is
required by the provisions of Sections 1 or 2 to effect the registration of
Registrable Securities under the Securities Act, the Company shall, at its
expense, as expeditiously as possible:
(i) prepare and, in any event within 45 days (or within
60 days if it is the first Registration Statement filed by the Company) after
the end of the period within which a request for registration may be given to
the Company, file with the Commission a Registration Statement with respect to
such Registrable Securities and use its best efforts to cause such Registration
Statement to become effective; provided that the Company may discontinue any
registration of its securities which is being effected pursuant to Section 2 at
any time prior to the effective date of the Registration Statement;
(ii) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for a period not in excess of 120 days (except with respect to any
Registration Statement filed pursuant to Rule 415 under the Securities Act if
the Company is eligible to file a Registration Statement on Form S-3, in which
case the Company shall use its best efforts to keep such Registration Statement
effective and updated until such time as all of the Registrable Securities
covered by such Registration Statement have been disposed of in accordance with
the intended methods of disposition by the Seller or Sellers set forth in such
Registration Statement) and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
Registration Statement; provided that before filing a Registration Statement or
prospectus, or any amendments or supplements thereto, the Company will furnish
to one counsel selected by the Holders of a majority of the Registrable
Securities covered by such Registration Statement to represent all Holders of
Registrable Securities covered by such Registration Statement, copies of all
documents proposed to be filed, which documents will be subject to the review
of such counsel;
(iii) furnish to each seller of such Registrable Securities
such number of copies of such Registration Statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such Registration Statement (including each
preliminary prospectus and summary prospectus), and any other prospectus filed
under Rule 424 under the Securities Act in conformity with the requirements of
the Securities Act, and such other documents as such seller may reasonably
request;
(iv) use its best efforts to register or qualify such
Registrable Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller, except that the Company shall not for any such purpose be required (a)
to qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this clause (iv), it would not
be obligated to be so qualified or (b) to consent to general service or process
in any such jurisdiction;
(v) use its best efforts to cause such Registrable
Securities covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
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<PAGE> 6
(vi) cause senior representatives of the Company to
participate in any "road show" or "road shows" reasonably requested by any
underwriter of an underwritten or "best efforts" offering of any Registrable
Securities;
(vii) notify each seller of any such Registrable Securities
covered by such Registration Statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the Company's
becoming aware that the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller, prepare and furnish to such
seller a reasonable number of copies of an amended or supplemental prospectus
as may be necessary so that, as thereafter delivered to the sellers of such
Registrable Securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable (but not more than 18
months) after the effective date of the Registration Statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the Securities
Act and the rules and regulations promulgated thereunder;
(ix) use its best efforts to list such Registrable
Securities on any securities exchange on which capital stock of the same class
is then listed, if such Registrable Securities are not already so listed and if
such listing is then permitted under the rules of such exchange, and to provide
a transfer agent and registrar for such Registrable Securities covered by such
Registration Statement not later than the effective date of such Registration
Statement;
(x) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions as
sellers of a majority of such Registrable Securities or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(xi) obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and covering matters
of the type customarily covered by "cold comfort" letters as the seller or
sellers of a majority of such Registrable Securities shall reasonably request;
(xii) obtain an opinion of counsel for the Company in
customary form and covering matters of the type customarily covered in opinions
of issuer's counsel as the Sellers shall reasonably request; and
(xiii) make available for inspection by any seller of such
Registrable Securities covered by such Registration Statement, by any
underwriter participating in any disposition to be effected pursuant to such
Registration Statement and by any attorney, accountant or other agent retained
by any such seller or any such underwriter, all pertinent financial and other
records, pertinent corporate documents and properties of the Company, and cause
all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such Registration Statement.
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<PAGE> 7
4. Expenses. With respect to each registration effected pursuant
to Sections 1 or 2, all Registration Expenses (defined below) in connection
with such registration and the public offering in connection therewith shall be
borne by the Company; provided that security holders participating in any such
registration shall bear their pro rata share of the underwriting discounts and
selling commissions (on the basis of the number of Registrable Securities of
each such person included and sold in such registration). "Registration
Expenses" means any and all expenses incident to performance of or compliance
with this Agreement, including, without limitation, (i) all registration and
filing fees of the Commission, a stock exchange or the National Association of
Securities Dealers, Inc., (ii) all fees and expenses of complying with
securities or blue sky laws (including fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the Registrable
Securities) unless paid by the underwriters, (iii) all printing, messenger and
delivery expenses, (iv) all fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange pursuant to
Section 3(ix), (v) the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such
performance and compliance, (vi) the reasonable fees and disbursements of one
counsel selected by the Holders of a majority of the Registrable Securities
being registered to represent all Holders of the Registrable Securities being
registered in connection with each such registration, (vii) any fees and
disbursements of underwriters customarily paid by the issuers or sellers of
securities, including fees and disbursements of counsel for the underwriters,
but excluding underwriting discounts and commissions, (viii) liability
insurance if the Company so desires or if the underwriters so require, and (ix)
the reasonable fees and expenses of any special experts retained by the Company
in connection with the requested registration.
5. Indemnification and Contribution.
(a) Indemnification by the Company. In the event of a registration
of any shares of Registrable Securities pursuant to Section 1 or 2, the
Company, to the extent permitted by law, will indemnify and hold harmless each
Holder of such shares of Registrable Securities included in a Registration
Statement pursuant to the provisions of this Agreement and any underwriter (as
defined in the Securities Act) of such Registrable Securities and each other
person, if any, who controls such Holder or such underwriter within the meaning
of the Securities Act, and their respective directors, officers, partners,
members, agents and affiliates (the "Holders' Affiliates") , and each of their
successors from and against, and will reimburse such Holder and each such
underwriter, controlling person and Holders' Affiliate with respect to, any and
all claims, actions, demands, losses, damages, liabilities, costs and expenses
to which such Holder, underwriter, controlling person or Holders' Affiliate may
become subject under the Securities Act or otherwise, including, without
limitation, the reasonable fees and expenses of legal counsel (including those
incurred in connection with any claim for indemnity hereunder) insofar as such
claims, actions, demands, losses, damages, liabilities, costs or expenses (or
actions, or proceedings, whether commenced or threatened in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement under which
securities were registered under the Securities Act, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or arise out of any violation by the Company of any rule or regulation under
the Securities Act or any state securities laws applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration; provided that the Company will not be liable in any case to the
extent, but only to the extent, that any such claim, action, demand, loss,
damage, liability, cost or expense arises out of or is based upon an untrue
statement or omission so made in reliance upon and in strict conformity with
information furnished in writing by such Holder or such underwriter
specifically for use in the
7
<PAGE> 8
preparation thereof. It is agreed that this indemnity shall not apply to
amounts paid in settlement of any such claim, action, demand, loss, damage,
liability, cost or expense if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld). This
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder, underwriter, controlling person or
Holders' Affiliate and shall survive the transfer of such securities by such
Holder.
(b) Indemnification by the Holders. Each Holder of shares of
Registrable Securities, severally and not jointly, which shares are included in
a registration pursuant to the provisions of this Agreement, to the extent
permitted by law, will indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the Registration Statement including such
Registrable Securities, each director of the Company, each underwriter and any
person who controls the underwriter and each of their successors from and
against, and will reimburse the Company and such officer, director, underwriter
or controlling person with respect to, any and all claims, actions, demands,
losses, damages, liabilities, costs or expenses to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement of any material fact contained in such Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading;
provided that such Holder will be liable in any such case to the extent, but
only to the extent, that any such claim, action, demand, loss, damage,
liability, cost or expense arises out of or is based upon an untrue statement
or omission made in reliance upon and in strict conformity with written
information furnished by such Holder specifically for use in the preparation
thereof. The liability of each Holder under this Section shall be limited to
the proportion of any such claim, action, demand, loss, damage, liability, cost
or expense which is equal to the proportion that the public offering price of
the shares of Registrable Securities sold by such Holder under such
Registration Statement bears to the total offering price of all securities sold
thereunder, but not, in any event, to exceed the proceeds received by such
Holder from the sale of shares of Registrable Securities covered by the
Registration Statement. It is agreed that this indemnity shall not apply to
amounts paid in settlement of any such claim, action, demand, loss, damage,
liability, cost or expense if such settlement is effected without the consent
of the Holders (which consent shall not be unreasonably withheld). This
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder, underwriter or any such director, officer,
partner, member, agent or controlling person and shall survive the transfer of
such securities by such Holder.
(c) Notices of Claims, etc. Promptly after receipt by a party to
be indemnified pursuant to the provisions of this Section 5(a) or (b) (an
"indemnified party") of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of this Section 5(a) or (b), notify the indemnifying party of
the commencement thereof, but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to an indemnified
party otherwise than under this Section and shall not relieve the indemnifying
party from liability under this Section unless such indemnifying party is
prejudiced by such omission. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall have the right to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after the notice from the
indemnifying party to such
8
<PAGE> 9
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of this Section 5(a) and (b) for any legal expense subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided that, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it that are different from or additional to
those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by
the indemnifying party as incurred. No indemnifying party shall be liable to an
indemnified party for any settlement of any action or claim without the consent
of the indemnifying party and no indemnifying party may unreasonably withhold
its consent to any such settlement. No indemnifying party will, except with the
consent of the indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, any underwriter
or controlling person of any such Holder or underwriter, or any Holders'
Affiliate, makes a claim for indemnification pursuant to this Section but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any such Holder, underwriter, controlling person or Holders' Affiliate
in circumstances for which indemnification is provided under this Section 5,
then, and in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and of the Holder of
Registrable Securities on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the holder of Registrable Securities on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or by the Holder of Registrable Securities on the
other, and each party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that, in
any such case, (A) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation and (B) no such Holder will be required to contribute any
amount in excess of the proceeds received by such Holder from the sales of
Registrable Securities covered by the Registration Statement.
(e) Other Indemnification. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
9
<PAGE> 10
6. Reporting Requirements Under Securities Exchange Act of 1934.
(a) Exchange Act Reporting. When it is first legally required to
do so, the Company shall register its capital stock under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and shall keep
effective such registrations and shall timely file such information, documents
and reports as the Commission may require or prescribe under Section 13 of the
Exchange Act. From and after the effective date of the first Registration
Statement filed by the Company, the Company shall (whether or not it shall then
be required to do so) timely file such information, documents and reports as
the Commission may require or prescribe under Section 13 or 15(d)(whichever is
applicable) of the Exchange Act.
(b) Furnishing Information to Holders. Immediately upon becoming
subject to the reporting requirements of either Section 13 or 15(d) of the
Exchange Act, the Company shall forthwith upon request furnish any Holder of
Registrable Securities (a) a written statement by the Company that it has
complied with such reporting requirements, (b) a copy of the most recent annual
or quarterly report of the Company, and (c) such other reports and documents
filed by the Company with the Commission as such Holder may reasonably request
in availing itself of an exemption for the sale of Registrable Securities
without registration under the Securities Act.
(c) Rule 144 and Form S-3. The Company acknowledges and agrees
that the purposes of the requirements contained in this Section 6 are (i) to
enable any such Holder to comply with the current public information
requirement contained in paragraph (c) of Rule 144 under the Securities Act
should such Holder ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Securities Act in reliance upon
Rule 144 (or any other similar or successor exemptive provision), and (ii) to
qualify the Company for the use of Registration Statements on Form S-3. In
addition, the Company shall take such other measures and file such other
information, documents and reports as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 under the Securities
Act (or any similar or successor exemptive provision hereafter in effect) and
the use of Form S-3. The Company also covenants to use its best efforts, to the
extent that it is reasonably within its power to do so, to qualify for the use
of Form S-3. From and after the effective date of the first Registration
Statement filed by the Company, the Company agrees to use its reasonable best
efforts to facilitate and expedite transfers of Registrable Securities by
Holders pursuant to Rule 144 under the Securities Act (or any similar or
successor exemptive provision hereafter in effect), which efforts shall include
timely notice to its transfer agent to expedite such transfers of Registrable
Securities.
7. Stockholder Information. The Company may require each Holder
of Registrable Securities as to which any registration is to be effected
pursuant to this Agreement to furnish the Company in a timely manner such
information with respect to such Holder and the distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing and as shall be required by law or by the Commission in order to
facilitate the disposition of the Registrable Securities owned by them that are
included in such registration.
8. Specific Enforcement. All of the parties acknowledge that the
parties will be irreparably damaged in the event that this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants or conditions of this Agreement by any of the parties hereto, the
other parties shall, in addition to all other remedies, be entitled to a
temporary or permanent injunction, without showing any actual damage, or a
decree for specific performance, in accordance with the provisions of this
Agreement.
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<PAGE> 11
9. Descriptive Headings; Definitions; Certain Interpretations.
(a) Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agreement.
(b) As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" means (a) any person directly or indirectly controlling,
controlled by or under common control with another person; (b) any person
owning or controlling 10% or more of the outstanding voting securities of such
other person; (c) any partner, officer, director, employee or stockholder of
such person or any parent, spouse, child, brother, sister or other relative
with a relationship (by blood, marriage or adoption) or not more remote than
first cousin of any of the foregoing; or (d) any liquidating trust, trustee or
other similar person or entity for any person.
"Bandrowski Warrants" means the remaining Series A Warrant to purchase
194,257 shares of Common Stock at $0.21 per share and Series B Warrant to
purchase 221,053 shares of Common Stock at $0.04 per share held by Bandrowski
Enterprises, LLC.
"Existing Stockholders' Agreement" means the Stockholders' Agreement,
dated August 27, 1998, among the Company, certain of the Investors and the
Management Stockholders.
"Holder" means (a) the Investors and (b) any other person to which the
rights of registration under this Agreement have been transferred or assigned
by the Investors or their transferees.
"Initial Public Offering" means the initial public offering of shares
of common stock pursuant to a registration under The Securities Act.
"Management Stockholders" means Michael Brader-Araje, Kip A. Frey,
Mark Jauquet and James Ford.
"Registrable Securities" means (a) shares of Capital Stock (including,
without limitation, (i) shares outstanding on the date hereof, (ii) shares
acquired by any Holder after the date hereof and (iii) shares issued upon the
exercise of any exchange, conversion or similar right), and (b) any shares of
Capital Stock issued in respect of such shares by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger or consolidation or reorganization; provided that any such shares shall
cease to be Registrable Securities when such securities have been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction.
"SEC" means the Securities and Exchange Commission or any successor
commission or agency having similar powers.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" or "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Section or Schedule is to the Section or Schedule of this Agreement.
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<PAGE> 12
10. Notices. All notices, requests and other communications to any
party hereunder shall be in writing and sufficient if delivered personally or
sent by telecopy (with confirmation of receipt) or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
<TABLE>
<S> <C>
If to the Company: OpenSite Technologies, Inc.
6015 Fayetteville Road
Durham, North Carolina 27713
Attention: Mr. Kip A. Frey, President
With a copy to: Gross, Shuman, Brizdle & Gilfillan, P.C.
465 Main Street, Suite 600
Buffalo, New York 14202
Attention: Gordon R. Gross, Esq.
If to the Investors: Societe Generale Capital Corporation
1221 Avenue of the Americas
New York, NY 10020
Attention: Mr. Justin Hall-Tipping and
Mr. Christopher M. Neenan
Fax No.: (212) 278-5454
and
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY 10020
Attention: Elisabeth Q. Duncan, Esq.
Fax No.: (212) 278-7432
and
GE Capital Equity Investments, Inc.
260 Long Ridge Road
Stamford, Connecticut 06927
Attention: General Counsel
Facsimile No. (203) 357-3047
With a copy to: Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Bruce C. Bennett, Esq.
Fax No.: (212) 841-1010
</TABLE>
If to any other Investor, to its address as provided on Schedule I attached
hereto, or to such other address or telecopy number as the party to whom notice
is to be given may have furnished to the other party in writing in accordance
herewith. Each such notice, request or communication shall be effective when
received or, if given by mail, when delivered at the address specified in this
Section or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
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<PAGE> 13
11. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one agreement.
12. Benefits of Agreement. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. This Agreement is for the sole
benefit of the parties hereto and not for the benefit of any third party.
13. Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAWS PROVISIONS).
15. CONSENT TO JURISDICTION. THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF NEW YORK STATE SITTING IN THE COUNTY OF NEW YORK
OR ANY FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN THE SOUTHERN
DISTRICT OF NEW YORK ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY. NO PARTY TO THIS AGREEMENT MAY MOVE TO (I)
TRANSFER ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH NEW YORK COURT OR
FEDERAL COURT TO ANOTHER JURISDICTION, (II) CONSOLIDATE ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN SUCH NEW YORK COURT OR FEDERAL COURT WITH A SUIT,
ACTION OR PROCEEDING IN ANOTHER JURISDICTION OR (III) DISMISS ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH NEW YORK COURT OR FEDERAL COURT FOR THE
PURPOSE OF BRINGING THE SAME IN ANOTHER JURISDICTION. EACH PARTY AGREES THAT A
FINAL JUDGMENT IN ANY SUCH SUIT, ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO
SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE OPERATIVE
DOCUMENTS IN ANY NEW YORK COURT SITTING IN THE COUNTY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE SOUTHERN DISTRICT OF NEW YORK.
16. Other Registration Rights.
(a) Within the limitations prescribed by this Section 16(a), but
not otherwise, the Company may grant to subsequent investors in the Company
rights of incidental registration (such as those rights provided in Section 2);
provided that (i) such rights may only pertain to shares of Capital Stock
issued to such subsequent investors after the date of this Agreement, (ii) such
rights may be granted with respect to
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<PAGE> 14
registrations requested by Holders pursuant to Section 1, but only in respect
of that portion of any such registration as remains after inclusion of all
shares of Registrable Securities requested by Holders, and (iii) such rights
may be granted with respect to registrations initiated by the Company, but only
in respect of that portion of any such registration as is available under the
limitations set forth in Section 2. The Company may not grant to subsequent
investors in the Company rights of registration upon request (such as those
rights provided in Section 1).
(b) If the Company at any time grants to any other holders of
Capital Stock any rights more favorable to such holders than the terms set
forth in this Agreement, the terms of this Agreement shall be deemed amended or
supplemented to the extent necessary to provide the Holders such more favorable
rights and benefits.
(c) Bandrowski Enterprises, LLC shall have the rights of an "Other
Holder" for purposes of participating in a requested registration or an
incidental registration pursuant to Sections 1 and 2, respectively, of this
Agreement with respect to the Common Stock that may be acquired pursuant to the
Bandrowski Warrants. Bandrowski Enterprises, LLC is an intended third-party
beneficiary of the rights granted under this Section 16(c).
17. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. The Investors' rights are assignable to any assignee or
transferee of all or a portion of the shares of Registrable Securities held by
the Investors; provided that such right shall not be assigned or transferred if
the share of shares of Registrable Securities are sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction. In addition, and whether or not any express assignment shall have
been made, the provisions of this Agreement which are for the benefit of the
parties hereto other than the Company shall also be for the benefit of and
enforceable by any subsequent Holder of any Registrable Securities, subject to
the provisions contained herein.
18. Underwriting Agreement. In connection with each registration
pursuant to Sections 1 or 2 covering an underwritten public offering, the
Company and each selling Holder agree to enter into a written agreement with
the managing underwriter selected in the manner herein provided in such form
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature; provided, however, that no selling Holder shall be required
to make any representations, warranties or covenants relating to the Company
and that the Company shall make such representations, warranties and covenants.
19. Blackout Periods. Notwithstanding any other provision in this
Agreement to the contrary, the Company's obligation to file a Registration
Statement, or cause such Registration Statement to become and remain effective,
shall be suspended for not more than one period not to exceed an aggregate of
90 days in any 12-month period if the Company shall furnish to Holders a
certificate signed by the president of the Company stating that in reasonable
judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration to be
effected at such time due to pending Company events.
20. Aircraft Carrier Release. The parties agree that if Release
No. 33-7606A, or a similar release, is adopted by the SEC, the parties shall
make amendments to this Agreement necessary to preserve the intent of this
Agreement. All references to SEC forms in this Agreement include successor
forms thereto.
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<PAGE> 15
21. Sale by Management Stockholders. Notwithstanding any other
provisions of this Agreement, with the written consent of the (i) holders of at
least a majority of the Series C Preferred Stock and (ii) the underwriter, the
Management Stockholders shall have the right to sell up to an aggregate of 15%
of their Common Stock prior to the registration of any Registrable Securities
held by the Investors. The Management Stockholders are intended third-party
beneficiaries of this Section 21.
22. Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties hereto with respect to matter covered
hereby and supersedes all prior agreements with respect to its subject matter
(including the Existing Stockholders' Agreement) and understandings, written or
oral, among the parties with respect to the subject matter hereof.
23. Amendment and Waiver. This Agreement and the rights granted to
the Investors may be modified, amended or waived as follows:
(a) in the case of rights granted to the Investors holding shares
of Series A Preferred Stock or Series B Preferred Stock or shares of Common
Stock issued upon conversion of such preferred stock, by the holders of more
than 50% of such Registrable Securities; provided, however, that if such
modification, amendment or waiver does not effect the relative rights under
this Agreement equally then such modification, amendment or waiver shall
require the approval of the holders of at least a majority of the total number
of each of the Series A Preferred Stock and Series B Preferred Stock and shares
of Common Stock issuable upon conversion of such preferred stock, voting as a
class; provided, further, that if such modification, amendment or waiver
adversely effects the rights granted to the Investors holding Series C
Preferred or shares of Common Stock issuable upon conversion of such preferred
stock then such modification, amendment or waiver shall require approval of the
holders of at least a majority of the Series C Preferred Stock or shares of
Common Stock issuable upon the conversion of such preferred stock; and
(b) in the case of rights granted to the Investors holding shares
of Series C Preferred Stock or shares of Common Stock issued upon conversion of
such preferred stock, by the holders of more than 50% of such Registrable
Securities; provided, however, that if such modification, amendment or waiver
adversely effects the rights granted to the Investors holding Series A
Preferred Stock or Series B Preferred Stock or shares of Common Stock issuable
upon conversion of such preferred stock then such modification, amendment or
waiver shall require approval of the holders of at least a majority of each of
such adversely affected series of preferred stock (including the Common Stock
issuable upon the conversion of such preferred stock).
24. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 24.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
OPENSITE TECHNOLOGIES, INC.
By: /s/ Kip A. Frey
--------------------------------
Name: Kip A. Frey
Title: President
SOCIETE GENERALE CAPITAL CORPORATION
By: /s/ Justin Hall-Tipping
--------------------------------
Name: Justin Hall-Tipping
Title: Vice President
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Roger Hurwitz
--------------------------------
Name: Roger Hurwitz
Title: Vice President
CNET, INC.
By: /s/ Douglas M. Woodeum
--------------------------------
Name: Douglas M. Woodeum
Title: CFO
16
<PAGE> 17
NORO-MOSELEY PARTNERS IV, L.P.
By: MKFJ IV, L.L.C., its General Partner
By: /s/ Alan J. Taetle
-------------------------------------
Name: Alan J. Taetle
Title: General Partner
WAKEFIELD GROUP II LLC
By: /s/ M.F. Elliott
-------------------------------------
Name: M.F. Elliott
Title: MD
INTERSOUTH PARTNERS IV, L.P.
By: INTERSOUTH ASSOCIATES IV, LLC,
Its General Partner
By: /s/ Mitchell Mumma
-------------------------------------
Name: Mitchell Mumma
Title: Member Manager
SOUTHEAST INTERACTIVE TECHNOLOGY FUND II,
LLC
By: /s/ David C. Blivin
-------------------------------------
Name: David C. Blivin
Title: Manager
AUCTION VENTURES, LLC
By: RBK, LLC
Its Manager
By: /s/ Ross B. Kenzie
-------------------------------------
Name: Ross B. Kenzie
Title: Manager
17
<PAGE> 18
Schedule I
<TABLE>
<S> <C>
Societe Generale Capital Corporation Wakefield Group, II, LLC
1221 Avenue of the Americas 1110 East Morehead Street
New York, NY 10020 Charlotte, North Carolina 228204
Attention: Mr. Justin Hall-Tipping Attention: Mr. Michael F. Elliott
Mr. Christopher M. Neenan Telecopier: (704) 372-8978
Telecopier: (212) 278-5454
GE Capital Equity Investments, Inc. Intersouth Partners IV, L.L.C.
260 Long Ridge Road 1000 Park Forty Plaza
Stamford, CT 06927 Suite 290
Attention: Mr. Roger Hurwitz Durham, North Carolina 27713
Telecopier: (203) 357-6088 Attention: Mr. Mitchell Mumma
Telecopier: (919) 544-6473
CNET, Inc. Southeast Interactive Technology Fund II, LLC
150 Chestnut Street Suite 300A
San Francisco, CA 94111 2525 Meridian Parkway
Attention: Ms. Brandyn Criswell Durham, NC 27713
Telecopier: (415) 274-3750 Attention: Mr. David Blivin
Telecopier: (919) 558-2025
Noro-Moseley Partners IV, L.P. Auction Ventures, LLC
9 North Parkway Square Suite 100, Cyclorama Building
4200 Northside Parkway, N.W. 369 Franklin Street
Atlanta, Georgia 30327 Buffalo, NY 14202
Attention: Mr. Alan Taetle Attention: Ross B. Kenzie
Telecopier: (404) 239-9280 Telecopier: (716) 854-4731
Noro-Moseley Partners IV, L.P.
9 North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Attention: Mr. Alan Taetle
Telecopier: (404) 239-9280
</TABLE>
18
<PAGE> 1
EXHIBIT 10.10
AGREEMENT
Agreement made this 30th day of March, 1999 by and between OpenSite
Technologies, Inc., a Delaware corporation (the "Corporation") and Kip A. Frey
("Frey").
RECITALS
WHEREAS, Frey currently owns 650,000 shares of the Common Stock, par
value $.01 per share, of the Corporation (the "Shares") which are subject to
the terms of a restricted stock agreement between the Corporation and Frey
dated as of October 15, 1998 (the "Restricted Stock Agreement"); and
WHEREAS, the Corporation proposes to sell and issue shares of its
Class C Preferred Stock,
NOW, THEREFORE, the parties agree as follows:
1. Loan. Promptly following the Closing of the sale of the
Corporation's Series C Preferred Stock, the Corporation will lend to Frey the
sum of $300,000 (the "Loan").
2. Interest Rate. Interest shall accrue on the amount of the
Loan at the rate of 6.0% per annum, which amount shall accrue and be paid at
the time the Loan is repaid.
3. Repayment. The Loan shall be repaid at the earlier of the
termination of Frey's employment with the Corporation or December 31, 2002.
Frey has the right to prepay the Loan at any time. Frey may repay the Loan
either with cash or by delivering Shares based upon their then Market Value.
Market Value shall mean (a) if the Common Stock is listed on a national
securities exchange, the average of the closing prices of the Common Stock on
the Composite Tape for the 10 consecutive trading days immediately preceding
such given date; (b) if the Common Stock is traded on an exchange or market in
which prices are reported on a bid and asked price, the average of the mean
between the bid and the asked price for the Common Stock at the close of
trading for the ten consecutive trading days immediately preceding such given
date; and (c) if the Common Stock is not listed on a national securities
exchange nor traded on the over-the-counter market, such value as the Board, in
good faith, shall determine.
4. Pledge of Shares. The parties agree that the Shares shall be
subject to a pledge agreement in substantially the form attached hereto as
Exhibit A to secure the Loan. The Corporation agrees, from time to time, to
consent to the sale of Shares by Frey provided, that the Market Value of the
Shares remaining subject to the pledge is at least 150% of the unpaid Loan
amount.
5. Non-Recourse Nature of Loan. The Loan made pursuant to this
Agreement shall be non-recourse and the Corporation's sole rights to repayment
shall be from the Shares or proceeds thereof.
6. Further Documents. The parties agree to execute and deliver
such documents as may be reasonably required by the other to effect the intent
of this Agreement.
7. Attorneys' Fees. In the event that it shall become necessary
for either party to retain the services of an attorney to enforce any terms
under this Agreement, the prevailing party, in addition to all other rights and
remedies hereunder or as provided by law, shall be entitled to reasonable
attorneys' fees and costs of suit.
<PAGE> 2
8. Severability. The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision (or
part thereof) of this Agreement shall in no way affect the validity or
enforceability of any other provision (or remaining part thereof).
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, without
reference to the choice of law provisions of such laws.
10. Benefit. This Agreement shall be binding upon and shall inure
to the benefit of each of the parties hereto, and to their respective heirs,
representative, successors and permitted assigns. This Agreement shall be
binding upon the Corporation and upon any successor Corporation. Frey may not
assign any of his rights under this Agreement without the prior written consent
of the Board of Directors of the Corporation.
11. Entire Agreement. This Agreement, the Restricted Stock
Agreement, the Pledge Agreement attached as Exhibit A, and the Employment
Agreement contain the entire agreement and understanding by and between the
Corporation and Frey with respect to the covenants herein described and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. No change or modification
shall be valid or binding unless the same is in writing and signed by the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless the same is in writing and signed by the party against whom such waiver
is sought to be enforced; moreover, no valid waiver of any other provision of
this Agreement at any time shall be deemed a waiver of any other provision of
this Agreement at such time nor will it be deemed a valid waiver of such
provision at any other time.
12. Captions. The captions in this Agreement are for convenience
only and in no way define, bind or describe the scope or intent of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
OPENSITE TECHNOLOGIES, INC.
By: /s/ Michael Brader-Araje
--------------------------------
/s/ Kip A. Frey
------------------------------------
Kip A. Frey
2
<PAGE> 1
EXHIBIT 10.11
PLEDGE AGREEMENT
AGREEMENT made as of the 30th day of March, 1999, by and
among KIP A. FREY (hereinafter referred to as the "PLEDGOR"), OPENSITE
TECHNOLOGIES, INC., (hereinafter called the "PLEDGEE") and GROSS, SHUMAN,
BRIZDLE & GILFILLAN, P.C., a New York professional service corporation with
offices at 465 Main Street, Suite 600, Buffalo, New York 14203 (hereinafter
referred to as the "ESCROW AGENT").
W I T N E S S E T H
WHEREAS, the PLEDGEE has loaned the Pledgor the sum of
$300,000 in accordance with the terms of an agreement dated March 30, 1999 (the
"Frey Agreement") (capitalized terms not defined herein shall have the meanings
given to them in the Frey Agreement); and
WHEREAS, the PLEDGOR has delivered to the ESCROW AGENT a
share certificate of OPENSITE TECHNOLOGIES, INC. representing 650,000 shares of
Common Stock, $.01 par value per share of the PLEDGEE (the "Shares" or "Share
Certificate"); and
WHEREAS, in order to induce the PLEDGEE to make the loan, the
PLEDGOR has agreed to pledge the Shares to the PLEDGEE as security for the
performance by the PLEDGOR of his duties and obligations under the Frey
Agreement.
NOW, THEREFORE, in consideration of the sum of ONE DOLLAR
($1.00) and other good and valuable consideration, the receipt of which is
hereby acknowledged, it is agreed between the parties as follows:
1. Delivery of Shares
PLEDGOR herewith delivers to the ESCROW AGENT:
a) Executed stock powers for the Share
Certificate No. C-104, undated and endorsed in blank, and
b) 650,000 shares of the Common Stock of
OPENSITE TECHNOLOGIES, INC. represented by Certificate No. C-104.
The PLEDGOR does hereby pledge, transfer and assign the Shares in
escrow to the PLEDGEE, and grants to the PLEDGEE a security interest therein,
and does hereby appoint PLEDGEE, his true and lawful attorney for him, and in
his name, place and stead to cause said Shares to be transferred on the books
of OPENSITE TECHNOLOGIES, INC., to the name of the PLEDGEE in the event of the
occurrence, for any reason of any event of default as defined in Paragraph 9 of
this Agreement. Upon such default, the PLEDGEE shall deliver to the ESCROW
AGENT written notice that the PLEDGOR has so defaulted. The ESCROW AGENT will
then notify the PLEDGOR by certified mail, return receipt requested, mailed to
the above address, of the default and the PLEDGOR will then have thirty (30)
days from the date of receipt of the mailing of said notice to cure said
default. If said default is not so cured within thirty (30) days, then the
ESCROW AGENT shall deliver to the PLEDGEE or to its assigns, heirs or personal
representatives such proportion of the Shares (with executed stock power) as
required to repay the Loan as set forth in Paragraph 3 of the Frey Agreement
and deliver the remaining Shares to PLEDGOR.
<PAGE> 2
2. Shares to be held in Escrow
The ESCROW AGENT shall hold the said Share Certificates, said stock
powers and the other items delivered as hereinbefore referred to in Paragraph 1
as security for the performance of the said duties and obligations of the
PLEDGOR and they shall be held until the PLEDGOR fully performs all of his
duties and obligations under the Frey Agreement, at which time the ESCROW
AGENT, upon receipt of written notice from the PLEDGEE that the PLEDGOR has so
fully performed, shall deliver the said Shares, and other items referred to in
Paragraph 1 to the PLEDGOR.
3. Representations and Warranties of PLEDGOR
PLEDGOR represents and warrants and, so long as the amounts due under
the Frey Agreement remain unpaid, shall be deemed continuously to represent and
warrant that:
a) The Shares are genuine and in all respects what they
purport to be;
b) PLEDGOR is the owner of the Shares free of all
security interests or other encumbrances, except this security
interest, a Restricted Stock Agreement entered into between the
parties and an Amended and Restated Stockholders Agreement dated March
__, 1999; and
c) PLEDGOR is authorized to enter into this Agreement.
4. Covenants of PLEDGOR
So long as the Loan under the Frey Agreement remain unpaid, PLEDGOR:
a) will defend the Shares against the claims and demands
of all other parties; will keep the Shares free from all security
interests or other encumbrances, except this security interest, the
Restricted Stock Agreement and the Amended and Restated Stockholders
Agreement; and will not sell, transfer, assign, deliver or otherwise
dispose of the Shares or any interest therein without the prior
written consent of PLEDGEE;
b) will notify PLEDGEE promptly in writing of any change
in PLEDGOR's address;
c) will pay all taxes, assessments and other charges of
every nature which may be levied or assessed against the Shares;
d) in connection herewith, will execute and deliver to
PLEDGEE such financing statements and other documents, pay all costs
of title searches and filing of financing statements and all other
documents in all public offices requested by PLEDGEE, and do such
other things as PLEDGEE may request.
5. Income from Interest on Collateral
a) Until the occurrence of an event of default as
hereinafter provided, PLEDGOR reserves the right to receive all income
from or interest on the Shares, and if PLEDGEE receives any such
income or interest prior to such default, PLEDGEE shall pay the same
promptly to PLEDGOR.
2
<PAGE> 3
b) In the event of any such default, PLEDGOR will not
demand or receive any income from or interest on the Shares, and if
PLEDGOR receives any such income or interest without any demand by it,
PLEDGOR will pay the same promptly to PLEDGEE. PLEDGEE may apply the
net cash receipts from such income or interest to payment of any of
the amounts due under the Frey Agreement, provided that PLEDGEE shall
account for and pay over to PLEDGOR any such income or interest
remaining after payment in full of the amounts due under the Frey
Agreement.
6. PLEDGOR'S Right to Vote Shares
While the ESCROW AGENT is the holder of the said Shares, the PLEDGOR
shall have the right to vote the same at meetings of the stockholders of
OPENSITE TECHNOLOGIES, INC., so long as he is not in default in the performance
of any of the terms of this Agreement, or the Frey Agreement, and for that
purpose the ESCROW AGENT and/or the PLEDGEE shall execute any and all proxies
in favor of the PLEDGOR that may be required.
7. Reorganization of Corporation
In the event that during the term of this Agreement any stock
dividend, reclassification, readjustment, or other change is declared or made
in the capital structure of OPENSITE TECHNOLOGIES, INC., or any subscription
warrant or other option is substituted, or additional shares, or other
securities issued by reason of any such change or option such warrant, option,
shares or securities shall be held by the ESCROW AGENT under the terms of this
Agreement in the same manner as the Shares originally pledged hereunder.
8. PLEDGEE's Remedies in the Event of PLEDGOR'S Default
In the event that the PLEDGOR defaults in the performance of any of
the terms of this Agreement, or the Frey Agreement and fails to cure the
default within the thirty (30) day period provided in Paragraph l of this
Agreement, the PLEDGEE shall have all the rights and remedies provided in the
Uniform Commercial Code in force in the State of North Carolina at the date of
this Agreement, and in this connection, the PLEDGEE may upon thirty (30) days
notice to the PLEDGOR, sent by registered mail, and without liability for any
diminution in price which may have occurred, sell all the pledged Shares or any
part thereof at public or private sale in such manner and for such price as the
PLEDGEE may determine; such price will be at the fair market value thereof. At
any bona fide public or private sale, the PLEDGEE shall be free to bid on and
purchase all or any part of the pledged Shares and to attend all meetings, to
sign waivers of notice thereof, and generally to carry on the business of
OPENSITE TECHNOLOGIES, INC.. The PLEDGEE shall apply the proceeds of such sale
to the expenses incident thereto including counsel fees and to the payment of
the Loan due under the Frey Agreement to the date of payment.
The rights and remedies hereunder shall be cumulative and not
exclusive, the PLEDGEE having the absolute right to resort to any one or more
or all of said rights and remedies. The PLEDGOR hereby expressly waives any
right to require the PLEDGEE to sell the Shares, but shall not waive any right
to claim that PLEDGEE's failure to sell the Shares be deemed a satisfaction of
the PLEDGOR'S said obligations and duties under the Frey Agreement, and this
Agreement.
3
<PAGE> 4
9. Events of Default
The whole of the indebtedness as evidenced by the Frey Agreement shall
be immediately due and payable at the option of the PLEDGEE and/or the
provision of Paragraph 1 and Paragraph 8 shall become effective upon the
happening of any one of the following specified events of default:
a) Non-payment of the Loan within ten (10) days after
the same has become due and the same not being cured within 30 days of
written notice having been sent to the PLEDGEE by the PLEDGOR.
b) The breach by the PLEDGOR of any material covenant,
condition or Agreement as contained in this Agreement and the same not
being cured within 30 days of written notice having been sent to the
PLEDGEE by the PLEDGOR.
10. Prohibition against PLEDGOR'S Disposition of Shares
During the term of this pledge, the PLEDGOR shall not have the right
to sell or otherwise dispose of, or encumber the Shares pledged hereunder,
without the written consent of the PLEDGEE. Notwithstanding anything in this
Agreement to the contrary, the PLEDGEE agrees, from time to time, to consent to
the sale and release of Shares from this Pledge Agreement provided that the
Market Value of the Shares remaining subject to this Pledge Agreement is at
least 150% of the unpaid Loan amount.
11. Indemnification of Escrow Agent
The parties jointly and severally agree to indemnify and hold the
ESCROW AGENT harmless from any loss, liability or expense incurred without
willful default or gross negligence on the part of the ESCROW AGENT arising out
of or in connection with the acceptance or administration by the ESCROW AGENT
of its duties hereunder including the costs and expenses of defending itself
against any claims of liability hereunder. The ESCROW AGENT shall not be bound
in any way by any other Agreement or contract between the parties hereto or any
of them (whether or not it has knowledge thereof) and the ESCROW AGENT's only
duties and responsibilities shall be to hold the items described in paragraph 1
hereof as escrow agent and to dispose of the Shares in accordance with the
terms of this Agreement. The ESCROW AGENT may act upon any instrument or other
writing believed by the ESCROW AGENT in good faith to be genuine and to be
signed and presented by the proper person and the ESCROW AGENT shall not be
liable in connection with the performance of its duties under this Agreement
except for the ESCROW AGENT's own willful default or gross negligence. The
ESCROW AGENT may consult with outside reputable counsel and any opinion of such
outside reputable counsel shall be full and complete authorization and
protection in respect of any action taken or permitted by the ESCROW AGENT
hereunder in good faith and in reliance upon such opinion. In the event of any
dispute, the ESCROW AGENT may deposit the escrow funds in a court of competent
jurisdiction and the ESCROW AGENT shall thereupon be relieved and discharged
from its duties hereunder.
12. No Waiver of Remedies
No delay or omission by PLEDGEE in exercising any right or remedy
hereunder or with respect to any indebtedness shall operate as a waiver thereof
or of any other right or remedy, and no single or partial exercise thereof
shall preclude any other or further exercise thereof or the exercise of any
other right or remedy. PLEDGEE may remedy any default by PLEDGOR hereunder in
any reasonable manner
4
<PAGE> 5
without waiving the default remedied and without waiving any other prior or
subsequent default by PLEDGOR. All rights and remedies of PLEDGEE hereunder are
cumulative.
13. Modification of Agreement
No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made except by a written Agreement
subscribed by PLEDGOR and by a duly authorized officer of PLEDGEE.
14. Binding Effect; Governing Law
This Agreement shall bind and inure to the benefit of the parties,
their distributees, legal representatives, assigns, successors in interest, and
estate. This Agreement is made under and shall be governed by the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
PLEDGOR:
/s/ Kip A. Frey
--------------------------------------------
Kip A. Frey
PLEDGOR:
OPENSITE TECHNOLOGIES, INC.
/s/ Michael Brader-Araje
--------------------------------------------
Michael Brader-Araje
ESCROW AGENT:
GROSS, SHUMAN, BRIZDLE & GILFILLAN, P.C.
By: /s/
----------------------------------------
5
<PAGE> 1
EXHIBIT 21.1
OPENSITE TECHNOLOGIES, INC.
LIST OF SUBSIDIARIES
OpenSite Europe Limited
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on
Form S-1 of our report dated May 25, 1999 relating to the financial statements
of OpenSite Technologies, Inc., 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
Raleigh, North Carolina
May 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OPENSITE TECHNOLOGY FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,358,549
<SECURITIES> 0
<RECEIVABLES> 698,897
<ALLOWANCES> 190,250
<INVENTORY> 0
<CURRENT-ASSETS> 19,220,560
<PP&E> 555,735
<DEPRECIATION> 147,251
<TOTAL-ASSETS> 19,939,784
<CURRENT-LIABILITIES> 1,776,890
<BONDS> 0
33,719,442
0
<COMMON> 90,909
<OTHER-SE> (15,503,179)
<TOTAL-LIABILITY-AND-EQUITY> 19,939,784
<SALES> 920,628
<TOTAL-REVENUES> 1,049,672
<CGS> 8,184
<TOTAL-COSTS> 165,946
<OTHER-EXPENSES> 2,395,655
<LOSS-PROVISION> 107,490
<INTEREST-EXPENSE> 2,419
<INCOME-PRETAX> (1,493,806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,493,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,493,806)
<EPS-BASIC> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
