<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-79629
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
OPENSITE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 56-1990869
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2800 MERIDIAN PARKWAY
DURHAM, NORTH CAROLINA 27713
(919) 287-0200
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. KIP A. FREY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OPENSITE TECHNOLOGIES, INC.
2800 MERIDIAN PARKWAY
DURHAM, NORTH CAROLINA 27713
(919) 287-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C> <C>
GRANT W. COLLINGSWORTH, ESQ. FRED D. HUTCHISON, ESQ. JOHN B. TEHAN, ESQ.
BRANDY A. BAYER, ESQ. J. ROBERT TYLER, III, ESQ. SIMPSON THACHER & BARTLETT
MORRIS, MANNING & MARTIN, L.L.P. HUTCHISON & MASON, PLLC 425 LEXINGTON AVENUE
1600 ATLANTA FINANCIAL CENTER 4011 WESTCHASE BOULEVARD NEW YORK, NEW YORK 10017
3343 PEACHTREE ROAD, N.E. SUITE 400
ATLANTA, GEORGIA 30326 RALEIGH, NORTH CAROLINA 27607
</TABLE>
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, 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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<CAPTION>
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PROPOSED
MAXIMUM PROPOSED
AMOUNT AGGREGATE OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE AGGREGATE REGISTRATION
SECURITIES REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 par value................ 5,750,000 shares $15.00 $86,250,000 $23,468
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</TABLE>
(1) Includes 750,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) Includes $20,498 that has been previously paid.
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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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED , 2000.
5,000,000 Shares
[OPENSITE LOGO]
Common Stock
------------------------
This is an initial public offering of shares of common stock of OpenSite
Technologies, Inc. All of the 5,000,000 shares of common stock are being sold by
OpenSite.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. Application has been made for quotation of
the common stock on the Nasdaq National Market under the symbol "OPNS".
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of our common stock.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to OpenSite...................... $ $
</TABLE>
To the extent that the underwriters sell more than 5,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
750,000 shares from OpenSite at the initial public offering price less the
underwriting discount.
------------------------
The underwriters expect to deliver the shares to purchasers on
, 2000.
GOLDMAN, SACHS & CO.
CHASE H&Q
THE ROBINSON-HUMPHREY COMPANY
WIT SOUNDVIEW
------------------------
Prospectus dated , 2000.
<PAGE> 3
[ARTWORK DEPICTED IN PROSPECTUS]
1. Inside front page portrays the following:
The title bar at the top of the page reads as follows: "Where Dynamic Commerce
Begins(TM)"
In the center of the page is the company's logo. On the left side of the page
and centered vertically is the following text:
OpenSite(R) Technologies, Inc., a provider of online auction software and
services, is enabling the dynamic commerce revolution.
Our powerful flexible suite of products, outsourcing solutions and services
allow small, medium and large businesses to create branded, Internet-based
dynamic commerce sites. By having delivered over 600 licensed auction products
and outsourced auction services to businesses worldwide, OpenSite brings
together buyers and sellers, helping businesses dynamically manage inventory,
establish sales channels, build dynamic marketplaces, attract customers and test
market new products to create efficient markets for goods and services.
In addition, our BidStream.com Web site aggregates the content of
Opensite-powered auctions, providing Internet users with a central location from
which to access and search multiple Web auction sites. We have signed a letter
of intent to acquire Bidder's Edge, Inc., a significantly larger aggregator of
auction content, which we would expect to be our primary offering of aggregated
auction content upon completion of the transaction.
Our mission is to provide software, services and content that create the defacto
standard for businesses offering branded, Web-based dynamic commerce.
At the bottom left corner of the page is the word "OpenSite" and below it is
the following text: "Where Dynamic Commerce Begins."
At the bottom right corner of the page are boxes that contain the
following text:
top box: "internet world" and beneath it is the text "Best of
Show Fall 1999"
top box: "internet world" and beneath it is the text "Best of
Show Fall 1998"
second box from the top: at the top is "PCWEEKLABS" and
beneath it is the text "Analyst's Choice" with the word "Analyst"
covering the top portion of a star.
third box from the top: centered at the top of the box is the
text "The Internet Open." In the center of the box is an object
representing a trophy. At the bottom of the box is the word "ICE."
Beneath the word "ICE" is the text "Internet Commerce Expo."
The bottom box contains the word "E-Commerce" at the top.
Beneath the word E-Commerce are five stars going across the page.
Beneath the stars is the word "Guide" which is underlined. At the
bottom of the box is the word "internet.com."
2. At the top of the front gate fold is the following text: "OpenSite
Technologies: Enabling the Dynamic Commerce Revolution"
On the left side of the page and centered vertically are three paragraphs
including the following text: "The Internet enables online auctions and dynamic
commerce to offer more products to more people - all without geographic
limitations and in real time.
Our combination of software, outsourcing solutions, services and content
aggregation provides a self-reinforcing, full spectrum of dynamic commerce
solutions for leading corporations in a range of industries."
In the left center section of the page is the screenshot of a web page for
Bidstream.com. Beneath the web page is the following text:
"BidStream.com provides bidders with a central point for locating items for sale
on participating OpenSite-powered auction sites."
In the center of the page are words formed in a circle which are "Software,"
"Services" and "Content Aggregation."
At the top right corner of the page is the screen shot of a web page for
VerticalNet. Beneath the webpage is the following text: "OpenSite provides a
full suite of dynamic pricing software products, from packaged auction
applications that are easy to use and fast to implement, to our Dynamic Pricing
Toolkit, which enables customers to build integrated and customized dynamic
pricing applications. For example, VerticalNet uses OpenSite software to create
vertical net markets (or dynamic marketplaces) within its trading communities."
At the bottom right center section of the page is a screen shot of a web page
for Machinefinder. To the left of the web page is the following text: "OpenSite
acts as an Application Service Provider with our OpenSite Concierge service that
provides an outsourced option for business. For example, Deere & Company
utilizes OpenSite Concierge service to host Machinefinderauction.com, which
allows customers to bid on used equipment posted for auction by Deere & Company
dealers."
At the bottom right corner of the page is the word "OpenSite" and beneath it are
the words "Where Dynamic Commerce Begins."
<PAGE> 4
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 stated, this
prospectus (1) assumes no exercise of the underwriters' over-allotment option,
(2) assumes the conversion of all outstanding shares of our preferred stock into
shares of common stock upon the effectiveness of this offering, and (3) assumes
a two-for-three reverse split of our outstanding shares to be effected
immediately prior to consummation of this offering.
OpenSite provides software products and services that facilitate online
auctions and other forms of dynamic pricing. We have delivered over 600 licensed
auction products and outsourced services to customers. We provide a variety of
cost-effective software and services that automate the process for businesses to
create and maintain branded, Internet-based business-to-business and
business-to-consumer auctions on their own Web sites. We believe we are the only
company offering small, medium and large businesses dynamic pricing through a
full range of licensed software, products and related services, as well as
outsourcing services that eliminate the need for technical infrastructure and
expertise on the part of the customer. By bringing together buyers and sellers,
our products and services help businesses create new sales channels, manage
inventory, attract new customers, introduce new products and strengthen customer
and other business relationships.
We commenced operations and introduced our first auction software product
in 1996. In 1998, we recognized total revenue of $1.3 million and incurred a net
loss of $2.4 million. In 1999, we recognized total revenue of $7.9 million and
incurred a net loss of $12.2 million. As of December 31, 1999, our accumulated
deficit was $67.6 million, $53.5 million of which was attributable to accretion
on mandatorily redeemable preferred stock.
Dynamic pricing, in which prices are determined by buyers and sellers on a
transaction-by-transaction basis, has become more accepted as a form of
electronic commerce. Dynamic commerce refers to the spectrum of online commerce,
encompassing not only dynamic pricing but also an entire range of dynamically
determined elements of a transaction including such items as quantity,
qualitative attributes and delivery terms. Dynamically priced auctions are among
the most well known forms of dynamic commerce. The Internet auction market
initially gained acceptance in person-to-person transactions. However, by 2003
Forrester Research expects that only $6.4 billion is expected to be generated
from online person-to-person online auction transactions, while $12.6 billion is
expected to be generated from business-to-consumer online auction transactions.
Forrester Research expects that business-to-business electronic commerce as a
whole will be $2.7 trillion in 2004. We plan to expand on our market position in
the online auction and dynamic pricing market by providing an infrastructure for
businesses to operate other forms of dynamic commerce, including demand
aggregation, online procurement, market making and other new electronic commerce
marketplace business models.
We provide businesses with a number of dynamic pricing product choices
based on their level of sophistication and their need to have products with
strong features and functionality that will integrate with other systems within
their organizations and grow as their needs expand. The OpenSite family of
software products, including OpenSite Auction, AuctionNow and Dynamic Pricing
Toolkit, as well as the OpenSite Concierge outsourcing and hosting service,
allow businesses of all sizes to set up and conduct auctions on the Internet. We
also provide related consulting, education and technical support services both
directly and through our indirect sales channel. We act as an Application
Service Provider with our OpenSite Concierge service offering, which allows our
customers to outsource completely to us the process of running Internet
auctions, including development, deployment, maintenance and hosting. In
addition, our
1
<PAGE> 5
BidStream.com Web site, which was launched in April 1999, aggregates the content
of OpenSite-powered auction Web sites and is designed to generate increased
traffic to these Web sites, while providing Internet users with a central
location from which to access the items put up for auction. BidStream.com also
provides valuable customer demographic information along with buying attributes
for demand analysis. Currently, participation in BidStream.com is free to our
customers; however, we intend to charge a fee for participation in the future.
Our customers operate in a wide variety of industries and include British
Airways, The Chase Manhattan Bank, CNET, Excite@Home, Hewlett-Packard -- Asia
(Regional Hub), John Deere, Nortel Networks, QVC, The Sharper Image and
VerticalNet. Our products have received the following awards and recognition:
"Best of Show" for Outstanding E-commerce Applications -- Fall Internet World
1999 and Fall Internet World 1998, "Five Star Rating" -- Internet.com,
"Analyst's Choice" -- PC Week magazine, and "Best of Class" in Web-based
Selling -- Fall Internet Commerce Expo 1998. A description of the criteria and
other information regarding these awards can be found under
"Business -- Products and Services."
We have entered into a letter of intent to acquire Bidder's Edge, Inc., an
auction portal with over 3.5 million page views per month that aggregates over 5
million items from over 150 auction sites. BiddersEdge.com is a search engine
that uses proprietary technology to create a single directory that conveniently
categorizes auction items. BiddersEdge.com also provides content, including
news, information and featured items for bid, that is indexed for easy access
and use to over 345,000 unique monthly auction users. If we complete our
acquisition of Bidder's Edge, we plan to incorporate our BidStream.com
aggregated content into a combined BiddersEdge.com product offering. We expect
BidStream.com to significantly enhance the business-to-business auction content
of BiddersEdge.com and to accelerate the growth of its market position as a
provider of aggregated content for businesses through the addition of auction
content from approximately 180 business-to-business sites to Bidder's Edge. We
believe that the acquisition of Bidder's Edge, if consummated, will accelerate
the strength of our business model by significantly expanding the content,
functionality, customer reach, time to market and market position of our
products and services.
In December 1999, we entered into an agreement with Excite@Home to jointly
create an auction network through its business-to-business sites, Work.com and
Excitestorebuilder.com. Under the agreement, Excite@Home will offer and
distribute auction and dynamic pricing functionality to its visitors through its
business-to-business sites using our AuctionNow software. We will also produce
co-branded BidStream.com Web sites.
We are incorporated under the laws of the State of Delaware, and our
executive offices are located at 2800 Meridian Parkway, Durham, North Carolina
27713. Our telephone number is (919) 287-0200. Our World Wide Web address is
www.opensite.com.
"OpenSite" and "AuctionWatch" are registered trademarks of OpenSite, and
"AuctionNow," "Dynamic Pricing Toolkit," "Dynamic Pricing Engine," "OpenSite
Auction," "BidStream," "OpenSite Concierge" and "Where Dynamic Commerce Begins"
are unregistered trademarks of OpenSite. This prospectus also includes
trademarks, service marks and trade names of other companies.
2
<PAGE> 6
THE OFFERING
Shares offered by OpenSite.......... 5,000,000 shares
Shares to be outstanding after the
offering............................ 23,489,896 shares
Use of proceeds..................... We intend to use the net proceeds from
the offering primarily for advertising
and marketing activities, our
obligations to Excite@Home, our
international expansion, capital
expenditures and for general corporate
purposes. 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 as of December
31, 1999. This number does not take into account (1) 1,209,081 shares of our
common stock subject to options outstanding under our stock option plan, (2)
130,838 shares of common stock subject to outstanding warrants as of December
31, 1999 and (3) 5,960,871 shares to be issued to Bidder's Edge if the
acquisition is completed.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following financial data at December 31, 1999 and for the years ended
1997, 1998 and 1999 is a summary of the more complete financial information
provided in our financial statements and accompanying notes appearing elsewhere
in this prospectus. The statement of operations data for the period from
inception to December 31, 1996 has been derived from our audited financial
statements, which are not included in this prospectus. See Note 2 of Notes to
Financial Statements for an explanation of basic and diluted net income (loss)
per common share and the weighted average shares used in computing basic and
diluted net income (loss) per common share. The pro forma statement of
operations for the year ended December 31, 1999 gives effect to our proposed
acquisition of Bidder's Edge as if such transaction had been consummated on
January 1, 1999 using the pooling-of-interests method of accounting and the
conversion of all outstanding shares of mandatorily redeemable convertible
preferred stock into common stock as of the later of January 1, 1999 or the date
of issuance. This statement of operations is presented for illustrative purposes
only and is not necessarily indicative of what our results of operations would
have been had this transaction been consummated on January 1, 1999 or our future
results of operations. The pro forma balance sheet data gives effect to the
proposed acquisition of Bidder's Edge as if the transaction had been consummated
as of December 31, 1999 and accounted for as a pooling-of-interests and the
conversion of all outstanding shares of mandatorily redeemable convertible
preferred stock into common stock. The pro forma as adjusted balance sheet is
adjusted to give effect to:
- our sale of 5,000,000 shares of common stock offered at an assumed
initial public offering price of $14.00 per share; and
- the receipt of the estimated net proceeds from the sale.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 24, 1996) YEAR ENDED DECEMBER 31,
TO -------------------------------------------
DECEMBER 31, PRO FORMA
1996 1997 1998 1999 1999
--------------- ---- ---- ---- ---------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Total revenue.................. $ 12 $ 340 $ 1,281 $ 7,878 $ 7,878
Gross profit................... 11 312 1,132 6,015 6,015
Operating income (loss)........ 0 127 (2,404) (12,804) (15,965)
Net income (loss).............. 0 130 (2,361) (12,205) (15,206)
Net income (loss) available to
common stockholders......... -- 130 (2,725) (65,369) (15,206)
Basic and diluted net income
(loss) available to common
stockholders per common
share....................... $0.00 $0.02 $ (0.47) $ (12.51) $ (0.70)
Weighted average shares used in
computing basic and diluted
net income (loss) per common
share....................... 5,010 5,428 5,748 5,225 21,725
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
------ ----------- ------------
(UNAUDITED) (UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents and investments........... $ 10,599 $17,365 $81,575
Working capital..................................... 8,323 14,064 78,274
Total assets........................................ 14,948 22,756 86,966
Mandatorily redeemable convertible preferred
stock............................................ 80,459 -- --
Total stockholders' equity (deficit)................ (70,512) 16,687 80,897
</TABLE>
5
<PAGE> 9
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 risks and uncertainties described below are
those that we currently believe may materially 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 a variety of
factors, including the risks faced by us described below and elsewhere in this
prospectus.
OUR EVOLVING BUSINESS MODEL AND MARKETS MAKE FORECASTING FUTURE PERFORMANCE
DIFFICULT.
We commenced operations and introduced our first auction software product
in 1996. Our business model has evolved considerably since that time. For
example, we introduced our indirect sales channel in 1998 and BidStream.com and
our OpenSite Concierge service in 1999. We expect this evolution to continue in
response to the rapidly changing market for Internet products. Our revenue has
historically been generated primarily from the sale of auction software products
and outsourced auction services. In the future, we expect to generate revenue
from multiple sources, including our dynamic commerce products and services and
BidStream.com. For us, this business model is unproven. We will be successful
only if consumers and businesses purchase our software products and actively use
our dynamic commerce products and services. It is impossible to predict the
degree to which consumers and businesses will purchase our software products or
use these services.
As a result of our limited operating history and the emerging nature of the
dynamic commerce market, we are unable to accurately forecast our revenue.
Additionally, our current sales cycle, the time between when a sales lead is
generated and when the sale is completed, is relatively short. A shorter sales
cycle results in fewer pending sales at any given time, which makes forecasting
revenue more difficult and uncertain. 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 or expand losses.
WE ANTICIPATE INCURRING CONTINUED LOSSES FOR THE FORESEEABLE FUTURE.
We incurred a net loss of $2.4 million in 1998, representing 184% of total
revenue. We incurred a net loss of $12.2 million in 1999, representing 155% of
total revenue. As of December 31, 1999, we had incurred cumulative net losses of
$14.4 million. As of December 31, 1999, our accumulated deficit was $67.6
million, $53.5 million of which was attributable to accretion on mandatorily
redeemable preferred stock. We expect our losses to increase significantly. We
cannot be certain that we will increase revenue sufficiently to ever achieve
profitability or generate a positive cash flow in the future. As part of our
strategy to achieve profitability, we intend to expend significant financial and
management resources on:
- developing our brands;
- developing new products and services;
- increasing marketing and promotional activities;
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<PAGE> 10
- establishing and expanding our direct and indirect sales channels, both
domestically and internationally;
- establishing business 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. If our losses
continue for an extended period or are greater than projected, we may be forced
to raise additional capital in order to continue implementing our business
strategy. This could result in dilution to our stockholders. If we are unable to
raise additional capital, we may not have sufficient resources to carry out our
business strategy or achieve profitability.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE.
We expect that our operating results will fluctuate significantly in the
future. These fluctuations are likely to occur from quarter-to-quarter as well
as over longer periods. These fluctuations may be due to many factors,
including:
- the level of demand for online auction products and services;
- the development of the electronic commerce market;
- increasing competition;
- our ability to grow recurring services revenue and increase our services
revenue mix;
- performance of resellers;
- timely release of new products and product upgrades;
- ability to attract sales, marketing and development expertise in an
increasingly competitive market;
- management of our growth; and
- risks associated with potential acquisitions.
Many of these factors are beyond our control, such as the level of demand
for online auction products and services, the development of the electronic
commerce market, increasing competition and the performance of resellers. These
factors may impact our long-term results as well as our operating results in any
particular quarter. Our quarterly operating results have fluctuated in the past.
For example, our revenue fluctuated an average of 44% from quarter to quarter in
1999. Due to these historical trends, we believe that period-to-period
comparisons of our operating results are not meaningful. In addition, it is
likely that in future periods our operating results will fall below the
expectations of investors. If this happens, the trading price of our common
stock would almost certainly be materially and adversely affected.
IF THE MARKET FOR DYNAMIC COMMERCE DOES NOT CONTINUE TO GROW, OUR BUSINESS MAY
SUFFER.
Our success is highly dependent upon the widespread acceptance and use of
the Internet for dynamic 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 for auctions and other forms of dynamic commerce is still at an
early stage of development. We cannot be certain that acceptance of online
auctions and other forms of dynamic commerce will continue to develop. Any
material reduction in the growth of acceptance and use of dynamic commerce could
have a material adverse effect on our business.
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The continued growth of online dynamic commerce 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 businesses who desire online auction
capabilities;
- continued development of transaction security technology; and
- continued development of electronic commerce technology.
OUR BUSINESS MAY SUFFER IF OPENSITE AUCTION IS NOT ACCEPTED BY NEW CUSTOMERS.
We cannot be certain that OpenSite Auction will continue to achieve market
acceptance. 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. Any material reduction in demand for OpenSite Auction could have a
material adverse effect on our sales and revenue growth. 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.
IF OUR NEW PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE, OUR CONTINUED GROWTH MAY
BE ADVERSELY AFFECTED.
We introduced our Dynamic Pricing Toolkit and AuctionNow products in the
second half of 1999. In addition, we intend to introduce new versions of these
products and our OpenSite Auction product in 2000. We cannot be certain that
these new products will achieve market acceptance. The introduction of new
products is an important component of our strategy to address the needs of the
expanding dynamic commerce market. To this end, we have expended considerable
resources on product development. If our new products fail to gain acceptance in
the dynamic commerce market, our sales and revenue growth could be materially
and adversely affected.
BIDSTREAM.COM IS A NEW BUSINESS MODEL THAT WE CANNOT BE CERTAIN WILL SUCCEED.
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. Currently, participation in
BidStream.com is free to our customers. However, we intend to charge a fee to
participating Web sites 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 content that is attractive
to bidders 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. The failure of BidStream.com to be a commercial
success could have a material adverse effect on our future operating results.
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OUR ACQUISITION OF BIDDER'S EDGE HAS NOT, AND MAY NOT BE, COMPLETED.
We have entered into a letter of intent to acquire Bidder's Edge, Inc.
Consummation of this acquisition is subject to approval of our board of
directors and the negotiation of a definitive merger agreement, which will
require a significant amount of management attention and resources. We cannot be
certain that the proposed acquisition will be completed, or if completed, that
it will be accounted for as a pooling-of-interests. If the transaction is
completed but not accounted for as a pooling-of-interests, we will be required
to record the acquisition at fair value resulting in future charges to our
operations through amortization of the resulting intangible assets. If this
acquisition is not completed, we will recognize little or no benefit from our
efforts.
LITIGATION INVOLVING BIDDER'S EDGE MAY ADVERSELY AFFECT OUR BUSINESS.
Bidder's Edge aggregates the business-to-business, business-to-consumer and
person-to-person auction content from numerous online auction sites. eBay, a
person-to-person online auction community, has filed a lawsuit in United States
federal court against Bidder's Edge, alleging that Bidder's Edge cannot include
auction content from eBay's Web site without its permission. This litigation may
result in substantial costs and require the use of substantial management
attention and resources, which could have a material adverse effect on the
future operating results of Bidder's Edge. In addition, if eBay is successful on
the merits, the online auction content that BiddersEdge.com aggregates would be
reduced unless Bidder's Edge pays eBay license fees to aggregate its online
auction content. Such a result could also lead other auction sites to require
Bidder's Edge to pay license fees to aggregate their online auction content.
Even if our acquisition of Bidder's Edge is not completed, a successful claim by
eBay could result in other auction sites requiring similar license fees from
BidStream.com as well. The payment of these license fees could substantially
increase the operating costs of BiddersEdge.com and BidStream.com. If eBay is
successful on the merits, and if Bidder's Edge is unable to license online
auction content from eBay, the online auction content Bidder's Edge aggregates
will be reduced, which could have a material adverse effect on its revenues.
IF WE FAIL TO SUCCESSFULLY INTEGRATE BIDDER'S EDGE WITH OUR OPERATIONS AND
PRODUCT OFFERINGS, OUR OPERATIONS AND EARNINGS MAY BE ADVERSELY AFFECTED.
If our acquisition of Bidder's Edge is completed, additional management
attention and resources will be required to integrate the operations and product
offerings of Bidder's Edge with BidStream.com and our other operations. These
efforts may require the diversion of resources from other business
opportunities. In addition, this integration may require greater financial
resources than anticipated. We cannot assure you that we will integrate Bidder's
Edge in an efficient or cost-effective manner. The failure to successfully
integrate Bidder's Edge could have a material adverse effect on our operations
and earnings.
BIDSTREAM.COM MAY ENCOUNTER SERVICE INTERRUPTIONS.
As we continue our marketing efforts for BidStream.com, the number of items
listed for bid and number of visitors is likely to increase, placing greater
demands on this Web site. On average, BidStream.com's current utilization
represents less than 50% of its capacity. As the utilization increases,
BidStream.com may encounter system interruptions that could cause it to be
unavailable for extended periods. For example, from December 15, 1999 through
March 15, 2000, BidStream.com experienced approximately 17.5 hours of
interruptions, which represents a 99.2% availability rate during that period.
These interruptions could reduce BidStream.com's attractiveness to businesses
and bidders, which could have a material adverse effect on our ability to
develop BidStream.com into a successful business model.
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IF WE DO NOT SUCCESSFULLY MARKET THE OPENSITE BRAND, OUR BUSINESS MAY SUFFER.
We believe that maintaining and enhancing the OpenSite brand is critical to
increasing our product sales. We are aware of approximately 25 companies that
compete with one or more of our products and services. 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 earnings
could be materially and adversely affected.
COMPETITION COULD REDUCE OUR MARKET SHARE AND ADVERSELY AFFECT OUR OPERATING
RESULTS.
The online auction and dynamic commerce markets are new, rapidly evolving
and intensely competitive. We expect this competition to intensify in the
future. Increased competition may result in increased pricing pressures, reduced
sales and reduced operating margins, as well as loss of market share and brand
recognition. Historically, we have competed in the online auction products and
services market, which includes the following:
- entry-level dynamic pricing software;
- enterprise-level auction software;
- Web sites that feature auction aggregation;
- person-to-person online auction communities; and
- outsourced auction-hosting services.
With our new Dynamic Pricing Toolkit and other products and services that
are under development, we are now also competing in the larger realm of dynamic
commerce. Competition in this area includes:
- destination sites that aggregate buyers and sellers into consolidated
groups to gain market advantages and efficiencies;
- dynamic commerce products to automate the process for a buyer and seller
to engage in a bid-and-ask process to sell and procure products; and
- online procurement applications that typically have single buyers posting
items for intended purchase and multiple sellers bidding for the sale in
a reverse auction.
Currently, we do not have any products or services designed to meet these needs.
Many of our competitors and potential competitors have longer operating
histories, greater brand recognition and greater financial, marketing and other
resources than we do. 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. 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 ability
to maintain or expand our market share.
LARGER, BETTER KNOWN AND MORE ESTABLISHED COMPANIES MAY ENTER OUR MARKET, WHICH
COULD INCREASE COMPETITIVE PRESSURES.
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
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Amazon.com, have expanded to offer auction products and services that compete
with our products and services and may 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. In addition, Oracle, which has significant market
presence, has made initial efforts to establish an electronic marketplace for
procurement for the automotive industry which may be expanded to compete with
our products and services. The barriers to entry in the market for online
auction products and services are relatively low, particularly for companies
that currently offer a form of online auction functionality. Any of these events
could greatly increase our competitive pressures and have a material adverse
effect on our ability to maintain or expand our market share.
ESTABLISHING INDIRECT SALES CHANNELS IS IMPORTANT TO INCREASING PRODUCT SALES.
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. We have
entered into contractual arrangements with these resellers, which provide for
commission-based compensation. 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.
ESTABLISHING AND MAINTAINING BUSINESS RELATIONSHIPS IS IMPORTANT TO OUR
BUSINESS.
The establishment of business relationships is an element of our marketing
strategy. We intend to seek relationships with:
- providers of complementary technology for the purpose of ensuring product
compatibility;
- portal sites for the purpose of increasing the value of BidStream.com;
and
- ancillary service providers for the purpose of providing opportunities
for complementary services.
We may experience competition from other auction product and service
providers for these relationships. We cannot be certain that we will be able to
establish a sufficient number of relationships to carry out our marketing
strategy or that these relationships, if established, will be successful. In
addition, we intend to invest financial and management resources in developing
these relationships. If we do not generate additional revenue through these
relationships to offset our investment, our earnings could be materially and
adversely affected.
LONGER SALES CYCLES MAY ADVERSELY AFFECT OUR BUSINESS.
Increasing sales of higher-end auction products, particularly OpenSite
Auction, AuctionNow and our Dynamic Pricing Toolkit is an element of our
business strategy. As we sell more sophisticated products to larger
organizations, we expect the time from initial contact to sale
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completion to lengthen. Currently, our typical sales cycle is approximately
60-90 days. We expect our typical sales cycle to expand to as many as 90-180
days. 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 materially and
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.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ADAPT OUR PRODUCTS AND SERVICES TO
CHANGING MARKET CONDITIONS.
Changes in the electronic commerce industry generally, and the dynamic
commerce industry specifically, 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. All our
products, including Dynamic Pricing Toolkit, AuctionNow and OpenSite Auction,
will require periodic updates to accommodate changes in Internet technology as
well as dynamic commerce standards. A failure to update our products to adapt to
technological changes or competitive pressures could adversely affect sales of
these products. 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 information
technology 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 revenue 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 sales and marketing
efforts. 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
earnings and liquidity.
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WE MAY NOT BE SUCCESSFUL IN EXPANDING INTO INTERNATIONAL MARKETS.
We are expanding internationally. We began the international introduction
of our products through our United Kingdom office in March 1999, which continued
with the introduction of our products in Asia. 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. In addition, we have retained Protege Software, Ltd. to
provide sales and marketing services for our European expansion, Japan Entry,
LLC to accelerate our expansion into the Japanese market and The Promar Group,
LLC to assist our entry into other markets in Asia and in Latin America. 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;
- difficulties localizing software for markets that require localization;
- 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;
- fewer protections of proprietary rights;
- foreign currency exchange rate fluctuations; and
- regional economic conditions.
We may not be successful in further expanding into international markets or
in generating revenues from foreign operations.
WE MUST EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS TO BE SUCCESSFUL.
We are rapidly expanding our operations. In particular, we have
significantly expanded our sales and marketing departments over the past year in
an effort to increase sales and revenue growth. We have also expanded our
management and administration to support this growth. 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. If we are unable to manage our growth effectively, our
business could be materially and adversely affected. 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.
OUR SUCCESS DEPENDS UPON ATTRACTING AND RETAINING QUALIFIED PERSONNEL.
A key factor to our success is the continued services and performance of
our executive officers. 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
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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 operations.
THE FAILURE TO INTEGRATE SUCCESSFULLY OTHER BUSINESSES THAT WE ACQUIRE COULD
ADVERSELY AFFECT OUR BUSINESS.
An element of our strategy is to broaden the scope and content of our
products and services through the acquisition of existing products,
technologies, services and businesses in the dynamic commerce market. Other than
our proposed acquisition of Bidder's Edge, we have no current agreements or
binding commitments regarding any potential acquisitions. If we complete any
acquisitions in the future, we would be exposed 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 adversely affect our earnings and liquidity.
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. Many jurisdictions do have laws and regulations
governing auctions generally and the licensing and liability of auctioneers. A
few jurisdictions have indicated that these laws apply to online auctions as
well. The adoption of 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.
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.
WE HAVE A LIMITED ABILITY TO PROTECT 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. Currently, our most important
proprietary rights are those embodied in our Dynamic Pricing Toolkit, AuctionNow
and OpenSite Auction products, in our OpenSite Concierge service and in our
BidStream.com Web site. Our software technology is not patented and existing
copyright laws offer only limited practical protection. We cannot guarantee that
the legal protections that we rely on will be adequate to prevent
misappropriation of our intellectual
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property. Also, these protections may not prevent independent third-party
development of competitive products or services. We cannot guarantee that third
parties will not assert infringement claims against us in the future or that any
asserted claim will not require us to enter into a license agreement, 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.
In addition, effective copyright and trademark protection may be
unenforceable or limited in some 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 and
require the use of substantial management attention and resources.
WE HAVE RECEIVED TWO NOTICES OF INFRINGEMENT CLAIMS.
In two instances we have received notices claiming that our technology
infringes the intellectual property rights of others. In one instance, we have
been offered a license to the intellectual property in question, which we have
declined. The second allegation claims infringement of a patent application. We
are currently unable to assess any potential claims that may exist if the patent
is issued. Neither of these claims have been resolved to date. We cannot assure
you that we will be successful in defending these claims if they are pursued. A
successful claim against us could require us to enter into a license agreement,
royalty agreement or financial settlement with the party asserting the claim.
The terms of such an agreement or settlement could have a material adverse
effect on our operating results or financial condition.
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 or the misuse of private
information by our customers 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 and services. Some customers may use our products
to auction items that are subject to regulation by local, state or federal
authorities, such as firearms, alcohol, pharmaceuticals, 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.
POTENTIAL YEAR 2000 PROBLEMS COULD ADVERSELY AFFECT OUR BUSINESS.
Many currently installed computer systems and software products were
originally coded to accept only two digit entries in the date code field. Prior
to corrective reprogramming, these systems could not reliably distinguish dates
beginning on January 1, 2000 from dates prior to the year 2000. At and since
January 1, 2000, year 2000 problems have not been significant and
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wide-spread computer failures have not materialized. Year 2000 problems could
still occur, especially at quarter end and at year end. Our products operate
with third-party equipment and software that may prove not to be year 2000
compliant. In addition, we cannot guarantee that the systems of our suppliers or
service providers are year 2000 compliant. Year 2000 problems could still have a
material adverse effect on our ability to conduct our business efficiently and
productively.
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" names in all of the countries in which we
conduct business. The presence of similar domain names may create confusion
among potential customers and bidders and direct traffic away from our Web
sites.
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.
OUR BUSINESS GOALS MAY NOT BE ACHIEVED IF THE PROCEEDS OF THIS OFFERING ARE NOT
USED EFFECTIVELY.
The net proceeds from the sale of our common stock will become part of our
general working capital upon completion of this offering. The failure of
management to apply these proceeds effectively could materially and adversely
affect our operating results. 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.
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. A substantial amount of our common stock will be
eligible for sale in the public market after this offering.
Upon completion of this offering, we will have outstanding an aggregate of
23,489,896 shares of our common stock, excluding shares to be issued in
connection with our proposed acquisition of Bidder's Edge, assuming no exercise
of the underwriters' over-allotment option and assuming no exercise of
outstanding options. Of these shares, the 5,000,000 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
18,489,896 shares of common stock are held by existing stockholders. These
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
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Act. These shares of restricted securities may be eligible for sale in the
public market in accordance with the requirements of Rule 144. All of our
officers and directors, certain existing shareholders and the named purchasers
of directed shares in this offering have agreed that they will not sell shares
without the prior written consent of the underwriters for a period of 180 days
following the date of this prospectus. However, the underwriters could waive
these lock-up restrictions prior to the end of the 180 day period. In addition,
the underwriters could waive lock-up restrictions which prohibit us from selling
additional shares for a period of 180 days following the date of this
prospectus. The waiver of lock-up restrictions is solely at the discretion of
the underwriters and no specific criteria are used to determine the timing of a
waiver or the number of shares to be released from lock-up. If the underwriters
waive the lock-up restrictions, a subsequent sale of additional shares may
adversely affect the market price of the common stock.
In addition, the letter of intent provides for the issuance of 5,960,871
restricted shares and options to acquire restricted shares in connection with
our acquisition of Bidder's Edge. The holders of these shares will be entitled
to registration rights with respect to these shares beginning 180 days after the
consummation of the acquisition. See "Description of Capital
Stock -- Registration Rights" and "Shares Eligible for Future Sale."
Upon completion of this offering, the holders of 13,626,625 shares of our
common stock or their transferees will be entitled to rights with respect to the
registration of these shares under the Securities Act. After such a
registration, these shares become freely tradable without restriction under the
Securities Act.
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
$11.23. As of December 31, 1999 the Company had 1,209,081 stock options
outstanding at a weighted-average exercise price of $4.71 per share. All of the
stock options outstanding as of December 31, 1999 have 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 AN
ACQUISITION BY A THIRD PARTY MORE DIFFICULT.
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 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.
SUPERMAJORITY VOTING. Our certificate of incorporation and bylaws
provide that a director may be removed from office only with cause by the
affirmative vote of at least 75% of all shares voting on the removal. In
addition, the provisions of our certificate of incorporation that relate to
the election and removal of directors and the prohibition on the calling of
special meetings by stockholders and actions by stockholders by written
consent may only be amended by a vote of 75% of our outstanding shares of
voting stock. Our bylaws may only be amended by our board of directors or
by 75% of our outstanding shares of voting stock.
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PREFERRED STOCK. Our certificate of incorporation authorizes our
board of directors to issue up to 10,000,000 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.
DELAWARE ANTITAKEOVER STATUTE. Delaware law restricts 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.
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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 and revenue mix;
- future profitability;
- development and expansion of our products and services;
- trends in Internet activity generally and trends in online auctions,
dynamic pricing and dynamic commerce 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;
- proposed acquisition of Bidder's Edge;
- impact and integration of acquisitions; and
- payment of dividends.
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 net proceeds from the sale of the 5,000,000 shares of common stock in
this offering are estimated to be approximately $64,210,000. Our net proceeds
are estimated to be approximately $73,975,000 if the underwriters exercise their
over-allotment option in full. These estimates have been made assuming an
initial public offering price of $14.00 per share and after deducting estimated
underwriting discounts and commissions and estimated expenses payable by us in
connection with this offering.
We intend to use a portion of the net proceeds of this offering as follows:
- approximately $18.0 million to fund advertising and marketing activities;
- approximately $4.0 million to fund our obligations to purchase
advertising and services from Excite@Home;
- approximately $3.0 million to fund our international expansion; and
- approximately $1.5 million to fund capital expenditures.
19
<PAGE> 23
The remaining net proceeds of this offering will be used primarily for
working capital and other general corporate purposes. The amounts we actually
use for each purpose may vary significantly and are subject to change at our
discretion depending upon factors such as economic or industry conditions,
changes in the competitive environment and strategic opportunities that may
arise. In addition, we may use a portion of the net proceeds to acquire
complementary technologies or businesses. However, except for our proposed
acquisition of Bidder's Edge, 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 primarily 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.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of OpenSite as of
December 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to: (1) the proposed acquisition of
Bidder's Edge as if the transaction had been consummated as of December
31, 1999 and accounted for as a pooling-of-interests and (2) the
conversion of all outstanding shares of mandatorily redeemable preferred
stock into common stock; and
- on a pro forma as adjusted basis to reflect the sale of 5,000,000 shares
of common stock offered at an assumed initial public offering price of
$14.00 per share, 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 2,333,333 shares of common stock presently
reserved for issuance upon exercise of options granted under our stock option
plan, of which options to purchase 1,209,081 shares were outstanding as of
December 31, 1999 at a weighted average exercise price of $4.71 per share. The
amounts below also exclude 130,838 shares of common stock subject to warrants
outstanding as of December 31, 1999 at an exercise price of $0.32 per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------ --------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Mandatorily redeemable preferred stock, $.01 par value,
21,175,439 shares authorized:
Series A -- 2,162,454 shares issued and outstanding
actual, none issued and outstanding pro forma and pro
forma as adjusted..................................... $ 23,769 $ -- $ --
Series B -- 3,333,333 shares issued and outstanding
actual, none issued and outstanding pro forma and pro
forma as adjusted..................................... 30,140 -- --
Series C -- 8,000,000 shares issued and outstanding
actual, none issued and outstanding pro forma and pro
forma as adjusted..................................... 26,550 -- --
-------- ------- --------
Total mandatorily redeemable preferred stock............ 80,459 -- --
-------- ------- --------
Stockholders' equity (deficit):
Common stock, $.01 par value, 75,000,000 shares
authorized, 6,236,452 shares issued and
outstanding actual; 24,220,068 shares issued
and outstanding pro forma; and 29,220,068
shares issued and outstanding pro forma
as adjusted........................................... 62 242 292
Additional paid-in capital.............................. -- 88,233 152,393
Deferred compensation................................... (94) (245) (245)
Treasury stock at cost, 1,242,343 shares actual, no
shares pro forma and pro forma as adjusted............ (2,795) -- --
Accumulated other comprehensive income.................. (1) (1) (1)
Accumulated deficit..................................... (67,605) (71,463) (71,463)
Notes receivable from stockholders...................... (79) (79) (79)
-------- ------- --------
Total stockholders' equity (deficit).................... (70,512) 16,687 80,897
-------- ------- --------
Total capitalization...................................... $ 9,947 $16,687 $ 80,897
======== ======= ========
</TABLE>
21
<PAGE> 25
DILUTION
As of December 31, 1999, the pro forma net tangible book value of OpenSite
was approximately $16,686,840, or $0.69 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 and the proposed acquisition of Bidder's Edge. After giving effect to
the sale of 5,000,000 shares of common stock in this offering at an assumed
initial public offering price of $14.00 per share and the receipt of the
estimated net proceeds, the pro forma net tangible book value of OpenSite at
December 31, 1999, would have been approximately $80,896,840, or $2.77 per share
of common stock. This represents an immediate increase in net tangible book
value of $2.08 per share to existing stockholders and an immediate decrease in
net tangible book value of $11.23 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............. $14.00
Pro forma net tangible book value per share at December
31, 1999............................................... $0.69
Increase attributable to the offering..................... 2.08
Pro forma adjusted net tangible book value per share after
the offering.............................................. 2.77
Net tangible book value dilution per share to new investors
in the offering........................................... $11.23
======
</TABLE>
The above table assumes the underwriters' over-allotment option is not
exercised. Assuming full exercise of the underwriters' over-allotment option,
the pro forma net tangible book value of OpenSite at December 31, 1999 would
have been approximately $90,661,840, or $3.03 per share of common stock. This
represents an immediate increase in net tangible book value of $2.34 per share
to existing stockholders and an immediate decrease in net tangible book value of
$0.97 per share to new investors.
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the total number of shares sold by OpenSite and Bidder's
Edge, the consideration paid to OpenSite and Bidder's Edge for those shares and
the average price per share paid by the existing stockholders and by new
investors purchasing 5,000,000 shares of common stock in the offering at an
assumed initial public offering price of $14.00 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 OpenSite and
Bidder's Edge
stockholders(1)............ 24,220,068 82.9% $ 35,292,106 33.5% $ 1.46
New investors................ 5,000,000 17.1% $ 70,000,000 66.5% $14.00
---------- ------------ ------
Total................... 29,220,068 100.0% $105,292,106 100.0% $ 3.60
========== ===== ============ ===== ======
</TABLE>
- ---------------
(1) The consideration received from existing stockholders excludes accretion on
mandatory redeemable convertible securities of $53,488,191 and is net of the
consideration paid for shares held in treasury. The number of shares
purchased excludes shares held in treasury.
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing stockholders would be 80.8% 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
22
<PAGE> 26
increased to 5,750,000 shares, or 19.2% 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 December 31, 1999 and exclude:
- 2,333,333 shares of common stock reserved for issuance upon exercise
of options granted under our stock option plan, of which options to
purchase 1,209,081 shares were outstanding as of December 31, 1999
at exercise prices ranging from $0.12 to $7.86 per share and a
weighted average exercise price of $4.71 per share; and
- 130,838 shares of common stock reserved for issuance upon exercise
of warrants outstanding as of December 31, 1999 at an exercise price
of $0.32 per share.
The exercise of options and warrants will have the effect of increasing the
net tangible book value dilution of new investors in this offering.
23
<PAGE> 27
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with the combined pro forma financial statements appearing elsewhere in this
prospectus, 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 statements of operations data for the
years ended December 31, 1997, 1998 and 1999 and the balance sheet data as of
December 31, 1998 and 1999 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 statement of operations data
for the period from inception to December 31, 1996 and the balance sheet data as
of December 31, 1996 and 1997 have been derived from our audited financial
statements which are not included in this prospectus. The historical results are
not necessarily indicative of results to be expected in the future.
The pro forma statement of operations for the year ended December 31, 1999
gives effect to our proposed acquisition of Bidder's Edge as if such transaction
had been consummated on January 1, 1999 using the pooling-of-interests method of
accounting and the conversion of all outstanding shares of mandatorily
redeemable convertible preferred stock into common stock as of the later of
January 1, 1999 or the date of issuance. This pro forma statement of operations
is presented for illustrative purposes only and is not necessarily indicative of
what our actual results of operations would have been had this transaction been
consummated on January 1, 1999, or of our future results of operations. The pro
forma balance sheet data gives effect to the proposed acquisition of Bidder's
Edge as if the transaction had been consummated as of December 31, 1999 and
accounted for as a pooling-of-interests and the conversion of all outstanding
shares of mandatorily redeemable convertible preferred stock into common stock.
The pro forma as adjusted balance sheet data is adjusted to give effect to our
sale of 5,000,000 shares of common stock offered at an assumed initial public
offering price of $14.00 per share, and the receipt of the estimated net
proceeds from the sale.
24
<PAGE> 28
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED DECEMBER 31,
(JULY 24, 1996) ------------------------------------------
TO DECEMBER 31, PRO FORMA
1996 1997 1998 1999 1999
------------------ ---- ---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses..................... $ 11 $ 177 $ 1,072 $ 6,437 $ 6,437
Services.............................. 1 163 209 1,441 1,441
------ ------ ------- -------- --------
Total revenue...................... 12 340 1,281 7,878 7,878
Cost of revenue:
Cost of software licenses............. -- 9 18 456 456
Cost of services...................... 1 19 131 1,407 1,407
------ ------ ------- -------- --------
Total cost of revenue.............. 1 28 149 1,863 1,863
------ ------ ------- -------- --------
Gross Profit............................ 11 312 1,132 6,015 6,015
------ ------ ------- -------- --------
Operating expense:
Sales and marketing................... -- 43 1,918 10,629 11,589
Product development................... -- 105 695 2,980 4,375
General and administrative............ 11 36 923 5,210 6,016
------ ------ ------- -------- --------
Total operating expense............ 11 184 3,536 18,819 21,980
------ ------ ------- -------- --------
Operating income (loss)................. 0 128 (2,404) (12,804) (15,965)
Interest income, net.................... -- 2 43 599 759
------ ------ ------- -------- --------
Net income (loss)....................... 0 130 (2,361) (12,205) (15,206)
Distributions to preferred
stockholders.......................... -- -- (39) -- --
Accretion of preferred stock............ -- -- (325) (53,164) --
------ ------ ------- -------- --------
Net income (loss) available to common
stockholders.......................... $ 0 $ 130 $(2,725) $(65,369) $(15,206)
====== ====== ======= ======== ========
Basic and diluted net income (loss)
available to common stockholders per
common share.......................... $ 0.00 $ 0.02 $ (0.47) $ (12.51) $ (0.70)
------ ------ ------- -------- --------
Shares used in computing basic and
diluted net income (loss) per share... 5,010 5,428 5,748 5,225 21,725
------ ------ ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
1996 1997 1998 1999 1999 1999
---- ---- ---- ---- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
investments..................... $ 1 $151 $2,276 $ 10,599 $17,365 $81,575
Working capital (deficit)......... (1) 141 1,780 8,322 14,064 78,274
Total assets...................... (2) 210 3,070 14,948 22,756 86,966
Long-term debt and capital lease
obligations, net of current
portion......................... -- 17 43 -- -- --
Mandatorily redeemable convertible
preferred stock................. -- -- 4,818 80,459 -- --
Total stockholders' equity
(deficit)....................... -- 159 (2,707) (70,512) 16,687 80,897
</TABLE>
25
<PAGE> 29
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 various factors, including
those discussed below and elsewhere in this prospectus, particularly under the
heading "Risk Factors."
OVERVIEW
OpenSite provides a full line of online auction and other dynamic pricing
software products and services. We commenced operations and introduced our first
auction software product in 1996 and have delivered over 600 licensed auction
products and outsourced services to customers. We provide a variety of
cost-effective software and services that automate the process for businesses to
create and maintain branded, Internet-based business-to-business and
business-to-consumer auctions and other dynamic pricing models on their own Web
sites. We offer dynamic pricing products and services to a full range of small,
medium and large businesses. OpenSite brings together buyers and sellers,
helping businesses establish sales channels, manage inventory, attract
customers, introduce new products and strengthen customer and other business
relationships.
The OpenSite Auction family of software products allows businesses 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. The AuctionNow
software product provides technology that allows commercial Internet Service
Providers, Application Service Providers and Internet portals to host multiple
online auctions that can be rented to their customers. The Dynamic Pricing
Toolkit product provides a set of programmer's tools for building highly
customizable auction sites that can be integrated with other enterprise
applications. We have historically sold our software directly to our customers,
but are increasing the proportion that is sold through resellers and systems
integrators. We also provide related consulting, education and technical support
services. Additionally, we act as an Application Service Provider through our
OpenSite Concierge service, which allows 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. To date, over 180 OpenSite-
powered auction sites have participated in BidStream.com. While we have derived
minimal revenue from BidStream.com, we anticipate it will contribute a growing
portion of revenue in the future. As of December 31, 1999, we had 107 full-time
employees.
OpenSite's revenue is currently derived primarily from software license
fees and support and maintenance fees. For the year ended December 31, 1999,
software license fees represented approximately 82% of the Company's revenue,
support and maintenance fees represented approximately 10% of the Company's
revenue, and professional services and outsourced services revenue represented a
combined 8% of the Company's revenue. Historically, our direct sales force
generated the predominant portion of our software license revenue and support
and maintenance revenue. However, with the initiation of sales through resellers
in late 1998, approximately 15% of our revenue in 1999 resulted from sales
generated by our resellers. We expect that sales through resellers will increase
as a percentage of sales in 2000. 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 12 to 24 months, in
future years we expect to generate an increasing portion of our revenue from
services and recurring revenue streams such as
26
<PAGE> 30
BidStream.com, distributor and transaction fees from our resellers, and our
outsourcing service, OpenSite Concierge. Revenue from BidStream.com will consist
of advertising and sponsorship fees, fees charged to participating auction sites
and other fees associated with facilitating transactions and building community
and interaction among businesses and consumers. We expect that BidStream.com
will begin to generate advertising fees and participation fees during 2000. Our
OpenSite Concierge service began generating fees in the second quarter of 1999
consisting of monthly service fees for auction site creation, hosting and
administration services. Service fees consist primarily of one-time setup fees,
fixed monthly charges and to a lesser extent revenue sharing arrangements.
Our revenue grew significantly in 1999. Software license revenue has
increased from $921,000 for the first quarter of 1999 to $2.5 million for the
fourth quarter of 1999, representing a 169% increase. Services revenue has
increased from $129,000 for the first quarter of 1999 to $678,000 for the fourth
quarter of 1999, representing a 425% increase.
Transition of our product development efforts from our Buffalo, New York
office to our Durham, North Carolina headquarters was completed on November 30,
1999. In connection with this closing of the Buffalo, New York office, we
incurred a charge of approximately $373,000 during 1999, primarily relating to
severance and other compensation expense.
In December 1999, we entered into an agreement with Excite@Home to jointly
create an auction network through their business-to-business sites, Work.com and
Excitestorebuilder.com. Under the agreement, Excite@Home will offer and
distribute auction and dynamic pricing functionality to its visitors through its
business-to-business sites using our AuctionNow software. We will also produce
co-branded BidStream.com Web sites. Benefits from this agreement consist of
multi-year technology license fees from Excite@Home, recurring auction
application fees from Excite@Home customers, advertising fees from the auction
network and co-branded pages, as well as aggregation of Excite@Home's customers'
auction items into BidStream.com. OpenSite and Excite@Home will share recurring
application service fees from Excite@Home and advertising revenue from the
auction network and the co-branded pages. We will receive 75% of advertising and
recurring application services revenue until we receive at least $2 million in
total revenue from this relationship. Thereafter, we will receive 50% of such
revenue. As part of this relationship, we have also agreed to purchase at least
$4 million in advertising and services from Excite@Home prior to March 31, 2001,
an additional $5 million in advertising and services prior to March 31, 2002,
and an additional $6 million in advertising and services prior to March 31,
2003. However, subject to specified exceptions, we will not be obligated to
purchase advertising after March 31, 2002 unless we have received by that time
at least $5 million in payments from the above-mentioned revenue sources.
We have entered into a Letter of Intent to acquire Bidder's Edge, Inc., an
auction portal with over 3.5 million page views per month that aggregates over 5
million items from over 150 auction sites. BiddersEdge.com is a search engine
that uses proprietary technology to create a single directory that conveniently
categorizes auction items. If we complete our acquisition of Bidder's Edge, we
plan to incorporate our BidStream.com aggregate content into a combined
BiddersEdge.com product offering.
Software license revenue is generated through the licensing of our software
products to end users, directly and through resellers. We offer a variety of
levels of our OpenSite software products with increasingly sophisticated
functionality. The current base list prices for our auction products range from
$5,000 to $250,000 based on the complexity of the product and customer
requirements. We expect that these prices may increase as we further penetrate
the large business market and expand our product and service offerings. 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
27
<PAGE> 31
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 revenue include our outsourcing service, OpenSite Concierge,
business relationship fees, 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 $50,000
based on the level of the software product sold and the level of support
selected. OpenSite Concierge and business relationship fees are recognized as
services are performed. 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 revenue consists primarily of outsourcing
services, costs of consulting and customer support and maintenance, including
personnel, travel and occupancy and maintenance of the BidStream.com Web site.
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.
Product development expense consists primarily of compensation for product
development staff and overhead costs.
General and administrative expense consists primarily of compensation for
personnel, facility and other overhead costs and, to a lesser extent, fees for
outside professional advisors.
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.
Web site development costs have been accounted for in accordance with AICPA
Statement of Position No. 98-1, "Accounting for the Costs of Software Developed
or Obtained for Internal Use." This standard was adopted effective January 1,
1999. To date, the costs of developing and maintaining the Company's Web site
has been insignificant and, therefore, all amounts incurred in developing and
maintaining the Web site have been expensed as incurred to product development
expense.
28
<PAGE> 32
RESULTS OF OPERATIONS
The following table sets forth our historical operating information as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses......................................... 52% 84% 82%
Services.................................................. 48 16 18
--- ---- ----
Total revenue.......................................... 100 100 100
--- ---- ----
Cost of revenue:
Cost of software licenses................................. 3 1 6
Cost of services.......................................... 5 10 18
--- ---- ----
Total cost of revenue.................................. 8 11 24
--- ---- ----
Gross Profit................................................ 92 89 76
--- ---- ----
Operating Expense:
Sales and marketing....................................... 13 150 135
Product development....................................... 31 54 38
General and administrative................................ 10 72 66
--- ---- ----
Total operating expense..................................... 54 276 239
--- ---- ----
Operating income (loss)..................................... 38 (187) (163)
Interest, net............................................... -- 3 8
--- ---- ----
Net income (loss)........................................... 38% (184)% (155)%
=== ==== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE
Total revenue increased by 515% to $7.9 million in the year ended December
31, 1999 from $1.3 million in the year ended December 31, 1998.
Software license revenue increased by 500% to $6.4 million in the year
ended December 31, 1999 from $1.1 million in the year ended December 31, 1998.
The number of software licenses sold increased to 386 in the year ended December
31, 1999 from 106 in the year ended December 31, 1998. As a percentage of total
revenue, software license revenue decreased to 82% in the year ended December
31, 1999 from 84% in the year ended December 31, 1998. The increased sale of
licenses was a result of our increased sales and marketing efforts combined with
the market acceptance and popularity of auctions and dynamic pricing on the
Internet.
Services revenue increased by 591% to $1.4 million in the year ended
December 31, 1999 from $208,000 in the year ended December 31, 1998. This
increase was due primarily to the support and maintenance associated with higher
license volumes and our OpenSite Concierge service, which began generating
revenues in the second quarter of 1999. As a percentage of total revenue,
services revenue increased to 18% in the year ended December 31, 1999 from 16%
in the year ended December 31, 1998. The dollar increase was primarily driven as
a result of the increase in license sales to 386 in the year ended December 31,
1999 from 106 in the year ended December 31, 1998. Secondarily, the dollar
increase and higher services mix was driven by the introduction of our
outsourcing service during April 1999, which accounted for 22%, or $319,000 of
the services revenue in the year ended December 31, 1999.
29
<PAGE> 33
COST OF REVENUE
Cost of software license revenue increased by 2,500% to $456,000 in the
year ended December 31, 1999 as compared to $18,000 in the year ended December
31, 1998. As a percentage of software license revenue, cost of software license
revenue increased to 7% in the year ended December 31, 1999 from 2% in the year
ended December 31, 1998. Cost of software license increased primarily as the
result of the increase in software licensing activity and royalties associated
with encryption and transaction processing components licensed by us and
included with our software. The increase in the royalties associated with this
embedded software is the primary reason for the increase in the cost of software
license revenue as a percentage of software license revenue.
Cost of services revenue increased by 974% to $1.4 million in the year
ended December 31, 1999 from $131,000 in the year ended December 31, 1998. As a
percentage of services revenue, cost of services revenue increased to 98% in the
year ended December 31, 1999 from 63% in the year ended December 31, 1998. These
increases resulted primarily from the increase in the number of employees
providing support and maintenance to 24 at December 31, 1999 from five at
December 31, 1998. Cost of services revenue increased at a greater rate than
services revenue as we expanded the infrastructure for OpenSite Concierge and
continued the expansion of our support and maintenance group in advance of
recognizing corresponding services revenue.
SALES AND MARKETING
Sales and marketing expense increased by 454% to $10.6 million in the year
ended December 31, 1999 from $1.9 million in the year ended December 31, 1998.
As a percentage of total revenue, sales and marketing expense decreased to 135%
in the year ended December 31, 1999 from 150% in the year ended December 31,
1998. Sales and marketing expense increased by $8.7 million primarily as a
result of increases in expenditures for promotion of OpenSite's brand, growth of
our global sales force and support of general marketing of our products and
services. Sales and marketing employees increased to 44 at December 31, 1999
from 15 at December 31, 1998.
PRODUCT DEVELOPMENT
We expense product development costs as they are incurred. Product
development expense increased by 329% to $3.0 million in the year ended December
31, 1999 from $695,000 in the year ended December 31, 1998. As a percentage of
total revenue, product development expense decreased to 38% in the year ended
December 31, 1999 from 54% in the year ended December 31, 1998. Product
development expense increased primarily as a result of the number of employees
in the product development group increasing to 36 through November 30, 1999 from
20 at December 31, 1998. We reduced headcount by 13 in December 1999 primarily
due to the consolidation of our Buffalo office into our North Carolina office.
GENERAL AND ADMINISTRATIVE
General and administrative expense increased by 465% to $5.2 million in the
year ended December 31, 1999 from $923,000 in the year ended December 31, 1998.
As a percentage of total revenue, general and administrative expense decreased
to 66% in the year ended December 31, 1999 from 72% in the year ended December
31, 1998. General and administrative expense increased as a result of the number
of general and administrative employees increasing to 16 at December 31, 1999
from 10 at December 31, 1998, recognition of $1.0 million of costs as a result
of a delay in our initial public offering, recognition of expense of
approximately $373,000 related to the closing of the Buffalo office, recognition
of expense of $269,000 related to a put feature of the redeemable common stock
warrant, as described in Note 10 to the
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<PAGE> 34
accompanying Notes to Financial Statements, and an increase in bad debt expense
of approximately $414,000 in the year ended December 31, 1999.
The increase in bad debt expense for the year ended December 31, 1999 over
the year ended December 31, 1998 is primarily the result of the increased level
of sales during the year ended December 31, 1999. While the Company's bad debt
expense increased during the year ended December 31, 1999, the allowance for
doubtful accounts as a percentage of gross accounts receivable decreased from
approximately 26% as of December 31, 1998 to approximately 14% as of December
31, 1999. This decrease was attributable to the write-off of a reserve for a
specific account receivable in the amount of $50,000 during 1999. The allowance
for doubtful accounts as a percentage of gross accounts receivable also
decreased from December 31, 1998 as a result the Company's accounts receivable
aging improving as of December 31, 1999.
The increase in the number of general and administrative personnel was a
result of the addition of new members to the management team during the second
half of 1998 and early 1999 as well as development of an administrative
infrastructure to support our growth.
INTEREST INCOME, NET
Interest income, net of interest expense, increased by 1,295% to $599,000
in the year ended December 31, 1999 from $43,000 in the year ended December 31,
1998. As a percentage of total revenue, interest income, net of interest
expense, increased to 8% in the year ended December 31, 1999 from 3% in the year
ended December 31, 1998. The increases were 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 the fourth quarter of 1998 and
the first and second quarters of 1999. Interest expense was insignificant in
both periods.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE
Total revenue increased by 277% to $1.3 million in the year ended December
31, 1998 from $340,000 in the year ended December 31, 1997.
Software license revenue increased by 505% to $1.1 million 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 84% in the
year ended December 31, 1998 from 52% in the year ended December 31, 1997. The
number of software licenses sold increased to 106 in the year ended December 31,
1998 from 82 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 revenue increased by 28% to $209,000 in the year ended December
31, 1998 from $162,000 in the year ended December 31, 1997. As a percentage of
total revenue, services revenue decreased to 16% in the year ended December 31,
1998 from 48% in the year ended December 31, 1997. The dollar increase was a
result of the licensed software customers increasing to 200 at December 31, 1998
from 82 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 2% in the year ended December 31, 1998 from 5% in the year ended
December 31, 1997. The dollar increase resulted
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<PAGE> 35
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 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 revenue, cost of services revenue increased to 63% in the
year ended December 31, 1998 from 12% in the year ended December 31, 1997. These
increases were primarily a result of increasing the number of employees
providing support and maintenance to five at December 31, 1998 from two at
December 31, 1997.
SALES AND MARKETING
Sales and marketing expense increased by 4,304% to $1.9 million 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 150% in
the year ended December 31, 1998 from 13% in the year ended December 31, 1997.
These increases resulted primarily from the number of sales and marketing
employees increasing to 15 at December 31, 1998 from two at December 31, 1997,
as well as increased expenditures as part of our marketing and advertising
efforts.
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% in the
year ended December 31, 1998 from 31% 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 20 at December 31, 1998
from three 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% in the year ended December 31, 1998 from 10% 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 seven at
December 31, 1998 from two 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% in the year ended December 31, 1998 from a negligible
percentage 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.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited quarterly
operating results for each of the eight quarters in the two year period ended
December 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
(IN THOUSANDS)
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses....... $179 $321 $ 177 $ 396 $ 921 $ 1,313 $ 1,729 $ 2,475
Services................ 38 46 48 76 129 223 410 678
---- ---- ------ ------- ------- ------- ------- -------
Total revenue........... 217 367 225 472 1,050 1,536 2,139 3,153
---- ---- ------ ------- ------- ------- ------- -------
Cost of revenue:
Cost of software
license............... 3 4 3 8 8 74 116 258
Cost of services........ 5 14 36 76 158 274 467 508
---- ---- ------ ------- ------- ------- ------- -------
Total cost of revenue... 8 18 39 84 166 348 583 766
---- ---- ------ ------- ------- ------- ------- -------
Gross profit............ 209 349 186 388 884 1,188 1,556 2,387
Operating expense:
Sales and marketing..... 62 147 679 1,030 1,052 2,376 2,808 4,393
Product development..... 56 116 223 300 534 776 778 892
General and
administrative........ 97 148 158 520 810 941 1,518 1,941
---- ---- ------ ------- ------- ------- ------- -------
Total operating
expense............... 215 411 1,060 1,850 2,396 4,093 5,104 7,226
---- ---- ------ ------- ------- ------- ------- -------
Operating income
(loss)................ (6) (62) (874) (1,462) (1,512) (2,905) (3,548) (4,839)
Interest income, net.... 5 4 1 33 18 223 217 141
---- ---- ------ ------- ------- ------- ------- -------
Net income (loss)....... $ (1) $(58) $ (873) $(1,429) $(1,494) $(2,682) $(3,331) $(4,698)
==== ==== ====== ======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Software licenses............ 82% 87% 79% 84% 88% 85% 81% 79%
Services..................... 18 13 21 16 12 15 19 21
--- --- ---- ---- ---- ---- ---- ----
Total revenue................ 100 100 100 100 100 100 100 100
--- --- ---- ---- ---- ---- ---- ----
Cost of revenue:
Cost of software license..... 2 1 1 2 1 5 5 8
Cost of services............. 2 4 16 16 15 18 22 16
--- --- ---- ---- ---- ---- ---- ----
Total cost of revenue........ 4 5 17 18 16 23 27 24
--- --- ---- ---- ---- ---- ---- ----
Gross profit................. 96 95 83 82 84 77 73 76
--- --- ---- ---- ---- ---- ---- ----
Operating expense:
Sales and marketing.......... 28 40 302 218 100 155 131 139
Product development.......... 26 32 99 64 51 50 37 28
General and administrative... 45 40 70 110 77 61 71 62
--- --- ---- ---- ---- ---- ---- ----
Total operating expense...... 99 112 471 392 228 266 239 229
--- --- ---- ---- ---- ---- ---- ----
Operating income (loss)...... (3) (17) (388) (310) (144) (189) (166) (153)
Interest income, net......... 2 1 0 7 2 14 10 4
--- --- ---- ---- ---- ---- ---- ----
Net income (loss)............ (1)% (16)% (388)% (303)% (142)% (175)% (156)% (149)%
=== === ==== ==== ==== ==== ==== ====
</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 $28.2 million in proceeds, net of issuance costs, from issuances of
preferred stock. At December 31, 1999, our primary source of liquidity was $10.6
million in cash and cash equivalents.
Net cash provided by operating activities was $160,000 in the year ended
December 31, 1997. Net cash used in operating activities was $1.8 million and
$9.7 million in the years ended December 31, 1998 and 1999, respectively.
Net cash used in investing activities was $39,000, $388,000 and $1.1
million for the years ended December 31, 1997, 1998 and 1999, respectively. The
cash used in investing activities was primarily for purchases of software for
customer call support, computer equipment and office furniture. The increase in
cash used in investing activities for the year ended December 31, 1999 was
primarily due to the expansion of our office space in North Carolina.
Net cash provided by financing activities was $30,000, $4.3 million and
$19.1 million in the years ended December 31, 1997, 1998 and 1999, respectively.
The 1998 and 1999 financing activities consisted primarily of issuances of
preferred stock. In January 1998, we completed a private placement of Series A
preferred stock, totaling 2,783,626 shares, resulting in gross proceeds of
$600,000. In August and September 1998, we completed a private placement of
3,333,333 shares of Series B preferred stock, resulting in gross proceeds of
$4.3 million. In March and April 1999, we completed a private placement of
8,000,000 shares of Series C preferred stock, resulting in gross proceeds of $24
million. 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
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<PAGE> 38
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 will be sufficient to fund our operations for
the next 12 months. However, if we do not successfully complete this offering
and if additional funds are not available or are not available on acceptable
terms, we will have to significantly reduce our cash requirements. We further
believe our existing liquidity and capital resources, together with the proceeds
resulting from the sale of common stock in this offering, will be sufficient to
satisfy our cash requirements for the next 24 months assuming we are able to
fully execute our business plan. These cash requirements are expected to consist
primarily of the costs of developing and expanding our international operations
in Japan, Europe, Latin America and Asia, expanding our sales and marketing
departments in the United States and increasing advertising expenses. We also
intend to invest in new products and new releases of existing products, as well
as evaluate acquisition opportunities. We have no current plans for future
equity offerings, including a follow-on public offering, in the event of an
increase in our share price.
The primary objective of our investment strategy is to preserve principal
while maximizing the income we receive from investments without significantly
increasing risk. To minimize this risk, to date we have maintained our portfolio
of cash equivalents in short-term and overnight investments that are not subject
to market risk as the interest paid on such investments fluctuates with the
prevailing interest rates. All of our cash equivalents mature in less than one
year. Our exposure to foreign currency exchange rate fluctuations is minimal as
we do not have any revenues denominated in foreign currencies and no significant
assets denominated in foreign currencies. Additionally, we have not engaged in
any derivative or hedging transactions to date.
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". 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 required disclosures 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 or
December 31, 1999.
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,"
which provides guidance regarding when software developed or obtained for
internal use should be capitalized. This statement is effective for financial
statements for fiscal years beginning after December 15, 1998. The adoption of
this statement did not have a material impact on our financial condition or
results of operations.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of Statement of Position No. 97-2, Software Revenue Recognition,
With Respect to Certain Transactions." Statement of Position No. 98-9 amended
Statement of Position No. 97-2 to require recognition of revenue using the
"residual method" in circumstances outlined in Statement of Position 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, is deferred and subsequently recognized in accordance with the
relevant sections of Statement of Position 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. The
adoption of Statement of Position No. 98-9 did not 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".
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<PAGE> 39
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. This statement, as amended by Statement of
Financial Accounting Standards No. 137, is effective for financial statements
for all fiscal quarters of all fiscal years beginning after June 15, 2000. We
intend to adopt this statement when required; however, it 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 could recognize a date of "00" as the year
1900 rather than the year 2000. Year 2000 issues have the potential to 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.
At and since January 1, 2000, year 2000 problems have not been significant
and widespread computer failures have not materialized.
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. Through the end of 1999 and into 2000, no significant problems have
been detected as a result of this testing. Actual costs to date for testing and
remediation of OpenSite software products have been less than $100,000. We will
continue the process of testing our products in test environments intended to
emulate a year 2000 environment related to quarter ends.
CONTINGENCY PLANNING. To date, we have not developed any formalized
contingency plans to address the risk that our products, systems, customers,
vendors or other third-parties 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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<PAGE> 40
BUSINESS
OVERVIEW
OpenSite provides software products and services that facilitate online
auctions and other forms of dynamic pricing. We have delivered over 600 licensed
auction products and outsourced services to customers. We provide a variety of
cost-effective software and services that automate the process for businesses to
create and maintain branded, Internet-based business-to-business and
business-to-consumer auctions on their own Web sites. We offer licensed
software, products and related services, as well as outsourcing services that
eliminate the need for technical infrastructure and expertise on the part of the
customer to a full range of small, medium and large businesses. By bringing
together buyers and sellers, our products and services help businesses create
new sales channels, manage inventory, attract new customers, introduce new
products and strengthen customer and other business relationships. Our customers
operate in a wide variety of industries, including retail, railroad,
pharmaceutical, industrial equipment and media. In addition, our BidStream.com
Web site, which was launched in April 1999, aggregates the content of
OpenSite-powered auction Web sites and is designed to generate increased traffic
to these Web sites, while providing Internet users with a central location from
which to access the items put up for auction. BidStream.com also provides
valuable customer demographic information along with buying attributes for
demand analysis. Currently, participation in BidStream.com is free to our
customers, but we intend to charge a fee in the future.
OpenSite and its products have received the following awards and
recognition: "Best of Show" for Outstanding E-commerce Applications -- Fall
Internet World 1999 and Fall Internet World 1998, "Software Company of the
Year" -- North Carolina Electronics and Information Technologies Association,
"Five Star Rating" -- Internet.com, "Analyst's Choice" -- PC Week magazine,
"Products to Watch" -- Fortune Tech Buyers Guide, "Honorable Mention" -- Spring
Internet Commerce Expo 1999 and "Best of Class" in Web-based Selling -- Fall
Internet Commerce Expo 1998.
To date, we have derived substantially all of our revenue from the sale of
software products and related services. However, our business as a software
developer has evolved since our inception in 1996. For example, we introduced
our indirect sales channel in 1998 and BidStream.com and OpenSite Concierge in
1999. As of December 31, 1999, we had 107 full-time employees.
During the second half of 1999, OpenSite entered into merger negotiations
with InfoSpace.com, Inc., an Internet information infrastructure company that
provides enabling technologies and Internet services for Web sites and Internet
appliances. In October 1999, it was announced that instead of a merger, the two
companies would enter into discussions regarding a potentially broad ranging
business and technology relationship. To date, no significant discussions
between the two companies have occurred. InfoSpace has indicated an interest in
participating in our directed shares program.
PROPOSED ACQUISITION OF BIDDER'S EDGE
We have entered into a letter of intent to acquire Bidder's Edge, Inc., an
auction portal with over 3.5 million page views per month that aggregates over 5
million items from over 150 auction sites. BiddersEdge.com is a search engine
that uses proprietary technology to create a single directory that conveniently
categorizes auction items. It also offers auction users a suite of enhanced
tools that facilitate auction tracking for multiple bids, historical pricing of
auction items and automatic notification of item availability through email or
instant messaging. BiddersEdge.com provides content, including news, information
and featured items for bid, that is indexed for easy access and use to over
345,000 unique monthly auction users. Additionally, BiddersEdge.com's large
database of customer demographic and marketing information is a
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<PAGE> 41
valuable resource not only for BiddersEdge.com but also for the operators of the
sites it aggregates. While Bidder's Edge does not generally obtain the consent
of auction sites it aggregates, it believes that most auction sites are
supportive of its activities.
If we complete our acquisition of Bidder's Edge, we plan to incorporate our
BidStream.com aggregated content into a combined BiddersEdge.com product
offering. We expect BidStream.com to significantly enhance the
business-to-business auction content of BiddersEdge.com and to accelerate the
growth of its market position as a provider of aggregated content for businesses
through the addition of over 180 business-to-business auction sites to Bidder's
Edge. We expect this combined offering to increase the volume of bidders and
sellers directed to OpenSite-powered auctions as well as other non-customer
sites aggregated by BiddersEdge.com. We believe that this increased bidder and
seller base in turn will make the deployment of an OpenSite-powered auction even
more attractive to prospective customers. In addition, we intend to license the
auction content of the BiddersEdge.com database to Internet Service Providers,
portals and other business Web sites as a private label or branded outsourced
offering. We believe that the acquisition of Bidder's Edge, if consummated, will
accelerate the strength of our business model by significantly expanding the
content, functionality, customer reach, time to market and market position of
our products and services.
Bidder's Edge is engaged in a lawsuit filed by eBay. The lawsuit alleges
that Bidder's Edge cannot include auction content from eBay's Web site without
its permission. Bidder's Edge has countersued making various antitrust and
unfair business practice claims against eBay. While eBay has offered to license
its content to Bidder's Edge, Bidder's Edge does not believe such a license is
necessary or warranted. Bidder's Edge has informed us that it believes this
lawsuit is without merit and intends to vigorously defend the matter. However,
if eBay is successful on the merits, and if Bidder's Edge is unable to license
online auction content from eBay, the online auction content Bidder's Edge
aggregates will be reduced, which could have a material adverse effect on its
revenues. However, while the person-to-person auction content represented by
eBay is currently significant, the combination of BidStream.com with
BiddersEdge.com will accelerate its focus on aggregating business-to-business
and business-to-consumer online auction content.
The letter of intent provides for the issuance of 5,960,871 shares of
common stock and options to acquire shares of common stock in connection with
this acquisition. As a result of this issuance, we expect Landmark
Communications, Inc. to own more than five percent of our outstanding common
stock. We have begun negotiations of a definitive acquisition agreement and
expect to consummate this acquisition shortly following completion of this
offering. However, we cannot be certain that we will consummate this
acquisition.
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 making online purchases will grow
from 31 million in 1998 to approximately 183 million in 2003. 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 businesses and consumers. Forrester Research estimates that
business-to-business electronic commerce will be $2.7 trillion in 2004.
EMERGENCE OF DYNAMIC PRICING
Dynamic pricing, in which prices are determined by buyers and sellers on a
transaction-by-transaction basis, has become more accepted as a form of
electronic commerce. Dynamic commerce refers to the spectrum of online commerce,
encompassing not only dynamic pricing,
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but also an entire range of dynamically determined elements of a transaction
including such items as quantity, qualitative attributes and delivery terms.
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 permitted 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 benefits have led consumers and
merchants to increasingly utilize 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 the dynamic determination of prices and transactions.
Taken together, these factors have reduced the need to adhere to the
traditionally fixed pricing of goods and services and led to the emergence of
dynamic pricing.
INTERNET FACILITATION OF AUCTIONS
Auctions are among the most well known forms of dynamic pricing. Prior to
the Internet, auctions and other forms of dynamic trade faced critical
shortcomings, including expertise, 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, proprietary business methods and their fees often reduced 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 dynamic commerce can offer more products to more people over
a wide geographic area, providing a better pricing mechanism for both buyers and
sellers. Forrester Research projects that worldwide Internet commerce will reach
between $1.4 trillion and $3.2 trillion in 2003 - up from a range of $55 billion
to $80 billion in 1998. The Internet auction market initially gained acceptance
in person-to-person transactions. However, by 2003 Forrester Research expects
that only $6.4 billion is expected to be generated from person-to-person online
auction transactions, while $12.6 billion is expected to be generated from
business-to-consumer online auction transactions. Forrester Research expects
that business-to-business electronic commerce as a whole will be $2.7 trillion
in 2004. Forrester Research also projects that 74% of business-to-business
electronic marketplaces will provide more than one transaction mechanism,
including online auctions within the next two years.
BENEFITS OF ONLINE AUCTIONS
Online auctions serve the needs of both businesses and consumers. Online
auctions facilitate more efficient markets as goods and services trade at prices
reflecting current market supply and demand, with prices and other transaction
elements varying dynamically over time. Businesses benefit from the following:
- alternative transaction models;
- cost-effective methods for liquidating overstocked, outdated or
perishable inventory;
- efficient price discovery mechanisms for new products;
- the ability to collect marketing data on existing and potential buyers;
- the ability to attract additional traffic to business Web sites; and
- the ability to lengthen the duration of Web site visits.
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Benefits to online customers include the following:
- greater flexibility in the timing and pricing of purchases;
- access to a broader range of items for bid without geographical
limitations;
- the ability to capitalize on real-time market conditions which may
produce temporary price advantages;
- the ability to locate quality goods and services from established
businesses with a reputation for fulfilling customer expectations;
- the ability to find rare or collectible items to which they might not
otherwise be exposed; and
- the formation of enthusiast communities, chat rooms and newsletters which
make online auctions a participatory and enjoyable interactive
experience.
DISADVANTAGES OF ONLINE AUCTIONS
While generally beneficial to businesses and consumers, online auctions may
be disadvantageous to some market participants. For instance, auctions require a
bidder to provide personal information to the business. While this information
may be a benefit to the business, this perceived loss of privacy may deter some
potential bidders from participating in online auctions. Also, auctions require
purchasers to bid over time, which may delay the purchase cycle. As a result, in
instances where time of delivery is more critical than price, online auctions
may not be beneficial to the purchaser. Also, online auctions may make it
difficult for businesses to take advantage of imperfect market information to
advantageously price some of their products. Thus, businesses would be less
likely to sell these products through online auctions.
THE CURRENT LANDSCAPE FOR ONLINE AUCTIONS
A growing number of businesses are seeking Internet auction and dynamic
commerce capabilities. Online auction capabilities 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 businesses seeking a simple
way to auction a limited number of items. These communities, however, generally
preclude businesses from maintaining their own brands on the Internet,
controlling the online experience of customers or retaining data on the activity
of their customers. The second category is comprised of applications that allow
businesses to control and maintain their own branded online auction sites. These
businesses have choices ranging from developing their own online auction and
dynamic commerce capabilities to purchasing online auction applications from
third party vendors. Proprietary, in-house applications are typically expensive
and time consuming with reduced functionality. Many applications from third
party software vendors are difficult to customize, are burdensome to implement
and often lack a wide range of features and deployment options. In addition,
these vendors typically do not provide a complete package of ancillary services.
Based on a combination of our own primary market research, including direct
customer contact and analysis of our competitors' activities, and secondary data
from leading industry analysts, we believe that a large and growing number of
online businesses will seek auction and dynamic commerce products and services
that allow them to create and maintain their own brand images, control their
customers' online experience and collect bidder activity data, all in a manner
that is simple to implement, quickly operational, expandable with growth and
facilitates 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 online auction capabilities.
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Finally, since site traffic is such an important element of successful
electronic commerce, businesses are likely to gravitate towards a product which
possesses the ability to attract more customers to their own auction sites.
EMERGENCE OF DYNAMIC COMMERCE
Online auctions were the first dynamic commerce applications to gain
widespread use, and they remain the most well known form of dynamic commerce.
This format typically has a seller starting at a low fixed point, and prices are
driven up through demand generated from multiple potential buyers bidding with a
specified ending time. Additional forms of dynamic commerce are beginning to
emerge, including:
DEMAND AGGREGATION. Multiple buyers combine common purchases to form
consolidated groups, gaining market advantages and efficiency through
volume. These consolidated groups typically negotiate an advantageous price
through their combined buying power.
MARKET MAKING. A trading community of multiple buyers and multiple
sellers who trade online in a bid and ask format. This format is based on a
price that fluctuates between two points driven by a series of negotiated
intervals between a buyer and a seller. The transaction is completed when
either party agrees to the price provided.
ONLINE PROCUREMENT. This format typically has a single buyer posting
items for intended purchase, and multiple sellers bid on those items in a
reverse auction format in which the price descends on subsequent bids. A
transaction occurs when a "winner" is selected based on the lowest price
and possibly other variables.
These trading formats are facilitated through internet-based dynamic
commerce marketplaces. A December 1999 Forrester Research report estimates that
74% of business-to-business electronic marketplaces will provide more than one
transaction mechanism, including auctions, within two years. We believe that
demand for non-auction dynamic commerce applications will increase as online
marketplaces add multiple dynamic commerce trading formats to their offerings,
particularly for business-to-business activities.
THE OPENSITE SOLUTION
We provide dynamic pricing products and services to businesses, Internet
Service Providers and Internet portals. Our cost-effective software products and
services allow online businesses and business-to-business electronic commerce
sites, which are sometimes referred to as "net markets," to have Internet-based
dynamic pricing applications on their own Web sites. These can be in the form of
highly functional predetermined auction applications or in the form of a toolkit
infrastructure which provides the technology to create custom applications
tailored specifically to a client's business. These products and services
automate the process of installing, running, and maintaining real-time dynamic
pricing applications over the Internet. By bringing together buyers and sellers,
our products and services help businesses create new sales channels, build
dynamic commerce marketplaces, manage inventory, attract new customers,
introduce new products and strengthen their customer and other business
relationships.
OpenSite's family of products provides a wide range of branded software
products and services for customers. These products and services range in
functionality so as to support businesses in need of various levels of dynamic
pricing sophistication, either because of their size or their phase of dynamic
commerce implementation. OpenSite Auction products are pre-packaged applications
that offer customers a multi-featured online branded auction capability that is
easy to use and quick to implement. Our Dynamic Pricing Toolkit product is for
businesses looking for a more customized product coupled with enhanced
integration options that are easily upgraded to respond to increased demand. We
also offer AuctionNow, an application targeted specifically at service providers
such as Internet Service Providers, portals and electronic
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intermediaries. AuctionNow provides these entities with the ability to offer an
Internet auction network of their own. Our AuctionWatch Desktop product allows
auction participants to track and monitor their own auction activity,
facilitates automated bidding and notifies auction participants of new items up
for bid.
Outsourced services have become an increasingly important element of our
offerings. We act as an Application Service Provider through our OpenSite
Concierge service, which utilizes our expertise in dynamic pricing to provide an
outsourced service to our customers that requires no technical infrastructure or
expertise on their part, ensuring the fastest implementation of our products. A
seamless transition to an in-house product can then be achieved at any time the
customer desires through the licensing of the same OpenSite product. In
addition, we offer a wide range of related services, such as integration and
application development, consulting and educational courses.
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. BidStream.com, with its proprietary search engine, indexes all
items for sale at these sites. As such, it serves as the central point for
locating items for bid at participating OpenSite-powered auction sites. By
aggregating this content together with auction listings of other auction portals
and aggregation sites, such as Bidder's Edge, 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 is expected to provide our customers with
substantial additional traffic to their Web sites. If we complete the
acquisition of Bidder's Edge, we plan to incorporate our BidStream.com
aggregated content into a combined BiddersEdge.com product offering.
Our products and services have the following benefits:
COMPREHENSIVE SOLUTION. We offer a full suite of software, services
and aggregated online auction content to businesses of varying sizes and
sophistication. We believe that this capability is unique among the
participants in the online auction industry. Businesses seeking to deploy
dynamic pricing capability within their enterprise can take advantage of
our offerings via the OpenSite Auction software, the OpenSite Concierge
service, or through one of our AuctionNow service providers. More
sophisticated users can take advantage of our Dynamic Pricing Toolkit and
the expertise of our Professional Services organization for customized and
integrated products and services. No matter which product a customer uses,
it can take advantage of BidStream.com, where we aggregate item content and
help to drive new auction participants to their sites. By providing this
full range of products and services, we can capture large, medium and small
business customers as they initially undertake the deployment of a dynamic
commerce trading format, and we can support them with additional products
and services as their success grows and business needs expand.
INCREASED REVENUE OPPORTUNITIES THROUGH DYNAMIC PRICING. Our products
and services facilitate new online revenue opportunities for businesses by
making it possible for them to easily and efficiently implement branded
Internet dynamic pricing applications. Through our dynamic pricing
technology, businesses can:
- build dynamic marketplaces and generate incremental sales by engaging
buyers and sellers in real-time transactions over the Internet;
- achieve improved product prices by stimulating demand;
- conduct price discovery by offering new products for bid; and
- manage general and perishable inventory by finding buyers in real-time
and quickly liquidating overstocks.
CONTROL OF BRAND EQUITY. Our products and services allow businesses
to control their dynamic commerce sites rather than list their products or
services in broad Internet
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commerce communities. This permits them to own, control, and expand their
dynamic commerce sites, building brand equity on the Internet while
increasing revenue.
INCREASED SITE TRAFFIC; AGGREGATION OF MARKETING DATA. BidStream.com
provides bidders with a central content point for locating items for sale
on participating OpenSite-powered auction sites as well as providing other
content. By aggregating the item content from our customers' sites, we
provide them with increased site traffic without incurring costly marketing
campaigns. Additionally, BidStream.com permits the analysis of demographic
data and buying attributes to discover patterns and trends, which our
customers may use to reach more qualified customers and more effectively
market products to targeted customers. Also, BidStream.com allows for the
building of communities of like-minded purchasing professionals seeking
efficiencies associated with a higher level of up-to-date market
information.
EASE OF USE AND RAPID DEPLOYMENT. Our products and services are
designed to allow customers to quickly and easily create sophisticated
online auctions, dynamic marketplaces and other dynamic pricing
applications. We have implemented live auction sites for customers in as
little as 48 hours. For instance, our licensed products include templates
and other features that automate the process of site setup and give
examples of how to implement our products. In contrast, our OpenSite
Concierge service, which provides a complete outsourced service, lets
businesses establish an online auction almost immediately without an
up-front investment in software or hardware. A customer can easily migrate
from our OpenSite Concierge service to a licensed product based on their
evolving technology investment philosophy and product requirements.
FLEXIBLE AND UPGRADABLE. Our technology is designed to facilitate
dynamic commerce in various industries across businesses of all sizes. Our
products and services provide customers the ability to control not only the
look and feel of their sites, but also the features included in their
dynamic pricing applications. In addition, our multi-tiered architecture
can support the volume needs of very large and complex sites. As the
functionality needs of our customers increase in complexity, our portfolio
of products and services provides a number of choices regarding how to meet
growing requirements. Businesses may take control of the application
implementation by choosing to build customized dynamic pricing applications
that can be integrated within an existing information technology
infrastructure. For example, with Dynamic Pricing Toolkit, we provide
customers with the set of building blocks they need to build dynamic
pricing applications that are suited to a business' specific needs.
STRATEGY
Our goals are to be a leader in online auction and dynamic pricing software
products and services, while broadening our market reach into other forms of
dynamic commerce on the Internet. Our strategies to achieve these goals include
the following:
USE OUR MARKET POSITION TO BUILD BRAND AWARENESS. We have delivered
over 600 licensed auction products and outsourced services to customers. We
have been providing products and services for dynamic commerce since 1997.
We are also an innovator in aggregating auction content from disparate
customer sites as a means of providing customers with increased traffic on
their sites. We intend to build upon our market position and experience by
further enhancing the value we offer to businesses through aggregation of
auction content from non-customer sites and the licensing of this content
to other auction aggregators, portals, Internet Service Providers and other
business Web sites as a private label or branded outsourced offering. We
expect to aggressively increase the market impact of the OpenSite brand by
further expanding our global sales and marketing organization and investing
significantly in both online and offline advertising. We have begun
targeted national television and print advertising campaigns and plan to
continue them for the foreseeable
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future. Further, the development and promotion of BidStream.com as a
value-added element for our customers' auction sites is also 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 and dynamic pricing
functionality. As the market for online auctions and dynamic pricing
matures, we believe that the demands of businesses in need of dynamic
commerce solutions will grow and become more sophisticated. We intend to
continue to invest in our product development resources and to develop new
dynamic pricing and other dynamic commerce products and services to meet
these growing demands. We believe that our market share, as reflected in
over 600 deployed products and outsourced services, results in significant
customer contact that provides us with a unique advantage in understanding
the needs of businesses seeking auction and dynamic commerce products and
services. Furthermore, BidStream.com, as enhanced by our proposed
acquisition of Bidder's Edge, should provide our customers with new
value-added opportunities. We also intend to explore more automated dynamic
commerce applications that are designed for the needs of specific target
markets, emphasizing the business-to-business sectors. These areas of new
opportunity include demand aggregation, procurement, market making and
other dynamic commerce business models.
AGGREGATE CONTENT THROUGH DEVELOPMENT OF BIDDERSEDGE.COM. Through
BidStream.com, we currently aggregate the content from participating
OpenSite-powered auction sites into a single Web site. BidStream.com is
designed to increase traffic to our customers' auction sites, thus
increasing the value we provide to our customers. If we complete the
proposed acquisition of Bidder's Edge, we plan to incorporate our
BidStream.com aggregated content into a combined BiddersEdge.com product
offering. Bidder's Edge currently aggregates over 5 million items from over
150 auction sites and engages more than 345,000 unique monthly auction
users with over 3 million page views per month. BidStream.com currently
aggregates over 115,000 items from over 180 auction sites and engages more
than 190,000 unique monthly auction users with over 340,000 page views per
month. We expect this proposed acquisition to significantly expand the
content, customer reach and offerings of BidStream.com. The aggregated
content base represented by the combined BiddersEdge.com offering 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 using our products even more attractive. As we
provide more customers with our products and services, the content
aggregated by BiddersEdge.com increases, repeating the cycle on a larger
scale. BiddersEdge.com also will allow us to obtain valuable customer
demographic information regarding auction participants and their bidding
patterns. We believe that our significant market share gives us an
advantage in aggregating substantial quantities of auction content as
compared to our competitors with less market share. In addition, agreements
to provide featured item, logo and other preferential displays and
placements at its site, we intend to aggregate auction content from other
sites and portals with BiddersEdge.com. We will primarily be targeting our
marketing efforts to build awareness and use of BiddersEdge.com through our
business alliances. We may also use traditional direct marketing venues to
a lesser extent.
PROVIDE MORE ENTERPRISE-LEVEL PRODUCTS. As the market for dynamic
commerce matures, we intend to target our sales and marketing efforts
increasingly towards larger businesses requiring enterprise-level dynamic
pricing and dynamic commerce products and services, such as Dynamic Pricing
Toolkit and AuctionNow. We believe that demand for these offerings as well
as other products and services under development, will be attractive as the
need for more sophisticated products and services increases and the market
expansion accelerates. In addition, by increasing our sales of high-end
products and services to larger businesses, 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
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development of enhanced, expandable, dynamic pricing and commerce products
and services capable of further integration into widely used information
technology systems, such as enterprise resource planning and supply-chain
management. We also believe that our indirect sales channels and growing
global sales force 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 businesses, more efficiently than our
direct sales force. Established in 1998, our indirect sales channel now
consists of over 90 resellers worldwide. Dynamic Pricing Toolkit and
Auction Now are the primary products used by the systems integrators and
Internet Service Providers while OpenSite Auction is targeted at the
reseller market. To further develop these sales efforts, we are developing
the next generation OpenSite Auction, which is targeted to larger
businesses in need of increasingly upgradable, fully integratable dynamic
pricing products and services. These businesses also need electronic
commerce software providers to provide the technology to allow them to
embed auction functionality into their product and service offerings. We
expect to introduce the next generation OpenSite Auction in the third
quarter of 2000. For more detailed information on this and other products
in development, see "Business -- Product Development -- Future Products."
EXPAND INTERNATIONALLY. We believe that a considerable market for our
products and services exists outside the United States. We intend to
accelerate our investment in international sales and to add new features
and functionality to our products and services to accommodate accounting,
customs, currency and tax requirements of foreign countries. With the sales
and marketing assistance of Protege Software Ltd. in jumpstarting our
European presence with a London office, we have already begun to experience
success in Europe. In addition, we have retained a similar organization,
Japan Entry, LLC, to accelerate our expansion into the Japanese market. We
have also entered into an agreement with The Promar Group, LLC to assist
our entry into other markets in Asia and in Latin America.
ACQUISITIONS AND ALLIANCES. We intend to aggressively pursue
acquisitions and business relationships that enhance and extend our product
and service offerings as well as our distribution capability within the
dynamic commerce market. We favor the use of relationships and alliances to
accelerate the attainment of our business goals where appropriate. Our
recent agreements with Excite@Home and CNET, and our letter of intent with
Bidder's Edge, are examples of this strategy. We also have relationships
with Open Market, Intershop Communications, i-Escrow, FreightQuote.com,
TAXWARE International, Exodus Communications and others.
PRODUCTS AND SERVICES
DYNAMIC PRICING TOOLKIT. Dynamic Pricing Toolkit makes it possible for
businesses with specific requirements to build customized and integrated dynamic
commerce applications. Dynamic Pricing Toolkit is targeted to sophisticated
companies, Internet businesses and systems integrators whose needs are not met
by the standard features available in our packaged applications. Dynamic Pricing
Toolkit provides these customers with tools to create customized applications
that are targeted to specific needs dictated by their industry or internal
business systems. Dynamic Pricing Toolkit was released in September 1999.
Dynamic Pricing Toolkit comes with our core Dynamic Pricing Engine server,
which contains all of our business rules and management of dynamic pricing
activity. With application programming interfaces, businesses can tailor a site
to their specific needs. As needs change or their site expands, Dynamic Pricing
Toolkit customers can augment the original functionality by adding new features.
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Customers can also utilize Dynamic Pricing Toolkit to integrate their
dynamic commerce activities with their existing electronic commerce
infrastructure. We believe that the demand to integrate dynamic commerce
functionality with existing electronic commerce infrastructure will increase in
the near future.
Dynamic Pricing Toolkit offers the following features to support companies
seeking to enter dynamic commerce:
- expandability through our multi-tiered architecture, allowing businesses
to distribute their Web, application and database servers according to
their business needs;
- flexibility with our application programming interfaces, allowing
customers to build customized applications, using only the features they
need and augmenting those features by integrating with third party
applications;
- support for various industry standard platforms, programming languages
and interfaces including support for Windows NT and Solaris, as well as
COM and COBRA interfaces that can be accessed with languages such as
Visual Basic, C++, JavaScript and Java;
- dynamic pricing features, such as forward, reverse, and sealed bid
auction formats, and an extensive privileges structure to support browse,
bid, sell and administrative privileges for users to create private
auctions and distribution of internal auction management; and
- international compatibility with support for multiple currencies and
languages including support for 8 bit character sets such as Hebrew,
Spanish and French and are double byte enabled to support languages such
as Japanese and Chinese.
AUCTIONNOW. AuctionNow is targeted to businesses that desire to create
their own service-based network of branded, online auctions such as Internet
Service Providers, Application Service Providers, Internet portals and
electronic intermediaries who are looking to augment their current service
offerings with online auction capabilities.
AuctionNow has the ability to operate and manage multiple auction galleries
from a single unit of the software. An auction gallery is a single Internet
auction that can be managed from a simple to use, Web-browser interface. Each
auction gallery may have a unique look and feel, with its own Web site
templates, category structure and items for auction. An important feature of the
AuctionNow structure is that, even though each auction gallery can be managed
separately, all auction galleries are also aggregated through a single database.
This aggregation allows bidders to register only once to bid across all auction
galleries. In addition, a centralized search engine can examine all auction
galleries for items of interest. Thus, a complete auction network is formed.
AuctionNow offers licensees the benefit of:
- an ancillary revenue stream;
- a way to attract new customers; and
- a flexible business model that lets them choose exactly how to derive
revenue from online auctions.
AuctionNow permits gallery operators to:
- quickly and easily set up and run an online auction with no technical
expertise; and
- increase the visibility of their site without a significant investment in
marketing by aggregating their data and sharing customers with other
gallery owners.
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AuctionNow provides bidders with:
- a centralized point for auction activity and registration; and
- centralized searches and monitoring of bidding and transaction activity.
AuctionNow offers the following features to Application Service Providers:
- faster time to market with an end-to-end application, Web site templates
and administrative interfaces;
- expandability through our multi-tiered architecture, allowing businesses
to distribute their Web, application and database servers according to
their business needs;
- Dynamic pricing features, such as forward, reverse and sealed bid auction
formats, and an extensive privileges structure to support browse, bid,
and administrative privileges for users to create private auctions and
distribution of internal auction management;
- the ability to customize all Web site templates, and to customize the
database to add new information customers wish to capture about users or
items; and
- international compatibility with support for the use of various
currencies and languages in galleries.
AuctionNow was first released in September 1999. AuctionNow won "Best of
Show" for E-commerce Applications at the Fall Internet World 1999. A panel of
judges from Internet World and other publications judged nominations, based on
the innovative use of technology. The judges placed priority on a product's
ability to work with existing standards and the degree to which the product
contributed to the development of future Internet products and services. Only
products that had been launched since the previous Internet World show were
eligible.
OPENSITE AUCTION. OpenSite Auction, an out-of-the-box application,
automates the process of implementing, running and maintaining a single,
real-time auction site over the Internet. Through administrative tools and
graphically-oriented, automated guides, it offers the flexibility to quickly
create market-specific online auctions with minimal technical expertise.
OpenSite Auction is designed to simplify for businesses the process of
installing and maintaining an auction site with features such as:
- remote installation to permit rapid deployment;
- predesigned Web page styles and templates with editors to facilitate easy
editing to create a customized look and feel;
- 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 offers the following features to enhance the auction
experience for bidders:
- monitoring of bidding;
- notification of new items;
- automated bidding; and
- simultaneous bidding on multiple items.
We offer the following three levels of OpenSite Auction. Each level is
designed to address the unique needs of specific types of customers and is
designed to allow our customers to grow with easy migration paths to increasing
levels of functionality.
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- OPENSITE AUCTION PROFESSIONAL, our entry-level edition, allows customers
to build and operate their own online auctions and to begin operation
quickly and economically with modest initial financial and time
investment. This product is primarily targeted to the emerging
international market.
- OPENSITE AUCTION MERCHANT, our mid-level edition, allows our customers to
permit 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 edition, is designed for
enterprise level businesses that desire auction products and services
that provide more system flexibility and an open database architecture
for integration into third party applications. The Corporate level allows
customers to integrate their online auctions with Oracle and SQL Server
databases and offers a wider variety of auction types, including reverse,
sealed bid and modified English auctions.
The most recent version of OpenSite Auction was released in the fourth
quarter of 1999. Enhancements include SQL Server database support, the ability
to localize e-mail notifications for the international market and performance
enhancements.
OpenSite Auction won a "Best of Show" Award for E-commerce Applications at
Fall Internet World 1998. Judging guidelines for this award placed a priority on
a product's ability to work with existing standards and the degree to which it
contributes to the development of future Internet products and services.
OpenSite Auction also won a "Best of Class" Award for Web-based Selling at Fall
Internet Commerce Expo 1998. Over 65 companies participated in this program.
OpenSite Auction also received an "Honorable Mention" at the Spring Internet
Commerce Expo 1999. The criteria for these awards included technical/business
innovation, user-friendliness, user-efficiency, security attributes and platform
flexibility. 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. OpenSite Auction was also named in "Products
to Watch" in the Summer 1999 Fortune Tech Buyers Guide in the Small Business
Internet Commerce category. There was no set criteria for this recognition.
OPENSITE CONCIERGE SERVICE. We provide a complete Application Service
Provider service through our Opensite Concierge service that allows our
customers to outsource completely to us the process of running Internet
auctions, including development, deployment, maintenance and hosting. This
service allows a company to quickly and easily benefit from an online auction
without the expense or complication of buying and setting up hardware and
software.
Acting as an Application Service Provider, OpenSite provides all of the
site design, hosting, implementation and administration services necessary for a
company to run their own, branded online auction. We maintain dedicated, private
data centers that host the auctions of our OpenSite Concierge customers through
outsourced hosting services and equipment supplied by Exodus Communications and
Navisite, Inc.
Customers pay OpenSite a one-time set up fee and an ongoing monthly service
fee, which may be fixed or based upon transaction volume, for the service. The
base list price for the one-time set up fee is $7,500. The customer is able to
define the look and feel of the site and control all of the data about its site.
OpenSite provides all of the ongoing support required, including auction
administration and reporting. Our range and flexibility of offerings allows
customers to migrate to a licensed solution at any time.
BIDSTREAM.COM. BidStream.com is a Web site owned and operated by OpenSite
that aggregates the items for bid on participating OpenSite-powered auction
sites. BidStream.com
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currently aggregates over 115,000 items. We expect the number of items 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. BidStream.com
indexes all items for auction at these sites and sends a user to our customer's
Web site to facilitate the transaction. 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 will license proprietary tools and methods for efficient utilization of
the BidStream.com content to other information services such as Internet Service
Providers, portals, other aggregators and business Web sites, which will
facilitate greater reach for our customers through a wider network of sites. We
intend to aggressively pursue co-branding programs with other Web publishers,
which primarily will consist of co-branding BidStream.com with other sites such
as CNET and Excite@Home to provide links between BidStream.com searches,
OpenSite-powered auction sites and focused content sites. These relationships
may take other forms as this business model evolves. Fees are expected to be
charged to these affiliates, and some of these relationships involve the sharing
of revenues generated through the links or co-branded sites. We generally share
the costs of developing co-branded sites. We believe these affiliates will
direct traffic to BidStream.com while also providing a category-specific auction
page with relevant content and context.
As part of our effort to expand our aggregation capabilities and provide
additional buyers to our customers, we have entered into a letter of intent to
acquire Bidder's Edge, an aggregator of online auction and dynamic commerce
content, community and buying tools. We expect our proposed acquisition of
Bidder's Edge, which currently aggregates 150 auction sites containing 5 million
items and engages 345,000 unique monthly auction users with over 3.5 million
page views per month, to significantly expand the content, customer reach and
offerings of BidStream.com. Our acquisition of Bidder's Edge is subject to the
negotiation of a definitive merger agreement and approval of our board of
directors. We cannot be certain that we will consummate this acquisition.
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.
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(GRAPH)
AUCTIONWATCH DESKTOP. AuctionWatch Desktop is an application that allows
bidders to use one central interface to simultaneously track and bid on multiple
items from selected auction sites 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. 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. This tool can also be used by sellers to
monitor bidding activity of all listed items across multiple auction sites.
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The following table summarizes our current products and services.
<TABLE>
<CAPTION>
DYNAMIC PRICING TOOLKIT
- --------------------------------------------------------------------------------------------
BENEFITS TARGET MARKET
- -------------------------------------------- --------------------------------------------
<S> <C>
UPGRADABLE Businesses and systems integrators that need
to implement a powerful dynamic pricing ap-
Multi-tiered architecture provides for a plication with specific requirements and
product that can be upgraded as a business integration needs not satisfied by a
grows. packaged application.
FLEXIBILITY
Utilizes available programming interfaces to
build customized dynamic pricing products
and integrate with third party applications.
BROAD PLATFORM AND LANGUAGE SUPPORT
Runs on Windows NT and Solaris. Applica-
tions can be built using Visual Basic, C++
and Java.
POWERFUL BUSINESS RULES
Includes forward, reverse and sealed bid
auction formats. Complex privileges scheme
allows private auction and administrative
distribution.
INTERNATIONAL SUPPORT
Multiple language and currency support.
BIDSTREAM.COM INTEGRATION
Seamless integration with the BidStream.com
aggregation site.
</TABLE>
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<TABLE>
<CAPTION>
AUCTIONNOW
- --------------------------------------------------------------------------------------------
BENEFITS TARGET MARKET
- -------------------------------------------- --------------------------------------------
<S> <C>
FAST TIME TO MARKET Service providers, including Internet
Service Providers, Application Service
Application includes auction setup and man- Providers, portals, electronic
agement for end-to-end functionality. intermediaries and businesses that want to
offer online auction services to their
UPGRADABLE customers or divisions.
Multi-tiered architecture provides for a
product that can be upgraded as a business
grows.
POWERFUL BUSINESS RULES
Includes forward, reverse and sealed bid
auction formats. Complex privileges scheme
allows private auction and administrative
distribution.
FLEXIBILITY
Customers can customize the templates and
database to meet their target market's
needs.
CUSTOM ADMINISTRATION
Customers can conduct multiple auctions for
many users and administrate them in a cen-
tralized fashion.
INTERNATIONAL SUPPORT
Multiple language and currency support.
BIDSTREAM.COM INTEGRATION
Seamless integration with the BidStream.com
aggregation site.
</TABLE>
<TABLE>
<CAPTION>
OPENSITE AUCTION
- --------------------------------------------------------------------------------------------
BENEFITS TARGET MARKET
- -------------------------------------------- --------------------------------------------
<S> <C>
THREE-TIERED PRODUCT FAMILY
OpenSite Auction provides products specific
to a customer's needs and offers a migration
path as customer's needs change.
FAST TIME TO MARKET
Through CD-ROM installation and
administrative tools to easily customize the
site, customers can quickly get their online
auction up and running.
FULL-FEATURED
OpenSite Auction supports many auction types
and formats, as well as open database
connectivity, making it a very powerful and
upgradable product.
</TABLE>
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<TABLE>
<CAPTION>
OPENSITE AUCTION
- --------------------------------------------------------------------------------------------
BENEFITS TARGET MARKET
- -------------------------------------------- --------------------------------------------
<S> <C>
EASE OF USE Merchants that desire to create or augment
an existing electronic commerce Web site,
There are many enhanced buyer and seller with an online auction, easily and quickly.
features that make the auction experience
exciting and promote longer visits to the
site.
BIDSTREAM.COM INTEGRATION
Seamless integration with the BidStream.com
aggregation site.
</TABLE>
<TABLE>
<CAPTION>
OPENSITE CONCIERGE SERVICE
- --------------------------------------------------------------------------------------------
BENEFITS TARGET MARKET
- -------------------------------------------- --------------------------------------------
<S> <C>
TOTALLY OUTSOURCED SOLUTION Businesses that need a customized dynamic
pricing product with a quick time to market
We provide everything from site design to and that may not have the internal resources
setup to administration. The customer needs or expertise to do so. Companies with the
only to provide input into the site design, expertise may also choose this service as
items for upload, and fulfillment of part of a growing trend toward outsourcing
purchases. to Application Service Providers.
FAST TIME TO MARKET
Site implementation time averages four weeks
for fully functional and live dynamic
pricing sites.
LEADING HOSTING SERVICES
Exodus Communications and Navisite, Inc.,
two worldwide leaders in co-location
services, provide the hosting and backbone
for this service via dedicated private data
centers, which include redundancy and
backups.
CUSTOMER CONTROLS AND OWNS DATA
Customers are provided with customized re-
ports that they can utilize for data mining,
marketing or sales purposes.
BIDSTREAM.COM INTEGRATION
Seamless integration with the BidStream.com
aggregation site.
</TABLE>
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<TABLE>
<CAPTION>
BIDSTREAM.COM
- --------------------------------------------------------------------------------------------
BENEFITS TARGET MARKET
- -------------------------------------------- --------------------------------------------
<S> <C>
INCREASED VISIBILITY FOR OPENSITE CUSTOMERS Online auction and dynamic pricing partici-
pants who value a wide selection of products
Centralized searching across customer sites and time savings that can be realized
to increase buyer access to our customers. through an aggregated network.
PERSONALIZATION
Registered members have access to special-
ized searches that notify them when items of
interest are posted.
EASY TO BROWSE CATEGORIES
Auction participants can search for items of
interest, or just browse sites that have
been previously categorized.
</TABLE>
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
Our Customer Support and Professional Services organizations of 23 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 organization provides
marketing expertise, 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 and is designed for businesses that want to build
customized dynamic pricing products with a fast time to market but lack the
internal expertise or resources to do so.
TECHNICAL SUPPORT. Our Technical Support group provides product support to
our licensees. Subscribers contact the support staff via telephone, e-mail or
the Web to ask questions and request assistance. Issues are logged and tracked
electronically from first customer contact through resolution. The Online
Resource Center is a Web site that supplements the support staff, providing
up-to-the-moment technical information and post-sale customer contact. Technical
Support services are generally paid for in advance through annual fixed-price
maintenance fees.
EDUCATION SERVICES. Our Education Services group designs the curricula,
develops the materials and delivers training programs to our customers. Training
sessions cover installation, administration, maintenance and customization of
our products. Educational materials are designed for use in both self-paced
online and instructor-led learning. Five different instructor-led courses are
currently available. Customers can browse the training schedule and register for
courses online via the Online Resource Center. Pricing for Educational Services
offerings is generally based on the duration of the offering and whether it is
delivered at the customer's site or at our dedicated onsite education center.
CUSTOMERS
We have delivered over 600 licensed and outsourced auction products and
services to customers in a wide variety of categories. The following table lists
all of our customers that either participate in our customer reference program
or who have become customers in the past six months and therefore are not yet
part of the reference program. We include customers that participate in our
customer reference program in our public relations efforts, such as press
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releases, trade shows and other marketing opportunities. The customer reference
program does not generate additional revenue directly for either OpenSite or our
customers.
TECHNOLOGY AND TELECOMMUNICATIONS
CNET Auction
e-software.com
NextBid.com
Nortel Networks
PCAuctioneer
SourceWireless.com
Telecom Auction.com
U Post
USBid
INDUSTRIAL SUPPLIES/EQUIPMENT
bLiquid.com
eFibre.com
John Deere
Planet Test by Tucker Electronics
The Textile Auction House
FINANCIAL AND BUSINESS SERVICES
Barrett Capital Group
Merrill Lynch
Off Lease Auction
PNC Bank
Republic Bank & Trust Company
The Chase Manhattan Bank
FOOD AND BEVERAGE
Ambrosia Wine
Brentwood Wine Company
ecFood.com
WineBid.com
SPORTS AND RECREATION
Basketball Bonanza
bike.com
Cannondale Corporation
Currans Select Auctions
Pro Team (New England Patriots) Auctions
SportsCards Center
CHARITIES
AccessAtlanta
AFundRaiser.com
Beverly Hills Charity Auction
Canadian Council on Social Development
Detroit Public Television
Grant Hill Charity Auction
Save the Earth Foundation
St. Jude's
RETAIL/CATALOG
CrossMarket
Daddy's Junky Music Stores, Inc.
earjoy
RockBottomAuctions
The Sharper Image
BUSINESS EXCHANGES
BBCN.com, Inc.
CrossRail
Dovebid.com
Drugmax.com
VerticalNet
MEDIA
Cumulus Broadcasting, Inc.
Mobilia Magazine
PaxTV.com
QVC
Rareties-Exchange.com
The Shopping Channel
ANTIQUES AND COLLECTIBLES
ArtNet Worldwide Corporation
Asian Collection Japanese Print Auction
Biddingtons
The Bradford Exchange (Collectibles Today)
Elizabeth Sterling (Sugal Manufacturing)
Icon20
Washington Rare Coin Center
Weston/Sachs
BOOKS, MUSIC AND VIDEOS
Acexchange
American Booksellers Foundation for Free Expression
Books By Bid
Pacific Book Auctions Galleries Inc.
Critics Choice Video (subsidiary of Playboy, Inc.)
OTHER GOODS AND SERVICES
Cyberhorse
Excite@Home
Packaging Exchange
RH Communications
AuctionAtlanta
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TRAVEL AND VACATION
Capecodauction.com
Holiday Resale Homes
SkyAuction.com
SunFunAuction.com
ETravelbreak
AUTOMOBILES AND MOTORCYCLES
Autoweb.com
Gearheadauction.com
Salvage Direct.com, Inc.
Swapman.com
HOME AND GARDEN
Biz2Bizfloors.com
FurnitureFinders.com
Modernauctions.com
INTERNATIONAL
Bidabike
Bidbusiness
British Airways
Buystuff
Ducati
Hewlett-Packard -- Asia (Regional Hub)
Madaboutwine.com
The Globe Gallery
QXL
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 follow an
efficient cross-platform development strategy to allow for 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 is supported on a variety of the
most common hardware and software platforms used for electronic commerce. NT
Windows Server 4.0, BSD 3.1, BSD 4.0, Linux RedHat 5.x and Linux Debian are all
supported on Intel hardware. Solaris 2.6 is supported on SPARC hardware.
AuctionNow and the Dynamic Pricing Toolkit are supported on NT Server 4.0 on
Intel platforms and Solaris 2.6 on SPARC-based platforms. All software is
designed to run in conjunction with the Internet Information Server on NT 4.0,
and in conjunction with the Netscape Enterprise Server on all other operating
systems.
STANDARD PROGRAMMING LANGUAGES. OpenSite Auction 4.2 was developed using
the ANSI Standard C and C++ programming languages to provide maximum
cross-platform portability across operating systems. AuctionNow was developed
with ANSI standard C++. The Dynamic Pricing Toolkit was also developed with ANSI
standard C++ and Java.
COMPATIBILITY WITH DATABASE MANAGEMENT SYSTEMS. We offer several options
for back-end database management. OpenSite Auction includes a proprietary
database that provides efficient database reporting and management methods
through the administrative interface at no additional cost. OpenSite Auction 4.2
Corporate features Oracle and Microsoft SQL Server database support designed to
provide a more powerful database and more expandable system solution for larger
customers. This solution also allows reporting and analysis via third party
tools. AuctionNow and Dynamic Pricing Toolkit support Oracle and SQL Server for
compatibility with existing business systems, robustness and scalability.
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 OpenSite products use a
variety of Internet access protocols with Hypertext Transfer Protocol including
Common Gateway Interface, Microsoft's Information Server Application Programming
Interface and Netscape's Netscape Server Application Interface. OpenSite
application and services user interfaces are created with Hypertext Markup
Language and JavaScript. Secure network transmission is through the Secure
Socket Layer. Object Services for AuctionNow and Dynamic Pricing Toolkit use
either Microsoft's Component Object Model (COM) and Distributed Component Object
Model (DCOM) or Common Object Request
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Broker Architecture (CORBA) depending on the platform. Both AuctionNow and the
Dynamic Pricing Toolkit were developed using an object-oriented paradigm for
enhanced reusability and maintainability.
INTEGRATION WITH BIDSTREAM.COM. OpenSite Auction, AuctionNow and Dynamic
Pricing Toolkit incorporate design features which allow for the efficient
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.
N-TIER ARCHITECTURE. AuctionNow and Dynamic Pricing Toolkit provide
auction system components that are tailored for use in enterprise N-tier, or
multi-tiered, systems, which minimally provide for a user interface tier, which
is typically a Web server, a business rules tier, which is the auction engine
and a database tier. The auction engine is built with a distributed object
interface, providing flexibility and capability for customization and
integration with other software systems. Use of the N-tier architecture provides
enhanced expandability for enterprise applications by allowing the three
functional tiers to be distributed over multiple hardware servers. The auction
engine's interface to the user interface tier is constructed as an in-process
server, using the Web Application Interface to the Netscape Enterprise Server
and the Information Server Application Programming Interface to Microsoft's
Internet Information Server. Automatic email notifications are accomplished via
the Simple Mail Transfer Protocol.
PRODUCT DEVELOPMENT
Our product development organization of 23 software engineers, technical
writers, quality assurance professionals and managers are 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 600 deployed products and
outsourced services.
Most of our development efforts are directed toward producing an
entry-level to enterprise suite of scalable dynamic pricing products and
services for customers, whether they deploy the auction on their own behalf or
do so for their customers as an Application Service Provider.
Our product development organization consists of three product groups, a
documentation group and a quality assurance group. The product development group
follows a structured 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 specifications,
development plans, schedules and test plans. 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 tracking and resolution.
Our product development expenses were approximately $105,000 in 1997,
$695,000 in 1998 and $3.0 million in 1999.
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FUTURE PRODUCTS
We expect to introduce the following products by the end of 2000. Further
development of these products is expected to be required prior to their release.
The following is a summary of the next generation of our software products:
DYNAMIC PRICING TOOLKIT will contain enhancements to more fully
support dynamic commerce marketplaces including programming interfaces that
allow monitoring of sellers and other functions for a business-to-business
Internet dynamic commerce community. In addition, this product will support
TAXWARE International and contain other performance enhancements.
AUCTIONNOW will provide third party selling functionality within a
single gallery. With this feature, AuctionNow customers can create an
online trading community that includes third party auctions, giving these
service providers an additional revenue stream. In addition, AuctionNow
will support International TaxWare and contain other performance
enhancements.
OPENSITE AUCTION will include support for RedHat Linux 6.1 and Free
BSD and support for very large bid values. We will continue to enhance and
maintain our current OpenSite Auction product until the Next Generation
OpenSite Auction is released.
NEXT GENERATION OPENSITE AUCTION is intended to replace OpenSite
Auction as our out-of-the-box online auction application based on our
Dynamic Pricing Engine technology. Next Generation OpenSite Auction will
offer many of the powerful features of OpenSite Auction Corporate, but
offer integration with electronic commerce applications and enhanced
expandability. Next Generation OpenSite Auction will be targeted to
merchants desiring an online auction solution that offers fast
time-to-market, ease of use, a full range of features and an open,
extensible system architecture.
We are currently planning to introduce products to address what we believe
to be unmet demand in the demand aggregation and market making areas of dynamic
commerce within the next 18 months.
FUTURE SERVICES
CARTRIDGE PROGRAM. As part of our expanding business development efforts,
we are selecting third-party products and services to integrate with our
products and services, such as those at FreightQuote.com, iEscrow and TAXWARE
International. Throughout the second half of 2000 we will be developing and
releasing software or services to allow the integration of our software with
those of other companies. These may include integration with products such as
wireless devices, shipping software, transaction processing systems, content
management systems, currency conversion systems and others.
OPENSITE CONCIERGE SERVICE. We will continue to broaden the value-added
services provided through our OpenSite Concierge service. These services may
include additional integration options as identified by our Cartridge Program,
or additional service features such as end-user customer support, custom
integration and development work, or other services as required by our
customers. We will continue to expand our capacity at Exodus Communications,
which provides hosting for our Concierge service, and will upgrade existing
systems as necessary. OpenSite Concierge will utilize all new OpenSite created
technology as it becomes available.
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SALES & MARKETING
SALES
Our sales philosophy is to combine direct selling and indirect channel
sales in order to maximize our sales efforts. Our global sales organization
currently has a staff of 30 people, which we expect to significantly expand.
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 sales organization is located primarily at our
corporate headquarters in Durham, North Carolina. We also maintain offices in
California and the United Kingdom with a presence in Florida. We have entered
into an agreement with The Promar Group, LLC to assist with our entry into other
markets in Asia and in Latin America.
Our sales strategy takes advantage of a combination of a direct sales force
and indirect sales through resellers and systems integrators. Initially, we
began recruiting a reseller channel to optimize market coverage. These
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. We sell our products
to resellers at a percentage discount off of list price. Resellers typically
provide first-line maintenance and support and receive a percentage of our
maintenance and support fees. At the end of 1999, we began recruiting systems
integrators to enhance our sales and implementation efforts in the enterprise
market. We do not have exclusivity or noncompetition arrangements with any
domestic resellers or systems integrators. Worldwide channel recruitment efforts
have yielded over 90 resellers. We currently have four sales professionals
dedicated to establishing and developing reseller relationships and plan to
continue the expansion of this group. Additionally, we are targeting Internet
Service Providers, Application Service Providers and Internet portals, such as
Excite@Home, to act as resellers of our auction and dynamic pricing
functionality to their customer base through our AuctionNow product.
We have a sales group that concentrates specifically on national accounts
within targeted industry segments, including technology, travel/hospitality,
media, finance and retail. This group also handles any Fortune 1000 companies
that are not included in specifically identified categories. These sales
representatives are located in San Francisco, Florida and the North Carolina
headquarters. We expect to move into additional cities and are targeting the New
York, Austin and Boston areas.
The sales support staff includes sales engineers, a pre-sales group, an
account management group and a sales coordinator. Sales engineers help 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, sell additional services 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 management, building corporate
brand identity, lead generation for all sales channels and outreach to key
industry analysts and targeted press. Our marketing group consists of 14 people
and is divided into the following areas:
PRODUCT MANAGEMENT. Product managers are responsible for positioning
market driven products and services and authoring product marketing plans.
Their duties include providing direction for product development as well as
new product concept planning. Product
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managers are also responsible for product forecasts, profitability,
segmenting the marketplace and refining the target customer base for their
assigned products.
MARKET INTELLIGENCE AND RESEARCH. The manager of Market Intelligence
is responsible for monitoring industry analyst reports, fielding primary
research studies and managing our ongoing customer panels and customer
satisfaction benchmark studies. We emphasize the importance of listening to
customers, resellers and prospects, 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, directing channel marketing and
maintaining consistency in the look and feel of the OpenSite corporate
identity. Our marketing program efforts concentrate on targeted trade shows
and media planning, including television, print and online creative
campaigns. The group is also responsible for daily updating of the
corporate Web site. It also works closely with our advertising and
marketing communications agencies to direct our print and television
advertising campaigns, which commenced in 1999. This group also develops
sales tools such as our corporate brochure and product sheets, white papers
and customer touch programs as well as our industry guides -- The Web
Auction Guide and The Web Auction Security Guide. Every program has
measurement tools in place designed 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.
BUSINESS RELATIONSHIPS
We believe that a key to the successful execution of our marketing strategy
is to establish relationships that increase sales of our products and create
value for our customers.
We intend to pursue business relationships with service providers,
technology providers and Internet portals. Relationships with service providers
and technology providers are focused on securing recurring revenue and enhancing
our solutions. Relationships with Internet portals are focused on expanding
market reach and increasing brand exposure.
SERVICE RELATIONSHIPS. By bundling the services of third parties with our
products and services, we can provide greater value to our customers at little
or no increased cost. This provides an opportunity for us to leverage our
installed customer base and capture incremental recurring revenue. Our current
service relationships include i-Escrow, an independent Internet escrow service
adding security to online transactions, and FreightQuote.com, an aggregator of
bulk-shipping information, including price and corresponding delivery times. We
have agreed to provide i-Escrow with an imbedded link within our OpenSite
Auction products. We receive a commission based on the dollar value of
transactions conducted through i-Escrow. This agreement has a two-year term and
is renewable annually. We have agreed to provide Freightquote.com with an
imbedded link within our OpenSite Auction products. We receive a commission
based on Freightquote.com's revenue derived from this link. This agreement has a
one-year term and is renewable annually.
TECHNOLOGY RELATIONSHIPS. We seek relationships with technology providers
that augment the dynamic commerce process and dynamic commerce infrastructure
providers, including database vendors, commerce platform providers and
enterprise resource planning providers. Our technology relationships include
Open Market, an electronic commerce platform provider, and Intershop
Communications, a leading developer of electronic commerce applications that
allow merchants to integrate separate business functions in the sale of their
products. Our agreement
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with Open Market provides it the right to resell our software products in the
United States, Europe and other selected locations. Open Market receives a
commission on each sale, the amount of which depends on the nature of the
software sold. This agreement is terminable by either party on 90 days notice.
Our agreement with Intershop provides for the integration of Intershop's
software into our software products. This agreement also provides for mutual
referral fees for referrals that result in sales for the other party. This
agreement has a one-year term and is renewable annually.
INTERNET PORTAL RELATIONSHIPS. The ability to leverage a portal site's
brand, market reach and revenue streams provides the opportunity for us to
accelerate the growth of our market position. We provide auction functionality
for their sites.
In December 1999, we entered into an agreement with Excite@Home to jointly
create an auction network through their business-to-business sites, Work.com and
Excitestorebuilder.com. Under the agreement, Excite@Home will offer and
distribute auction and dynamic pricing functionality to its customers through
its business-to-business sites using our AuctionNow software. We will also
produce co-branded BidStream.com Web sites. Benefits from this agreement consist
of multi-year technology license fees from Excite@Home, recurring auction
application services fees from Excite@Home customers, advertising fees from the
auction network and co-branded pages, as well as aggregation of Excite@Home's
customers' auction items into BidStream.com. Under this agreement, we will
receive 50% or more of advertising and recurring application services revenue
derived from this relationship. We have also agreed to purchase advertising and
services from Excite@Home for the next three years.
INTERNATIONAL OPERATIONS
We believe that markets outside the United States will provide an
increasing portion of our revenues in the future. We generally introduce our
products internationally by retaining third parties experienced in the sales,
marketing and customer support of Internet solutions in their respective
markets.
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. 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.
We have retained Japan Entry, LLC to accelerate our expansion into the
Japanese market. Japan Entry will identify and qualify prospective resellers and
negotiate appropriate agreements with these resellers on our behalf in return
for an initial monthly retainer then a percentage of net revenue and prepayments
from Japanese sources. This agreement has a one-year term and is renewable
annually. We also retained The Promar Group, LLC to assist entry into other
markets in Asia and in Latin America. Promar assessed our products in relation
to international markets, analyzed market segments, prioritized geographic
regions and created an action plan for international expansion. This engagement
has been completed.
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COMPETITION
ONLINE AUCTION PRODUCTS AND SERVICES
We face competition in a number of areas, including software applications,
content aggregation and auction hosting.
SOFTWARE APPLICATIONS. Our direct competitors include other software
providers, application service providers and systems integrators that 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. These
providers can be segmented into entry and enterprise level. The entry-level
providers tend to offer products and services for companies that desire easy
entry into the auction market without a significant financial investment. Most
software is relatively inexpensive, typically 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 software application competitors focuses on
enterprise-level products and services. The target market for these competitors
is larger businesses that desire system flexibility and integration into
back-end enterprise resource planning 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 WebSphere
product, formerly known as net.Commerce, Moai Technologies and Web Vision.
Recently, Commerce One purchased Commerce Bid and Ariba purchased Trading
Dynamics, each of which may represent future competition.
CONTENT AGGREGATION. A number of aggregation sites exist today, including
Bidder's Edge, AuctionRover, AuctionWatch.com and BidFind.
AUCTION HOSTING. We believe that the outsourced Internet technology model
will become increasingly popular in the online auction market. Currently, four
main competitors offer outsourced auction hosting services similar to our
OpenSite Concierge product. They are the Bidder Network, Bidland, FairMarket and
Moai Technologies.
DYNAMIC COMMERCE
We have traditionally competed in the online auction and dynamic pricing
products and services market. However, with our new Dynamic Pricing Toolkit and
other products and services that are under development, we have begun to compete
in the larger realm of dynamic commerce. This arena focuses not only on
traditional online auctions, but also on other forms of dynamic commerce,
including:
DEMAND AGGREGATION. Multiple buyers combine common purchases to form
consolidated groups, gaining market advantages and efficiency through volume.
These consolidated groups typically negotiate an advantageous price through
their combined market power. Competitors in this arena mainly consist of
destination sites that offer sellers a market to liquidate excess inventory
through their aggregated buying groups. Currently, there are no application
providers of demand aggregation software. Sites that offer group buying or
demand aggregation include Mercata, Accompany, and NexTag. Applications that
facilitate this type of dynamic commerce are currently in the planning stages.
MARKET MAKING. A trading community of multiple buyers and multiple sellers
who trade online in a bid and ask format. Under this format, price fluctuates
between two points driven by a series of negotiated intervals between a buyer
and seller. The transaction is completed when either party agrees to the price
provided. Some vendors offer dynamic commerce solutions to automate the process
for a buyer and a seller to engage in a bid-and-ask process to sell and procure
products, for example Tradex, which was recently purchased by Ariba. In
addition, online
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marketplaces such as Chemdex, may expand their offerings to include dynamic
commerce capability. Applications that facilitate this type of dynamic commerce
are currently in the planning stages.
ONLINE PROCUREMENT. Today, companies are utilizing reverse auctions for a
variety of reasons. The most common is to automate the process for
requests-for-proposal with descending price as one of the components. This
format typically has a single buyer posting items for intended purchase, and
multiple sellers bidding on those items in a reverse auction format in which the
price descends on subsequent bids. A transaction occurs when a "winner" is
selected based on the lowest price and possibly other variables. Applications
for reverse auctions can facilitate net markets as well as the pricing conducted
throughout a supply chain. OpenSite Auction, AuctionNow and our Dynamic Pricing
Toolkit products all contain reverse auction functionality. Companies
representing that they have this software capability include Commerce One and
Ariba. FreeMarkets provides a service for single-event procurement reverse
auctions for the procurement of production parts, raw materials and commodities.
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 them as well as contractual provisions to protect our
intellectual property. To date, none of our technology is patented. However, we
continue to assess on an ongoing basis whether to use patents as a method to
protect aspects of our intellectual property. Currently, our most important
proprietary rights are those embodied in our Dynamic Pricing Toolkit, AuctionNow
and OpenSite Auction products and BidStream.com Web site. 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 implementation of our technology, business model, marketing
research and plans, lead generation activities, customer lists, alliance plans
and similar proprietary assets are all protected at their inception and
throughout their economic lifetimes by confidentiality and proprietary rights
agreements that 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 through 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 within a single operating environment
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.
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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 trademarks "OpenSite," "AuctionWatch" and other marks
and have applications pending with the US Patent and Trademark Office for
registration of nine 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 integrate third party software into our products. This software has been
acquired pursuant to license agreements and is supported by annual maintenance
and support agreements with the software vendor. If we cannot continue to obtain
licenses to these technologies or continue to obtain support from the providers,
development and delivery of our planned software releases could be delayed until
functionally equivalent software can 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. Some of those patents issued are currently the subject of
litigation in the federal courts. To date, we are not aware of any judicial
pronouncements that would establish precedent in this area. Except as described
below, 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. These
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.
In two instances we have received notices claiming that our technology
infringed the intellectual property rights of others. While in one instance we
have been offered a license of the intellectual property in question, we have
declined that offer because we believe that no patent infringement exists. The
second allegation claimed infringement of a patent application. Since the patent
has not been issued, it cannot have been infringed. We are currently unable to
assess any potential claims that may exist if the patent is issued.
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
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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. For instance, Congress has recently enacted the Digital
Millennium Copyright Act relating to the availability and protection of
copyrighted works on the Internet. Congress continues to consider laws relating
to Internet taxation. Several states have taken the position that their laws and
regulations governing the conduct, licensing and liability of auctions and
auctioneers apply to online auctions. 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 December 31, 1999, we had 107 full-time employees, of which 47 were
in product development and customer services, 44 in sales and marketing and 16
in administration and 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 33,000 square feet in Durham,
North Carolina. We also maintain sales offices in California and in the United
Kingdom. With an expansion of our North Carolina facility to a total of 42,000
square feet, currently under negotiation, we believe our facilities are adequate
for our current requirements and will meet our growth needs for the foreseeable
future.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. However, we have
entered into a letter of intent to acquire Bidder's Edge, which is currently
engaged in a lawsuit filed by eBay. See "Business -- Proposed Acquisition of
Bidder's Edge" for a more detailed discussion of this lawsuit.
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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.............................. 41 President, Chief Executive Officer and
Director
Thomas F. Hanlon, III.................... 35 Senior Vice President, Sales and Business
Development
Douglas B. Kubel......................... 42 Senior Vice President, Technology
Timothy K. Oakley........................ 38 Senior Vice President and Chief Financial
Officer
Roger R. Edgar........................... 36 Vice President, Corporate Development and
Strategy
James R. Ford............................ 46 Vice President, Finance
Grace Ueng Trombetta..................... 34 Vice President, Marketing
Richard E. Widin......................... 44 Vice President, Business and Legal
Affairs
Justin Hall-Tipping(1)................... 42 Director
Michael Brader-Araje..................... 31 Director
Ross B. Kenzie(1)........................ 68 Director
Mitchell M. Mumma(2)..................... 40 Director
Alan J. Taetle(1)........................ 36 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
KIP A. FREY has served as our President and a director of OpenSite since
August 1998 and Chief Executive Officer since March 1999. From January 1998 to
June 1998, Mr. Frey served as President of Accipiter, Inc., an Internet software
company, which was acquired by CMGI, Inc. 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, a multimedia and software
publisher. Mr. Frey negotiated and closed the sale of Ventana to International
Thomson Publishing in 1994. 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 an Adjunct Professor at Duke University's
Sanford Institute for Public Policy Studies and a visiting lecturer at Duke Law
School. He received a J.D. from Duke University and an A.B. from the University
of Southern California. Mr. Frey's employment agreement provides that Mr. Frey
will serve as a member of our board of directors.
THOMAS F. HANLON, III has served as our Senior Vice President, Sales and
Business Development since January, 2000. From March 1999 to December 1999, he
served as our Vice President, Sales and Business Development, 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, a
human resource and payroll software company. From November 1989 to December
1994, Mr. Hanlon served as Regional Sales Manager for ADP, Inc., a payroll and
administrative services company. 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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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, an entertainment software
company. From September 1987 to September 1994, Mr. Kubel served as a Senior
Manager for Sun Microsystems, a computer workstation and software vendor. 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.
TIMOTHY K. OAKLEY has served as our Senior Vice President and Chief
Financial Officer since July 1999. From April 1998 to July 1999, Mr. Oakley
served as Vice President, Chief Financial Officer, Secretary and Treasurer for
Strategic Technologies, Inc., a systems integration company. From April 1996 to
March 1998, Mr. Oakley was Vice President, Chief Financial Officer, Secretary
and Treasurer for Broadband Technologies, Inc., a publicly-held provider of
telecommunications software and equipment. From October 1990 to March 1996, Mr.
Oakley held various executive positions at MCI Communications, a
telecommunications service provider, with his last position being Controller of
the Consumer and Small Business Operating Unit and Director. Mr. Oakley is a CPA
and received an M.B.A. from Emory University and a B.S.B.A. from East Carolina
University.
ROGER R. EDGAR has served as our Vice President, Corporate Development and
Strategy 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, Inc. From December 1995
to December 1997, Mr. Edgar was Product Manager and Business Development Manager
at HAHT Software, Inc., an Internet development tools company. From July 1994 to
December 1995, Mr. Edgar was a director at Jumpstart Development Corporation, a
consulting firm. 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 Operations
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, a telecommunications products company. From December 1994
to January 1998, Mr. Ford served as Controller for Ventana Communications, a
division of International Thomson Publishing, a multimedia and software
publisher. Mr. Ford received an M.B.A. from Florida State University and a B.S.
in Accounting and Finance from Gardner-Webb College.
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, a children's educational software 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 and Legal
Affairs since March 1999. From March 1997 to March 1999, Mr. Widin served as
Vice President and Director at A.M. Pappas & Associates, a venture capital and
transaction services firm. From May 1995 to October 1996, Mr. Widin served as
Senior Vice President, Planning and Administration for Imonics, a software and
systems integration company. From 1991 to May 1995, Mr. Widin served as Vice
President and General Counsel for Encompass, G.P., a logistics software company.
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.
MICHAEL BRADER-ARAJE, founder of OpenSite, has served as a director of
OpenSite from our inception to May 1999 and from January 2000 to present. Mr.
Brader-Araje served as our Chief
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Executive Officer from February 1996 to March 1999. From May 1996 to April 1997,
Mr. Brader-Araje served as Director of Internet Services for SciQuest, a
Web-based marketplace for scientific products. From October 1993 to April 1996,
Mr. Brader-Araje was self-employed, serving as a consultant to public and
private schools working on technology in education initiatives. Mr. Brader-Araje
received a M.Ed. from the University of Massachusetts -- Amherst, a M.A. in
English from the University of Rochester and a B.A. in English from Lafayette
College.
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.
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 1979, 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,
a venture capital investor. 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, a venture
capital firm, 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, a venture capital
firm, since May 1998. From March 1995 to April 1998, Mr. Taetle was Executive
Vice President of Marketing and Business Development for MindSpring Enterprises,
an Internet Service Provider. From November 1992 to March 1995, Mr. Taetle
served as Director of Operations and Product Management at CogniTech
Corporation, a developer of retail management software. Mr. Taetle received an
M.B.A. from Harvard Business School and a B.A. in Economics from the University
of Michigan.
Our board of directors consists of a single class of directors. Each of our
directors serves for a term of one year. There are no family relationships
between any of the directors or executive officers of OpenSite. Messrs.
Hall-Tipping, Howard, Kenzie, Mumma and Taetle were elected to the board of
directors in accordance with a Shareholders Agreement. This Shareholders
Agreement has been terminated, and no continuing obligation to elect these
persons to the board of directors will exist following this offering. Our letter
of intent with Bidder's Edge provides that its shareholders will have the right
to appoint two additional directors to our board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee currently consists of Mr. Mumma and another member to
be named in the future. The Audit Committee reviews the scope and timing of our
audit services, the auditor's report on our financial statements following
completion of its audit and its policies and procedures with respect to internal
accounting and financial control and any other services our independent auditor
is 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.
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The members of the Compensation Committee are Messrs. Kenzie, Hall-Tipping,
and Taetle. Mr. Kenzie is Chairman of the Compensation Committee. 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 1999 for our Chief Executive Officer, our former Chief Executive Officer
and our four other most highly compensated executive officers who earned more
than $100,000 during 1999. We may refer to these persons as our named executive
officers elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(2)
- --------------------------- ------ ----- ---------- ---------------
<S> <C> <C> <C> <C>
Kip A. Frey......................... $181,971 $ 91,500 33,333 $2,531
Michael Brader-Araje(1)............. 99,562 7,500 -- 2,416
Thomas F. Hanlon, III............... 85,168 114,096 60,000 2,606
Grace Ueng Trombetta................ 110,308 13,000 66,666 1,712
James R. Ford....................... 103,569 11,700 -- 1,532
Timothy K. Oakley................... 85,593 25,000 233,333 1,969
</TABLE>
- ---------------
(1) Mr. Brader-Araje, OpenSite's founder, served as our Chief Executive Officer
until March 1999.
(2) Consists of matching contributions to a retirement savings plan.
OPTION GRANTS
The following table provides summary information regarding stock options
granted to our named executive officers during 1999.
We calculated the potential realizable value of options in the table
assuming the exercise price on the date the grant appreciates at the indicated
rate for the entire term of the option and that the option holder exercises his
options on the last day of its term at the appreciated price. All options listed
have a term of 10 years. We assumed stock price appreciation of 5% and 10%
pursuant to the rules of the Securities and Exchange Commission. We cannot
assure you that the actual stock price will appreciate over the 10-year option
term at the assumed 5% and 10% levels or at any other rate.
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OPTION GRANTS DURING 1999
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS EXERCISE POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO PRICE ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEES PER EXPIRATION STOCK PRICE APPRECIATION FOR
GRANTED IN 1999 SHARE DATE OPTION TERM
---------- ---------- -------- ---------- -----------------------------
NAME 5% 10%
- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Kip A. Frey................ 33,333 3.7% $7.50 5/26/09 407,329 648,660
Michael Brader-Araje....... -- -- -- -- -- --
Thomas F. Hanlon, III...... 40,000 4.4 7.50 5/26/09 488,800 778,400
Grace Ueng Trombetta....... 10,000 1.1 0.23 1/29/09 3,800 6,000
James R. Ford.............. -- -- -- -- -- --
Timothy K. Oakley.......... 233,333 25.8 7.50 7/6/09 2,851,329 4,540,660
</TABLE>
FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our named
executive officers as of December 31, 1999. None of these executive officers
exercised options during 1999. We have calculated the value of in-the-money
options based on the estimated fair market value for our common stock of $5.24
per share on December 31, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION
VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY
DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kip A. Frey............................... 0 33,333 0 466,662
Michael Brader-Araje...................... -- -- -- --
Thomas F. Hanlon, III..................... 7,916 52,083 110,824 729,162
Grace Ueng Trombetta...................... 19,444 47,222 272,216 661,108
James R. Ford............................. -- -- -- --
Timothy K. Oakley......................... 0 233,333 0 3,266,662
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In March, 2000, our shareholders are
expected to approve the OpenSite Technologies, Inc. Employee Stock Purchase
Plan, which is intended to qualify under Section 423 of the Internal Revenue
Code. The stock purchase plan will be effective upon completion of this
offering. The stock purchase plan allows employees to purchase common stock
through payroll deductions for 85% of the fair market value of the common stock.
Participation in the stock purchase plan is voluntary. Employees may become
participants in the stock purchase plan by authorizing payroll deductions of one
to twenty percent of their base pay for each payroll period. At the end of each
three-month purchase period, each participant in the stock purchase plan will
receive an amount of our common stock equal to the sum of that participant's
payroll deductions during the period multiplied by 85% of the lower of the fair
market value of our common stock at the beginning of the period or the fair
market value of our common stock at the end of the period, subject to limits on
the amount of common stock a participant may purchase in a calendar year. No
employee may participate in the stock purchase plan if the employee owns or
would own 5% or more of the voting power of all classes of our stock. There are
currently 700,000 shares of common stock reserved for issuance under the stock
purchase plan. The number of shares of common stock available for issuance under
the stock purchase plan shall automatically increase on the last trading day of
the last month of each of OpenSite's fiscal years, beginning with the fiscal
year ending December 31, 2001, by a number of shares
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equal to one-quarter percent (0.25%) of the total number of shares of common
stock outstanding on the last trading day of the month preceding the final month
of that fiscal year, but in no event shall any such annual increase exceed
300,000 shares (as adjusted under the terms of the plan). We are permitted under
the stock purchase plan to purchase shares of common stock on the open market
for the purpose of reselling the shares to participants in the stock purchase
plan. No shares will be sold by us to participants in the stock purchase plan
until after completion of this offering.
2000 STOCK INCENTIVE PLAN. Our stock incentive plan will be effective upon
the completion of this offering. The aggregate number of shares of common stock
reserved for issuance under the stock incentive plan is 3,500,000 shares. The
number of shares of common stock available for issuance under the stock
incentive plan shall automatically increase on January 1 of each year beginning
January 1, 2001, by a number which will result in the number of shares available
for issuance under the stock incentive plan being equal to the sum of (1) the
aggregate number of shares subject to existing stock incentives previously
granted, (2) the aggregate number of shares previously issued under the plan,
and (3) 2,000,000; in no event, however, shall the annual increase exceed
2,000,000 shares or the number of shares available for issuance under the stock
incentive plan decrease from one year to the next. The purpose of the stock
incentive plan is to provide incentives for key employees, officers, consultants
and directors to promote the success of OpenSite and to enhance our ability to
attract and retain the services of such persons.
Awards granted under the stock incentive plan may be restricted stock,
stock appreciation rights, options intended to qualify as incentive stock
options under Section 422 of the tax code or nonqualified stock options. No
stock incentives will be granted by us to participants in the stock incentive
plan until after the completion of this offering.
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 2,333,333 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 tax code or nonqualified stock options.
As of December 31, 1999, 28,499 shares of common stock had been issued
under the stock option plan and options to purchase 1,209,081 shares of common
stock were outstanding under the stock option plan at a weighted average
exercise price of $4.71 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 tax 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 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
In August 1998, OpenSite and Kip A. Frey entered into an Executive
Employment Agreement. Subsequently, effective as of July 8, 1999, OpenSite and
Mr. Frey entered into an Amended and Restated Executive Employment Agreement
pursuant to which Mr. Frey serves as the President,
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Chief Executive Officer, and as a member of the board of directors of OpenSite.
The agreement provides for an annual salary of $150,000 through and including
May 31, 1999, with an increase in annual salary to $200,000 beginning as of June
1, 1999. The agreement also provides for a bonus plan with a targeted bonus of
up to 50% of the annual salary based upon performance standards determined by
the board of directors. 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 or as a result
of a change of control of OpenSite, Mr. Frey will be entitled to receive his
then current base salary, benefits and pro rata bonus for twelve 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.
In June 1999, OpenSite and Timothy K. Oakley entered into a letter
agreement concerning the terms of his employment as Senior Vice President and
Chief Financial Officer. The letter agreement provides for an annual salary of
$175,000, a signing bonus of $25,000 and a targeted bonus of up to 40% of his
annual salary. The bonus will be paid semi-annually based equally on OpenSite's
performance and his performance in meeting agreed upon objectives. Mr. Oakley
was also granted options to acquire 233,333 shares pursuant to the letter
agreement. Of these options, 200,000 are subject to a time-based vesting
schedule over four years, provided that vesting may be partially accelerated
based on the value of OpenSite's common stock achieving specified values over
this time or certain other events. The remaining 33,333 options will vest upon
the earlier of the completion of four years of service and the achievement of
agreed upon performance objectives. If we terminate Mr. Oakley's employment
without cause, Mr. Oakley will be entitled to receive a severance payment equal
to his then current salary.
In January 2000, the board of directors adopted change of control
compensation provisions for our other executive officers. Each of these
executives will receive 12 months salary and 50% of his or her annual bonus if
he or she is terminated or constructively terminated following a change of
control of OpenSite.
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<PAGE> 76
RELATED PARTY TRANSACTIONS
In August 1998, OpenSite loaned Mr. Frey $65,000, which he used to purchase
shares of our common stock. These shares are subject to an Amended and Restated
Restricted Stock Agreement dated as of July 8, 1999, pursuant to which the
agreement states that the August 1998 note was cancelled and re-issued and
re-executed as of October 1998. This loan bears interest at a rate of 6% per
annum and is repayable on December 31, 2002. As of December 31, 1999, the total
principal and accrued interest under this loan was approximately $69,000.
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 December 31,
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> 77
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 31, 1999 and as adjusted to reflect
the sale by OpenSite of common stock in this offering by:
- each director of OpenSite;
- all executive officers and directors of OpenSite as a group; and
- 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 2800
Meridian Parkway, 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................. 2,666,666(2) 14.4% 2,666,666 11.4%
9 North Parkway Square
4200 Northside Parkway, NW
Atlanta, Georgia 30327
Auction Ventures, LLC......................... 2,162,454 11.7 2,162,454 9.2
369 Franklin Street
Buffalo, New York 14202
SGC Partners II LLC........................... 2,083,333(3) 11.3 2,083,333 8.9
1221 Avenue of the Americas
New York, New York 10020
Michael Brader-Araje.......................... 1,892,874 10.2 1,892,874 8.1
Mark Jauquet.................................. 1,892,874 10.2 1,892,874 8.1
GE Capital Equity Investments, Inc............ 1,666,666(4) 9.0 1,666,666 7.1
120 Long Ridge Road
Stamford, Connecticut 06927
Intersouth Partners IV, L.L.C................. 1,625,000 8.8 1,625,000 6.9
One Copley Parkway, Suite 102
Morrisville, North Carolina 27713
Southeast Interactive Technology Fund II,
LLC......................................... 1,250,000 6.8 1,250,000 5.3
2525 Meridian Parkway, Suite 300
Durham, North Carolina 27713
Wakefield Group, II, LLC...................... 1,041,666 5.6 1,041,666 4.4
1110 East Morehead Street
Charlotte, North Carolina 28204
CNET, Inc..................................... 1,000,000 5.4 1,000,000 4.3
150 Chestnut Street
San Francisco, California 94111
Kip A. Frey................................... 433,333 2.3 433,333 1.8
Justin Hall-Tipping........................... -- -- -- --
Ross B. Kenzie................................ 2,162,454(5) 11.7 2,162,454 9.2
Mitchell M. Mumma............................. 1,625,000(6) 8.8 1,625,000 6.9
Alan J. Taetle................................ 2,666,666(7) 14.4 2,666,666 11.4
All directors and executive officers as a
group (14 persons)(2)(3)(4)(5)(6)(7)........ 8,840,328 47.8 8,840,328 37.6
</TABLE>
74
<PAGE> 78
- ---------------
(1) For purposes of calculating the percentage beneficially owned, the number of
shares of common stock deemed outstanding prior to this offering consists of
18,489,896 shares outstanding as of December 31, 1999. The number of shares
of common stock deemed outstanding after this offering includes an
additional 5,000,000 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 II 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) GE Capital Equity Investments, Inc. ("GE Equity"), a wholly-owned subsidiary
of General Electric Capital Corporation ("GECC"), shares beneficial
ownership with GECC with respect to all of such shares held of record by GE
Equity.
(5) Consists of shares owned by Auction Ventures, LLC, of which Mr. Kenzie
serves as Manager. Mr. Kenzie disclaims beneficial ownership of such shares.
(6) Consists of shares owned by Intersouth Partners IV, L.L.C., of which Mr.
Mumma is a General Partner. Mr. Mumma disclaims beneficial ownership of such
shares.
(7) Consists of shares owned by Noro-Moseley Partners IV, L.P., of which Mr.
Taetle is a General Partner. Mr. Taetle disclaims beneficial ownership of
such shares.
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<PAGE> 79
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of (1) 75,000,000 shares of common
stock, $.01 par value per share, and (2) 10,000,000 shares of preferred stock,
$.01 par value per share. As of December 31, 1999, we had issued and outstanding
18,489,896 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. Holders of shares of our common stock may not cumulate votes in
the election of directors. 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 limitations prescribed by
law, without further stockholder approval, to issue from time to time up to an
aggregate of 10,000,000 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. In
addition, the issuance of preferred stock may have the effect of limiting or
modifying the rights of holders of our common stock. 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. 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. The holders of a majority of our outstanding
shares will constitute a quorum for the transaction of business. Each
stockholder has one vote per share of stock. Except as explained below or
provided by Delaware law, approval of a majority of those stockholders who are
present is required to take any action.
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<PAGE> 80
Our certificate of incorporation and bylaws provide that a director may be
removed from office only with cause by the affirmative vote of at least 75% of
all shares voting on the removal. Cause is defined as incompetence, mental or
physical incapacity, breach of fiduciary duty involving dishonesty, personal
profit, a failure to perform stated duties or a violation of law. In addition,
the provisions of our certificate of incorporation that relate to the election
and removal of directors and the prohibition on the calling of special meetings
by stockholders and actions by stockholders by written consent may only be
amended by a vote of 75% of our outstanding shares of voting stock. Our bylaws
may only be amended by our board of directors or by a vote of 75% of our
outstanding shares of voting stock.
These provisions of our certificate of incorporation and bylaws are
intended to discourage types of transactions that 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 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.
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 may prevent a Delaware corporation, including one whose securities are
listed for trading on the Nasdaq National Market, from engaging 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 of 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
77
<PAGE> 81
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.
REGISTRATION RIGHTS
We have granted registration rights to some of our existing stockholders
covering 13,626,625 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 March 2001, these holders may make
such demands on an unlimited number of occasions.
Our letter of intent with Bidder's Edge provides for the issuance of
5,960,871 shares of common stock in connection with the acquisition following
the consummation of this offering. Pursuant to the letter of intent, the holders
of these shares will be entitled to registration rights that are, generally,
similar to those granted to existing holders of restricted common stock.
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) to 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.
78
<PAGE> 82
LISTING
We have applied 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.
79
<PAGE> 83
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
23,489,896 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
4,428,572 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. In addition, 571,428 shares sold in this offering
will be subject to the lock-up agreements described below assuming that we sell
all shares reserved under our directed share program to the entities or persons
for whom these shares have been reserved. The remaining 18,489,896 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
Rules 144 and 701, the shares sold under our directed share program and the
restricted securities will be available for sale in the public market as
follows:
- 775,026 shares will be freely tradable without restriction or
registration under the Securities Act upon expiration of the lock-up
agreements; and
- 17,714,870 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of the lock-up agreements.
LOCK-UP AGREEMENTS. All of our officers and directors, certain existing
shareholders and the named purchasers of directed shares in this offering 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
Goldman, Sachs & Co., 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
person, 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 234,899 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.
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<PAGE> 84
Such sales under Rule 144 are also subject to 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 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 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
13,495,787 shares of our common stock and the holder of 130,838 shares of our
common stock issuable upon the exercise of warrants outstanding as of December
31, 1999, or their transferees, will be entitled to 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 AND WARRANTS. Options to purchase an aggregate of 152,248
shares of our common stock were fully vested as of December 31, 1999. Of the
total shares issuable pursuant to these vested options, 140,277 are subject to
the 180-day lock-up agreements described above. As of December 31, 1999, options
to purchase an additional 1,056,833 shares of common stock were outstanding but
subject to future vesting and an additional 602,420 shares of common stock were
available for future grants under our stock option plan. In addition, 130,838
shares of common stock are issuable upon the exercise of warrants outstanding as
of December 31, 1999.
BIDDER'S EDGE. The letter of intent provides for the issuance of 5,960,871
shares of common stock and options to purchase shares of common stock in
connection with our acquisition of Bidder's Edge following the consummation of
this offering. These shares will be restricted securities. The holders of these
shares will be entitled to rights with respect to the registration of these
shares under the Securities Act.
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.
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 other legal matters relating to this offering will
be passed on for us by 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.
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<PAGE> 85
UNDERWRITING
OpenSite and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Chase Securities
Inc., The Robinson-Humphrey Company, LLC and SoundView Technology Group, Inc.
are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ---------
<S> <C>
Goldman, Sachs & Co.........................................
Chase Securities Inc........................................
The Robinson-Humphrey Company, LLC..........................
SoundView Technology Group, Inc.............................
Wachovia Securities, Inc....................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 750,000
shares from OpenSite to cover these sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by OpenSite. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by OpenSite
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of those
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
OpenSite and its directors, officers, employees and other holders of
substantially all its securities have agreed with the underwriters, subject to
limited exceptions, not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. See "Shares Eligible for Future Sale" for a discussion of
certain transfer restrictions.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be negotiated
among OpenSite and the representatives of the underwriters. Among the factors to
be considered in determining the initial public offering price of the shares, in
addition to prevailing market conditions, are OpenSite's historical performance,
estimates of OpenSite's business potential and earnings prospects, an assessment
of OpenSite's management and the consideration of the above factors in relation
to the market valuation of companies in related businesses.
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<PAGE> 86
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters of this offering. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the representatives to underwriters that may make Internet distributions on the
same basis as other allocations.
OpenSite has applied to have its common stock approved for quotation on the
Nasdaq National Market under the symbol "OPNS".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purposes of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to other underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in stabilizing
or short-sale covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At the request of OpenSite, the underwriters have reserved for sale at the
initial public offering price an aggregate of 571,428 shares in this offering as
follows:
- up to 142,857 shares to CNET, Inc;
- up to 142,857 shares to Excite@Home;
- up to 142,857 shares to InfoSpace.com, Inc.; and
- up to 142,857 shares to VerticalNet, Inc.
The number of shares available for sale to the general public will be reduced by
the number of reserved shares sold. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as other
shares offered hereby.
In addition, at the request of OpenSite, the underwriters have reserved for
sale, at the initial public offering price, shares of common stock for certain
directors, officers and friends of OpenSite. There can be no assurance that any
of the reserved shares will be so purchased. The number of shares available for
sale to the general public in the offering will be reduced by the number of
reserved shares sold. Any reserved shares not so purchased will be offered to
the general public on the same basis as the other shares offered hereby.
OpenSite estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $890,000.
OpenSite has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
83
<PAGE> 87
EXPERTS
The consolidated financial statements of OpenSite as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
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.
The financial statements of Bidder's Edge as of December 31, 1998 and 1999
and for the years then ended and for the period from inception through December
31, 1999 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.
CHANGE IN ACCOUNTANTS
On May 10, 1999, we dismissed KPMG LLP and engaged PricewaterhouseCoopers
LLP as our independent accountants. Our board of directors participated in and
approved the decision to change independent accountants. The report of KPMG LLP
on our financial statements for the two years in the period ended December 31,
1998 did not contain any adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audit for the two years in the period ended December 31,
1998 and through May 10, 1999, there were no disagreements with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of KPMG LLP, would have caused them to make reference thereto in
their report on the financial statements for such years.
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
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.
84
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Pro Forma Condensed Combined Balance Sheet as of December
31, 1999 (Unaudited)................................... F-3
Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1999 (Unaudited)........... F-4
Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1998 (Unaudited)........... F-5
Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1997 (Unaudited)........... F-6
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)............................................ F-7
OPENSITE TECHNOLOGIES, INC. CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Accountants......................... F-9
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-10
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-11
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1997, 1998 and
1999................................................... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-13
Notes to Consolidated Financial Statements................ F-14
BIDDER'S EDGE, INC. FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-29
Balance Sheets as of December 31, 1998 and 1999........... F-30
Statements of Operations for the years ended December 31,
1998 and 1999 and for the period from April 7, 1997
(date of inception) to December 31, 1999............... F-31
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999................. F-32
Statements of Cash Flows for the years ended December 31,
1998 and 1999 and for the period from April 7, 1997
(date of inception) to December 31, 1999............... F-33
Notes to Financial Statements............................. F-34
</TABLE>
F-1
<PAGE> 89
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
The following is an unaudited pro forma condensed combined balance sheet
(the "Pro Forma Balance Sheet") as of December 31, 1999 and unaudited pro forma
condensed combined statements of operations (the "Pro Forma Statements of
Operations") for the years ended December 31, 1997, 1998, and 1999. The Pro
Forma Balance Sheet assumes the Company's proposed acquisition of Bidder's Edge,
Inc. (the "Proposed Acquisition") was consummated as of December 31, 1999 and
accounted for as a pooling-of-interests as defined by Accounting Principles
Board Opinion No. 16 ("APB No. 16"). The Pro Forma Statements of Operations for
the years ended December 31, 1997, 1998, and 1999 give effect to the Company's
Proposed Acquisition as if such transaction been consummated on January 1, 1997
and accounted for as a pooling-of-interests.
For all periods presented in the Pro Forma Statements of Operations, the
average number of common and common equivalent shares gives effect to (i) the
issuance of 5,730,172 shares of OpenSite Technologies, Inc.'s ("OpenSite")
common stock for all of the issued and outstanding shares of Bidder's Edge, Inc.
("Bidder's Edge") and (ii) the issuance of 230,699 stock options of OpenSite for
all of the issued and outstanding stock options of Bidder's Edge, a proposed
3.2402 exchange ratio (the "Exchange Ratio"). The Pro Forma Statements of
Operations do not reflect any expenses of the Proposed Acquisition, which are
expected to be approximately $400,000.
Certain data and notes normally included in the financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited pro forma condensed combined
financial statements and notes ("Pro Forma Financial Statements") have been
prepared by the management of OpenSite and Bidder's Edge based upon the
historical financial statements of OpenSite and Bidder's Edge. The Pro Forma
Financial Statements should be read in conjunction with the historical financial
statements of OpenSite and Bidder's Edge included elsewhere in this prospectus.
The Pro Forma Financial Statements do not purport to be indicative of the
actual financial position or results of operations that would have been achieved
had the Company's Proposed Acquisition been consummated as of the assumed dates
or that may be achieved in the future.
F-2
<PAGE> 90
OPENSITE TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
OPENSITE AND
BIDDER'S EDGE
OPENSITE BIDDER'S EDGE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....... $ 10,599,244 $ 4,802,054 $ -- $ 15,401,298
Investments, held-to-maturity... -- 1,963,213 -- 1,963,213
Accounts receivable, net........ 2,385,814 -- -- 2,385,814
Prepaid expenses................ 338,439 45,060 -- 383,499
------------ ----------- ------------ ------------
Total current
assets.............. 13,323,497 6,810,327 -- 20,133,824
Property and equipment, net..... 1,064,290 297,520 -- 1,361,810
Investments held-to-maturity.... -- 700,889 -- 700,889
Notes receivable from officer... 300,000 -- -- 300,000
Other assets.................... 259,762 -- -- 259,762
------------ ----------- ------------ ------------
Total assets.......... $ 14,947,549 $ 7,808,736 $ -- $ 22,756,285
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable................ $ 204,210 $ 459,949 $ -- $ 664,159
Accrued expenses................ 3,034,027 208,913 400,000(1) 3,642,940
Deferred revenue................ 1,762,346 -- -- 1,762,346
------------ ----------- ------------ ------------
Total current
liabilities......... 5,000,583 668,862 400,000 6,069,445
Mandatorily redeemable
convertible preferred stock in
series........................ 80,458,786 -- (80,458,786)(2) --
Stockholders' equity (deficit):
Preferred stock in series..... -- 11,527 (11,527)(3) --
Common stock.................. 62,365 15,000 122,534(2) 242,201
42,302(3)
Additional paid-in capital.... -- 10,723,353 77,540,978(2) 88,233,556
(30,775)(3)
Deferred compensation......... (93,273) (152,144) (245,417)
Treasury stock................ (2,795,274) -- 2,795,274(2) --
Accumulated other
comprehensive income....... (1,389) -- -- (1,389)
Accumulated deficit........... (67,605,749) (3,457,862) (400,000)(1) (71,463,611)
Notes receivable from
stockholders............... (78,500) -- -- (78,500)
------------ ----------- ------------ ------------
Total stockholders'
equity (deficit).... (70,511,820) 7,139,874 80,058,786 16,686,840
------------ ----------- ------------ ------------
Total liabilities and
stockholders' equity
(deficit)........... $ 14,947,549 $ 7,808,736 $ -- $ 22,756,285
============ =========== ============ ============
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
(unaudited).
F-3
<PAGE> 91
OPENSITE TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
OPENSITE AND
BIDDER'S EDGE
OPENSITE BIDDER'S EDGE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue........................ $ 7,877,639 $ -- $ -- $ 7,877,639
Cost and operating expense:
Cost of revenue.............. 1,862,804 -- -- 1,862,804
Sales and marketing.......... 10,629,393 959,637 -- 11,589,030
Product development.......... 2,979,795 1,395,042 -- 4,374,837
General and administrative... 5,210,056 805,776 -- 6,015,832
------------ ----------- ----------- ------------
Total operating
expense............ 20,682,048 3,160,455 -- 23,842,503
------------ ----------- ----------- ------------
Operating loss....... (12,804,409) (3,160,455) -- (15,964,864)
Interest income, net........... 598,953 159,560 -- 758,513
------------ ----------- ----------- ------------
Net loss..................... (12,205,456) (3,000,895) -- (15,206,351)
Accretion of preferred stock... (53,163,530) -- 53,163,530(b) --
------------ ----------- ----------- ------------
Net loss available to
common
stockholders....... $(65,368,986) $(3,000,895) $53,163,530 $(15,206,351)
============ =========== =========== ============
Net loss available to common
stockholders per common
share -- basic and diluted... $ (12.51) $ (0.70)
============ ============
Weighted average shares used in
basic and diluted net loss
available to common
stockholders per common share
calculation(a)............... 5,225,328 21,725,350
============ ============
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
(unaudited).
F-4
<PAGE> 92
OPENSITE TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
OPENSITE AND
BIDDER'S EDGE
OPENSITE BIDDER'S EDGE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue............................. $ 1,280,545 $ -- $ -- $ 1,280,545
Cost and operating expense:
Cost of revenue................... 148,489 -- -- 148,489
Sales and marketing............... 1,917,745 44,849 -- 1,962,594
Product development............... 695,282 284,752 -- 980,034
General and administrative........ 922,689 258,660 -- 1,181,349
----------- ---------- ----------- -----------
Total operating
expenses................ 3,684,205 588,261 -- 4,272,466
----------- ---------- ----------- -----------
Operating loss............ (2,403,660) (588,261) -- (2,991,921)
Interest income (expense), net...... 42,943 (20,545) -- 22,398
----------- ---------- ----------- -----------
Net loss.................. (2,360,717) (608,806) -- (2,969,523)
Distributions to preferred
stockholders...................... (39,457) -- -- (39,457)
Accretion of preferred stock........ (324,661) -- -- (324,661)
----------- ---------- ----------- -----------
Net loss available to
common stockholders..... $(2,724,835) $ (608,806) $ -- $(3,333,641)
=========== ========== =========== ===========
Net loss available to common
stockholders per common share --
basic and diluted................. $ (0.47) $ (0.38)
=========== ===========
Weighted average shares used in
basic and diluted net loss
available to common stockholders
per common share calculation(a)... 5,748,492 8,884,319
=========== ===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
(unaudited).
F-5
<PAGE> 93
OPENSITE TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OPENSITE AND
BIDDER'S EDGE
OPENSITE BIDDER'S EDGE CONFORMING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue....................... $ 339,703 $ -- $ -- $ 339,703
Cost and operating expense:
Cost of revenue............. 28,010 -- -- 28,010
Sales and marketing......... 43,541 -- -- 43,541
Product development......... 105,054 25,244 -- 130,298
General and
administrative........... 35,607 24,279 -- 59,886
-------------- ---------- ----------- -----------
Total operating
expense........... 212,212 49,523 -- 261,735
-------------- ---------- ----------- -----------
Operating income
(loss)............ 127,491 (49,523) -- 77,968
Interest income (expense),
net......................... 2,336 -- -- 2,336
-------------- ---------- ----------- -----------
Net income (loss)... $ 129,827 $ (49,523) $ -- $ 80,304
============== ========== =========== ===========
Net income (loss) per common
share -- basic and
diluted..................... $ 0.02 $ 0.01
============== ===========
Weighted average shares used
in basic and diluted net
income (loss) per common
share calculation(a)........ 5,428,451 7,588,584
============== ===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
(unaudited).
F-6
<PAGE> 94
OPENSITE TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements reflect the
combined operations and financial position of OpenSite and Bidder's Edge as if
the Proposed Acquisition had been consummated and accounted for as a
pooling-of-interests. The unaudited pro forma condensed combined balance sheet
presents the combined financial position of OpenSite and Bidder's Edge as if the
Proposed Acquisition was consummated on December 31, 1999.
The pro forma adjustments are based on available information and certain
estimates and assumptions. Therefore, it is likely that the actual adjustments
will differ from the pro forma adjustments. OpenSite and Bidder's Edge believe
that such adjustments provide a reasonable basis for presenting all of the
significant effects of the Proposed Acquisition. Management of OpenSite and
Bidder's Edge also believe that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the pro forma condensed
combined financial statements.
The pro forma financial statements do not reflect any synergies, cost
savings and operational efficiencies that may become available to the combined
enterprise as a result of the Proposed Acquisition.
2. PRO FORMA ACCOUNTING ADJUSTMENTS -- BALANCE SHEET
(1) To increase pro forma combined accumulated deficit for non-recurring
costs (as currently estimated by management) directly associated with the
Proposed Acquisition, estimated at approximately $400,000. These costs will be
expended upon consummation of the Proposed Acquisition.
(2) To reflect the conversion of 13,495,787 shares of OpenSite's Series A,
Series B, and Series C mandatorily redeemable convertible preferred stock
("Preferred Stock") into 13,495,787 shares of OpenSite's common stock, of which
1,242,343 will be issued from Treasury. The terms of the Preferred Stock require
that the holders of the Preferred Stock convert all of the issued and
outstanding shares of the Preferred Stock into a similar number of shares of the
Company's common stock if the Company completes its initial public offering of
the Company's common stock as currently anticipated.
(3) To reflect the conversion of the Bidder's Edge Series A and Series B
convertible preferred stock into Bidder's Edge common stock immediately prior to
the Proposed Acquisition and the issuance of 5,730,172 shares of OpenSite's
common stock in exchange for all of the issued and outstanding shares of
Bidder's Edge common stock.
F-7
<PAGE> 95
OPENSITE TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
3. PRO FORMA ACCOUNTING ADJUSTMENTS -- INCOME STATEMENT
(a) Pro forma net income (loss) per share is computed by dividing the pro
forma net income (loss) by the pro forma weighted average shares outstanding for
the period presented. The pro forma weighted average shares outstanding ("WASO")
for the years ended December 31, 1997, 1998, and 1999 is calculated as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OpenSite WASO....................................... 5,428,451 5,748,492 5,225,328
Bidder's Edge WASO adjusted for the Exchange Ratio.. 2,160,133 2,880,178 3,240,200
Conversion of Bidder's Edge preferred shares into
common stock, adjusted for the Exchange Ratio..... -- 255,649 1,634,032
Conversion of OpenSite mandatorily redeemable
preferred stock into common stock as of January 1,
1999.............................................. -- -- 11,625,790
----------- ----------- -----------
7,588,584 8,884,319 21,725,350
=========== =========== ===========
</TABLE>
The shares previously held as treasury stock have been considered as
outstanding common stock in the calculation of pro forma earnings per share.
(b) To reflect the elimination of the accretion of the OpenSite mandatorily
redeemable preferred stock as a result of the assumed conversion of the
mandatorily redeemable preferred stock as of January 1, 1999.
F-8
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
OpenSite Technologies, Inc.:
The reverse stock split described in Note 2 to the financial statements has
not been consummated at March 15, 2000. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated 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, 1998 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above."
/s/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
January 28, 2000
F-9
<PAGE> 97
OPENSITE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
------------------------ 1999
1998 1999 (UNAUDITED)
---- ---- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $2,276,031 $10,599,244 $10,599,244
Accounts receivable, net......................... 303,312 2,385,814 2,385,814
Prepaid expenses................................. 61,591 338,439 338,439
---------- ----------- -----------
Total current assets.......................... 2,640,934 13,323,497 13,323,497
Property and equipment, net........................ 417,723 1,064,290 1,064,290
Note receivable from officer....................... -- 300,000 300,000
Other assets....................................... 11,032 259,762 259,762
---------- ----------- -----------
Total assets.................................. $3,069,689 $14,947,549 $14,947,549
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 75,542 $ 204,210 $ 204,210
Accrued expenses................................. 408,839 3,034,027 3,034,027
Deferred revenue................................. 354,802 1,762,346 1,762,346
Capital lease obligations -- current portion..... 22,155 -- --
---------- ----------- -----------
Total current liabilities..................... 861,338 5,000,583 5,000,583
Capital lease obligations -- noncurrent portion.... 42,765 -- --
Redeemable common stock warrants................... 54,221 -- --
Mandatorily redeemable convertible preferred stock
in series........................................ 4,817,892 80,458,786 --
Commitments and contingencies (Note 11)
Stockholders' equity (deficit):
Common stock, $.01 par value, 40,000,000 shares
authorized: 6,060,584 and 6,236,452 shares
issued and outstanding at December 31, 1998
and 1999, respectively; 18,489,896 shares
issued and outstanding pro forma.............. 60,606 62,365 184,899
Additional paid-in capital....................... -- -- 77,540,978
Deferred compensation............................ -- (93,273) (93,273)
Treasury stock, at cost, 1,242,343 shares at
December 31, 1999; none pro forma............. -- (2,795,274) --
Accumulated other comprehensive income........... -- (1,389) (1,389)
Accumulated deficit.............................. (2,688,633) (67,605,749) (67,605,749)
Notes receivable from stockholders............... (78,500) (78,500) (78,500)
---------- ----------- -----------
Total stockholders' equity (deficit).......... (2,706,527) (70,511,820) 9,946,966
---------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)................................... $3,069,689 $14,947,549 $14,947,549
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 98
OPENSITE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software licenses............................. $ 177,234 $ 1,072,152 $ 6,437,253
Services...................................... 162,469 208,393 1,440,386
---------- ----------- ------------
Total revenue............................ 339,703 1,280,545 7,877,639
---------- ----------- ------------
Cost and operating expense:
Cost of software licenses..................... 9,000 17,550 456,254
Cost of services.............................. 19,010 130,939 1,406,550
Sales and marketing........................... 43,541 1,917,745 10,629,393
Product development........................... 105,054 695,282 2,979,795
General and administrative.................... 35,607 922,689 5,210,056
---------- ----------- ------------
Total operating expense.................. 212,212 3,684,205 20,682,048
---------- ----------- ------------
Operating income (loss).................. 127,491 (2,403,660) (12,804,409)
---------- ----------- ------------
Interest income (expense):
Interest income............................... 2,336 48,362 604,283
Interest expense.............................. -- (5,419) (5,330)
---------- ----------- ------------
Interest income (expense), net............. 2,336 42,943 598,953
---------- ----------- ------------
Net income (loss)........................ 129,827 (2,360,717) (12,205,456)
Distributions to preferred stockholders......... -- (39,457) --
Accretion of preferred stock.................... -- (324,661) (53,163,530)
---------- ----------- ------------
Net income (loss) available to common
stockholders.......................... $ 129,827 $(2,724,835) $(65,368,986)
========== =========== ============
Net income (loss) available to common
stockholders per common share-basic and
diluted....................................... $ 0.02 $ (0.47) $ (12.51)
========== =========== ============
Weighted average shares used in basic and
diluted net income (loss) per common share
calculation................................... 5,428,450 5,748,492 5,225,328
========== =========== ============
Pro forma per common share data -- adjusted for
the conversion of preferred stock only (See
Note 1):
Pro forma net loss per common share-basic and
diluted (unaudited)........................ $ (0.72)
============
Pro forma weighted average basic and diluted
shares outstanding (unaudited)............. 16,851,118
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 99
OPENSITE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER
------------ PAID-IN DEFERRED FROM COMPREHENSIVE TREASURY
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS INCOME STOCK
------ ------ ---------- ------------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996.... 5,010,525 $50,105 $ 25,053 $ -- $ -- $ -- $ --
Issuance of common stock........ 556,726 5,568 24,432 -- -- -- --
Net income...................... -- -- -- -- -- -- --
--------- ------- --------- --------- -------- ------- -----------
BALANCE AT DECEMBER 31, 1997.... 5,567,251 55,673 49,485 -- -- -- --
Dividends paid to S corporation
stockholders................... -- -- -- -- -- -- --
Change from S-Corporation to
C-Corporation.................. -- -- 54,203 -- -- -- --
Distribution to Series A
preferred stockholders......... -- -- -- -- -- -- --
Issuance of common stock........ 493,333 4,933 73,567 -- (78,500) -- --
Accretion of mandatorily
redeemable convertible
preferred stock................ -- -- (177,255) -- -- -- --
Net loss........................ -- -- -- -- -- -- --
--------- ------- --------- --------- -------- ------- -----------
BALANCE AT DECEMBER 31, 1998.... 6,060,584 60,606 -- -- (78,500) -- --
Deferred compensation related to
grant of stock options......... -- -- 118,450 (118,450) -- -- --
Amortization of deferred
compensation................... -- -- -- 25,177 -- -- --
Repurchase of common stock...... -- -- -- -- (2,795,274)
Termination of put provision of
redeemable common stock
warrants....................... -- -- 322,737 -- -- -- --
Exercise of warrants to purchase
common stock................... 147,369 1,474 7,368 -- -- -- --
Exercise of stock options....... 28,499 285 3,315 -- -- -- --
Accretion of mandatorily
redeemable convertible
preferred stock................ (451,870) -- -- --
Net loss........................ -- -- -- -- -- -- --
Other comprehensive income --
foreign currency translation
adjustment..................... -- -- -- -- -- (1,389) --
--------- ------- --------- --------- -------- ------- -----------
BALANCE AT DECEMBER 31, 1999.... 6,236,452 $62,365 $ -- $ (93,273) $(78,500) $(1,389) $(2,795,274)
========= ======= ========= ========= ======== ======= ===========
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
(ACCUMULATED EQUITY
DEFICIT) (DEFICIT)
------------ -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996.... $ (75,624) $ (466)
Issuance of common stock........ -- 30,000
Net income...................... 129,827 129,827
------------ ------------
BALANCE AT DECEMBER 31, 1997.... 54,203 159,361
Dividends paid to S corporation
stockholders................... (141,053) (141,053)
Change from S-Corporation to
C-Corporation.................. (54,203) --
Distribution to Series A
preferred stockholders......... (39,457) (39,457)
Issuance of common stock........ -- --
Accretion of mandatorily
redeemable convertible
preferred stock................ (147,406) (324,661)
Net loss........................ (2,360,717) (2,360,717)
------------ ------------
BALANCE AT DECEMBER 31, 1998.... (2,688,633) (2,706,527)
Deferred compensation related to
grant of stock options......... -- --
Amortization of deferred
compensation................... -- 25,177
Repurchase of common stock...... (2,795,274)
Termination of put provision of
redeemable common stock
warrants....................... -- 322,737
Exercise of warrants to purchase
common stock................... -- 8,842
Exercise of stock options....... -- 3,600
Accretion of mandatorily
redeemable convertible
preferred stock................ (52,711,660) (53,163,530)
Net loss........................ (12,205,456) (12,205,456)
Other comprehensive income --
foreign currency translation
adjustment..................... -- (1,389)
------------ ------------
BALANCE AT DECEMBER 31, 1999.... $(67,605,749) $(70,511,820)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 100
OPENSITE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $129,827 $(2,360,717) $(12,205,456)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Bad debt expense............................. 5,099 164,092 577,626
Depreciation and amortization expense........ 6,519 78,220 393,465
Loss on termination of capital lease......... -- -- 23,413
Non-cash consulting expense.................. 17,000 54,221 268,516
Amortization of deferred compensation........ -- -- 25,177
Changes in operating assets and liabilities:
Increase in accounts receivable............ (27,949) (443,691) (2,660,128)
Increase in prepaid expenses and other
assets.................................. (1,838) (70,785) (276,848)
Increase in accounts payable............... 16,553 56,040 128,668
Increase in accrued expenses............... 14,571 394,268 2,625,188
Increase in deferred revenue............... -- 354,802 1,407,544
-------- ----------- ------------
Net cash provided by (used in) operating
activities................................. 159,782 (1,773,550) (9,692,835)
-------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment.... -- -- 35,000
Purchases of property and equipment............. (39,422) (387,610) (1,094,689)
-------- ----------- ------------
Net cash used in investing activities........ (39,422) (387,610) (1,059,689)
-------- ----------- ------------
Cash flows from financing activities:
Repayment of note payable....................... -- (17,000) --
Principal payment on capital lease obligation... -- (9,875) (67,406)
Repurchase of common stock...................... -- -- (2,795,274)
Repurchase of mandatorily redeemable convertible
preferred stock.............................. -- -- (1,397,636)
Loan to officer................................. -- -- (300,000)
Purchase of convertible note.................... -- (250,000)
Dividends paid.................................. -- (180,510) --
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net............. -- 4,493,231 23,875,000
Proceeds from issuance of common stock.......... 30,000 -- --
Exercise of warrant and options to purchase
common stock................................. -- -- 12,442
-------- ----------- ------------
Net cash provided by financing activities.... 30,000 4,285,846 19,077,126
-------- ----------- ------------
Effect of changes in foreign exchange on cash
and cash equivalents....................... -- -- (1,389)
-------- ----------- ------------
Net increase in cash and cash equivalents.... 150,360 2,124,686 8,323,213
Cash and cash equivalents at beginning of year.... 985 151,345 2,276,031
-------- ----------- ------------
Cash and cash equivalents at end of year.......... $151,345 $ 2,276,031 $ 10,599,244
======== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 101
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND PRESENTATION
OpenSite Technologies, Inc. (the "Company") develops and markets Internet
auction and dynamic pricing technology that enables organizations to create
branded, interactive, real-time Internet auctions. The majority of the Company's
revenue is derived from fees related to its software licenses, which include
licenses of Dynamic Pricing Toolkit, AuctionNow, OpenSite Auction, and licenses
of the Company's other software products. The Company also offers a range of
services, including support and maintenance services related to its software
licenses, professional services (product installation, customization, technical
assistance, etc.) related to its software licenses, and a complete outsourced
solution to customers through its OpenSite Concierge Service. OpenSite Concierge
Service allows our customers to outsource completely to the Company the process
of running Internet auctions, including development, deployment, maintenance and
hosting. During 1999, the Company launched its BidStream.com Web site; however,
to date the Company has not recognized any revenue related to the 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. All of the outstanding stock of the Company and
its predecessor were owned by the same group of stockholders at the date of the
merger. The individual stockholders owned the same percentage interest in the
Company and its predecessor before and after the merger. At the time of the
merger, the Company was non-operating and had no operating assets or
liabilities. Accordingly, 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 only
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 December 31, 1999. Accordingly, the unaudited pro forma balance sheet does
not reflect the acquisition of Bidder's Edge as described in Note 14.
STOCK SPLIT
In March 2000, the Company approved a 3 for 2 reverse stock split which
will be effective upon the effective date of the Company's IPO. The financial
statements for all periods presented have been restated to reflect these
transactions.
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.
F-14
<PAGE> 102
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASIS OF CONSOLIDATION
The consolidated financial statements at December 31, 1999 include the
accounts of OpenSite Technologies, Inc. and its wholly-owned subsidiary,
OpenSite Europe, Ltd. All significant intercompany accounts and transactions
have been eliminated. Prior to 1999, the Company had no subsidiaries.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
CASH FLOW
The Company had the following non-cash investing and financing activities
during the year ended December 31, 1998:
<TABLE>
<S> <C>
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 years
ended December 31, 1997 and 1999.
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, 1998 and 1999. Fair values are based on quoted
market prices and assumptions covering the amount and timing of estimated future
cash flows and assumed discount rates, reflecting varying degrees of perceived
risk.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Expenditures for maintenance and repairs are charged to
operations. Expenditures for maintenance and repairs are expensed as incurred.
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
Office furniture and equipment.............................. 5 years
Leasehold improvements...................................... 1-3 years
Assets under capital leases................................. 1-3 years
</TABLE>
F-15
<PAGE> 103
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. At December 31, 1999,
other assets included capitalized trademarks of $9,762, net of accumulated
amortization of $1,960. Amortization expense was $1,172 during the year ended
December 31, 1999.
The remaining $250,000 in other assets relates to a Convertible Promissory
Note from an unrelated company (the "Borrower"). This loan bears interest at 6%
per annum. It can be paid at anytime, subject to certain conversion provisions.
All unpaid principal and accrued interest converts into stock of the Borrower
during their next financing round at 50% of the price per share received from
other investors.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the net realizable value 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") relying on a number of factors including
operating results, business plans, economic projections and anticipated future
cash flows. 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. If an impairment charge would be deemed
necessary, it would be recognized as a reduction of the carrying amount of the
impaired asset to the asset's fair value. No impairments were recognized during
the years ended December 31, 1997, 1998 or 1999.
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 effective January
1, 1998. The Company adopted the provisions of SOP No. 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions,"
effective January 1, 1999. These adoptions 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, including revenue related to software
licenses sold through distributors, is recognized when there is evidence of an
arrangement, the software has been
F-16
<PAGE> 104
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shipped, fees are fixed and determinable and collection of the related
receivable is probable. Support and maintenance revenue, which is included in
services 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. Revenue
from the Company's OpenSite Concierge Service, which is included in services
revenue, is deferred and recognized ratably over the term of the agreement.
Professional service revenue, which is also included in services 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 other
indirect costs.
PRODUCT 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," ("SFAS No. 86").
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
as incurred. The Company continues to account for its costs of developing
software for resale under SFAS No. 86.
In March 1998, the Accounting Standards Executive Committee of 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. The Company adopted SOP No. 98-1 effective January 1,
1999 for costs associated with development of its Web site. The adoption of SOP
No. 98-1 did not have a material impact on the Company's financial position or
results of operations, as costs related to developing, modifying and updating
the Company's Web site are insignificant.
ADVERTISING COSTS
All costs of advertising the services and products offered by the Company
are expensed as incurred and included in sales and marketing expenses.
Advertising expense totaled $16,475, $1,090,040 and $6,637,415 for the years
ended December 31, 1997, 1998 and 1999, respectively.
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 in fixed amounts and
with fixed exercise prices 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
F-17
<PAGE> 105
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of foreign operations, where the functional currency
is the local currency, are translated into U.S. dollars at the rate of exchange
at each reporting date. Revenues and expenses are translated using the weighted
average exchange rate for the month in which the transactions occur. Gains and
losses from translating foreign currency financial statements are accumulated in
other comprehensive income.
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 doubtful accounts based on their credit evaluation. One customer comprised
approximately 11% of the Company's accounts receivable balance at December 31,
1999.
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS PER COMMON SHARE
HISTORICAL
The Company computes net income (loss) available to common stockholders 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) available to common stockholders per common share
("Basic EPS") is computed by dividing net income (loss) available to common
stockholders 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) available to common
stockholders by the weighted average number of common shares and dilutive common
share equivalents then outstanding.
The Company has included the restricted shares of common stock discussed in
Note 8 from the date of issuance in both Basic and Diluted EPS because the
shares generally become freely tradable based solely upon the passage of time.
For both Basic and Diluted EPS, the Company has included the accretion of
preferred stock and related dividends on the preferred stock as a reduction from
net income (loss) to arrive at the net income (loss) available to common
stockholders.
Dilutive common share equivalents consist of stock options, preferred stock
and warrants. There were no common share equivalents outstanding for the year
ended December 31, 1997. Common share equivalents were excluded from the
calculation of diluted net loss per share for the years ended December 31, 1998
and 1999 since their inclusion would be antidilutive. At December 31, 1998 there
were options to purchase 377,000 shares of common stock, warrants to purchase
315,790 shares of common stock, and 6,116,959 shares of preferred stock
convertible into 6,116,959 shares of common stock. At December 31, 1999, there
were options to purchase 1,209,081 shares of common stock, warrants to purchase
130,838 shares of common stock, and 13,495,787 shares of preferred stock
convertible into 13,495,787 shares of common
F-18
<PAGE> 106
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock. All of these dilutive common share equivalents have been excluded from
the calculation of diluted earnings per share during the years ended December
31, 1998 and 1999.
PRO FORMA -- ADJUSTED FOR THE CONVERSION OF PREFERRED STOCK ONLY
(UNAUDITED)
Pro forma net loss per common share is calculated assuming conversion of
all mandatorily redeemable convertible preferred stock (the "Preferred Stock"),
which converts automatically upon the completion of the initial public offering
(see Note 9). The pro forma per common share data assumes that such conversion
occurred on the later of January 1, 1999 or the date of issue. The shares
previously held in treasury have been considered as outstanding common stock in
the calculation of pro forma earnings per share. The pro forma per common share
data does not reflect the acquisition of Bidder's Edge described in Note 14 or
any adjustments related thereto. As a result, the pro forma per common share
data reflects only the assumed conversion of the Preferred Stock.
The following is a reconciliation of historical Basic and Diluted net
income (loss) available to common stockholders and the related weighted average
shares used in the Basic and Diluted EPS calculation to the corresponding pro
forma amounts:
<TABLE>
<S> <C>
Net loss available to common stockholders -- historical... $(65,368,986)
Accretion on preferred stock.............................. 53,163,530
------------
Pro forma net loss available to common stockholders....... $(12,205,456)
============
Weighted average number of common shares outstanding --
historical.............................................. 5,225,328
Weighted average impact of assumed conversion of preferred
stock................................................... 11,625,790
------------
Pro forma weighted average basic and diluted shares
outstanding............................................. 16,851,118
============
Pro forma net loss per common share -- basic and
diluted................................................. $ (0.72)
============
</TABLE>
The above calculation of pro forma net loss per common share -- basic and
diluted does not include 457,383 equivalent shares 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, 1997
and 1998. The only item of other comprehensive income during the year ended
December 31, 1999 is a foreign currency translation adjustment. Comprehensive
loss for 1999 was $65,370,375.
SEGMENT DISCLOSURES
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"). SFAS No. 131 requires
companies to report information about
F-19
<PAGE> 107
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the Company
does not have any separately reportable operating segments as of December 31,
1998 or December 31, 1999.
The Company established an international sales office in the United Kingdom
during 1999. The following aggregates the Company's international operations:
<TABLE>
<CAPTION>
UNITED STATES UNITED KINGDOM TOTAL
------------- -------------- -----
<S> <C> <C> <C>
Revenues from external customers....... $ 6,901,030 $976,609 $ 7,877,639
Net loss............................... $11,979,013 $226,443 $12,205,456
Total Assets........................... $14,258,891 $668,658 $14,947,549
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
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, as amended by SFAS No. 137, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. 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 $108,500 and $389,549 at December 31, 1998 and 1999, respectively.
Changes in the allowance for doubtful accounts consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Allowance for doubtful accounts at beginning of
period........................................ $ -- $ 3,500 $ 108,500
Additions charged to costs and expenses......... 5,099 164,092 577,626
Deductions...................................... (1,599) (59,092) (296,577)
------- -------- ---------
Allowance for doubtful accounts at end of
period........................................ $ 3,500 $108,500 $ 389,549
======= ======== =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Computer equipment......................................... $377,354 $1,122,825
Office furniture and equipment............................. 87,944 308,198
Leasehold improvements..................................... 37,244 91,414
-------- ----------
502,542 1,522,437
Less accumulated depreciation and amortization............. (84,819) (458,147)
-------- ----------
$417,723 $1,064,290
======== ==========
</TABLE>
F-20
<PAGE> 108
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended December 31, 1999, the Company sold equipment under
capital lease for $35,000. As a result of the sale the Company terminated its
capital lease agreements and recognized a loss on the sale of the related fixed
assets of $23,413.
5. ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Marketing.................................................. $116,264 $1,387,215
Accrued compensation....................................... 154,694 835,368
Professional services...................................... 96,532 294,065
New facility costs......................................... -- 321,462
Taxes...................................................... -- 62,117
Other...................................................... 41,349 133,800
-------- ----------
$408,839 $3,034,027
======== ==========
</TABLE>
6. INCOME TAXES
There is no current income tax provision or benefit for the years ended
December 31, 1998 or 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 because prior
to 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 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Domestic net operating loss carryforwards.............. $ 709,084 $ 4,792,270
Accounts receivable.................................... 42,261 151,729
Research and development credit........................ 37,783 110,656
Deferred revenue....................................... 49,077 193,999
Compensation related items............................. 21,119 67,859
Fixed and intangible assets............................ -- 19,734
Other.................................................. 839 135,111
--------- -----------
Gross deferred tax assets........................... 860,163 5,471,358
Less: Valuation allowance........................... (859,698) (5,471,358)
--------- -----------
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 and 1999, the Company has provided a full valuation allowance
against its net deferred tax assets since realization of these benefits could
not be reasonably assured.
F-21
<PAGE> 109
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management re-evaluates the positive and negative evidence periodically. 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, 1999, the Company had Federal and state net operating
loss carryforwards of approximately $13,071,000. 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 years ended December 31,
1998 and 1999 as follows:
<TABLE>
<CAPTION>
1998 1999
------------------- ---------------------
% OF % OF
PRETAX PRETAX
AMOUNT LOSS AMOUNT LOSS
------ ------ ------ ------
<S> <C> <C> <C> <C>
United States Federal tax at statutory
rate................................. $(753,344) (34)% $(4,149,855) (34)%
State taxes (net of federal benefit)... (62,301) (5)% (357,931) (3)%
Research and development credit........ (37,783) (2)% (72,873) (1)%
Other, net............................. (6,270) (0)% (31,001) (0)%
Change in valuation allowance.......... 859,698 41% 4,611,660 38%
--------- --- ----------- ---
Provision for income taxes............. $ -- 0% $ -- 0%
========= === =========== ===
</TABLE>
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
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 reserves 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 July 1999, the Company entered into an Amended and Restated Executive
Employment Agreement. This Agreement superceded the Company's agreement dated
August 1998, pursuant to which the company sold 433,333 restricted shares of the
Company's common stock at a price of $0.15 per share to an employee of the
Company. These shares are subject to an Amended
F-22
<PAGE> 110
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Restated Restricted Stock Agreement dated as of July 8, 1999. This agreement
also cancelled a note payable to the Company in the amount of $65,000 dated
August 1998, which note was then reissued and reexecuted as of October 1998. If
the employee is terminated for "cause" as defined in his employment agreement,
the Company has the option to repurchase the shares at the original purchase
price. If the employee is terminated "without cause," as defined in his
employment agreement, the employee has 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.
In October 1998, the Company entered into an agreement with another
employee, whereby the employee was issued 60,000 restricted shares of common
stock at a price of $0.23 per share in exchange for a note payable to the
Company of $13,500. If the employee is terminated for "cause," as defined in the
employment agreement, the Company has the option to repurchase the shares at the
original purchase price. If the employee is terminated for "good reason," as
defined in the employment agreement, 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 employee is
terminated "without cause," as defined in the employment agreement, the employee
has 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.
9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1998, the Company sold 2,783,626 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
3,333,333 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 7,166,667 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
833,333 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.
In conjunction with the sale of the Series C preferred stock, the Company
repurchased, in March 1999, 1,242,343 shares of common stock at a purchase price
of $2.25 per share, 621,172 shares of Series A preferred stock at a purchase
price of $2.25 per share, and 37,583 warrants at a price of $2.25 per warrant,
less the exercise price of the warrants, for an aggregate purchase price of
$4,265,635.
As of December 31, 1998 and 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 $4,000,000. As of December 31, 1999,
the Series C preferred stock had an aggregate liquidation preference of
$48,000,000. As of December 31, 1999, there are 2,162,454 shares of Series A
preferred stock outstanding; 3,333,333 shares of Series B preferred stock
outstanding; and 8,000,000 shares of Series C preferred stock outstanding.
F-23
<PAGE> 111
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 in
accordance with Company's bylaws, as amended. No dividends may be paid to any of
the holders of shares of common stock or any of the individual series or holders
of the Company's 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
$6.00 per share. 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 $0.2156 and $1.20 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, the 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 as 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
F-24
<PAGE> 112
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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, Series B and Series C 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
$53,163,530 for the year ended December 31, 1999 to reflect the Series A, Series
B and Series C 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 1,333,333 stock options. In May 1999, the
Company increased the number of options authorized under the Plan to 2,333,333.
Stock options granted under the Plan have exercise periods not to exceed ten
years. Options granted under the Plan during the years ended December 31, 1998
and 1999 vest over a period of four years.
The Company applies 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 available to common stockholders
for the years ended December 31, 1998 and 1999 would have increased from
$2,360,717 to $2,375,472 and from $12,205,456 to $12,576,002, respectively. The
Company's basic and diluted net loss per common share for the year ended
December 31, 1998 would be the same as reported under APB No. 25. The net loss
per share for 1999 would increase from $12.51 per share to $12.59 per share.
The fair value of each option is estimated on the grant date using the
minimum value method with the following weighted average assumptions used for
grants during the year ended December 31, 1998: risk free interest rate of 5.5%,
expected option term of four years, and a dividend yield of 0%. Assumptions used
for grants during 1999 were as follows: risk free interest rate of 5.8%,
expected option term of four years, and a dividend yield of 0%.
A summary of the status of the Plan as of December 31, 1998 and December
31, 1999 and changes during the years ended December 31, 1998 and 1999 is
presented below:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Outstanding at December 31, 1997............................ -- $ --
Granted..................................................... 377,000 0.18
---------
Outstanding at December 31, 1998............................ 377,000 0.18
---------
Granted at fair value....................................... 815,333 7.02
Granted at less than fair value............................. 117,666 0.57
Exercised................................................... (28,499) 0.12
Forfeited................................................... (72,419) 2.13
---------
Outstanding at December 31, 1999............................ 1,209,081
=========
</TABLE>
F-25
<PAGE> 113
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company did not grant any stock options prior to the year ended
December 31, 1998.
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 year ended
December 31, 1999, the Company recognized $118,450 in deferred compensation
related to options granted at exercise prices less than fair value. The weighted
average fair value of options granted at exercise prices equal to fair value
during the years ended December 31, 1998 and 1999 was $0.05 and $1.79 per share,
respectively. The weighted average fair value of options granted at exercise
prices less than fair value during the year ended December 31, 1999 was $0.15
per share. The following table summarizes information about the Company's stock
options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
AT DECEMBER 31, 1999
-------------------------------
WEIGHTED AVERAGE
REMAINING OPTIONS EXERCISABLE
NUMBER CONTRACTUAL AT DECEMBER 31,
EXERCISE PRICE OUTSTANDING LIFE(YEARS) 1999
- -------------- ----------- ---------------- -------------------
<S> <C> <C> <C>
$0.12.............................. 114,555 8.5 73,871
$0.23.............................. 240,541 9.0 75,135
$0.53.............................. 18,000 9.1 --
$1.05.............................. 41,000 9.2 590
$3.38.............................. 112,708 9.3 375
$7.50.............................. 463,277 9.4 2,277
$7.86.............................. 219,000 9.7 --
--------- -------
1,209,081 152,248
========= =======
</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 168,421 shares of common stock at an exercise price of $0.32 per
share (weighted-average fair value on date of grant of $0.08 per warrant). A
warrant representing a total of 37,583 shares of common stock was repurchased
from the holder in connection with the Series C financing in March 1999, as
described in Note 9. The outstanding warrants expire on December 31, 2002. The
Company also issued warrants to this director to purchase 147,369 shares of
common stock at an exercise price of $0.06 (weighted-average fair value on date
of grant of $0.02 per warrant). The $0.06 warrants were subsequently exercised
in April 1999. 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 years ended December 31, 1998 and 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 director's 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-26
<PAGE> 114
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
The Company has several non-cancelable operating leases, primarily for
office space and office equipment, that extend through August 2006. Rental
expense, including maintenance charges, for operating leases during 1998 and
1999 was $72,295 and $298,998, respectively.
The future minimum lease payments under the non-cancelable lease agreements
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000.................................................... $ 575,122
2001.................................................... 560,407
2002.................................................... 533,809
2003.................................................... 525,095
2004.................................................... 469,369
Thereafter.............................................. 725,958
----------
Total future minimum lease payments..................... $3,389,760
==========
</TABLE>
In March 1999, the Company entered into an agreement with Protege Software
Limited ("Protege"), whereby Protege manages the Company's European subsidiary,
OpenSite Europe Ltd., and provides 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 pays 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.
During December 1999, the Company entered into a Strategic Marketing
Agreement with a global media company that provides consumers with high speed,
high bandwidth Internet connectivity and content and interactive services
available on multiple bandwidth platforms. The Company will generate certain
software license and services revenue as a result of this agreement. In
connection with this agreement the Company has committed to purchase advertising
and other services from this global media company of at least $4 million through
March 31, 2001 and an additional $5 million for the twelve month period ending
March 31, 2002. If the Company generates more than $5 million in cumulative
revenue from this agreement through March 31, 2002 and under certain other
circumstances as defined, then the Company is obligated to purchase an
additional $6 million of advertising and other services from the global media
company during the 12 month period ending March 31, 2003.
The Company is exposed to a number of asserted and unasserted claims
encountered in the normal course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
12. RELATED PARTY TRANSACTION
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
F-27
<PAGE> 115
OPENSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
promissory note is collateralized by 98,261 shares of the Company's restricted
stock owned by the officer.
13. BENEFIT PLAN
The Company provides a 401(k) Retirement Savings Plan to its U.S.
employees. The Company matches 100% of an employee's contributions up to 3% of
pay, and the contributions vest immediately. Company matching contributions were
$90,698 for the year ended December 31, 1999. No such contributions were made
prior to 1999.
14. SUBSEQUENT EVENTS (UNAUDITED)
On February 7, 2000, the Company entered into a letter of intent to merge
with Bidder's Edge, Inc. The letter of intent provides for the issuance of
5,960,871 shares of common stock and common stock equivalents to acquire all of
the capital stock of Bidder's Edge. The Company intends to account for this
transaction as a pooling-of-interests.
F-28
<PAGE> 116
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Bidder's Edge, 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 Bidder's Edge, Inc.
(a development stage enterprise) at December 31, 1998 and 1999, and the results
of its operations and its cash flows for the years then ended and for the period
from April 7, 1997 (date of inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 7, 2000
F-29
<PAGE> 117
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,126,318 $ 4,802,054
Investments, held-to-maturity............................. -- 1,963,213
Prepaid expenses and other assets......................... 25,512 45,060
---------- -----------
Total current assets.............................. 1,151,830 6,810,327
Property and equipment, net................................. 59,738 297,520
Investments, held-to-maturity............................... -- 700,889
---------- -----------
Total assets...................................... $1,211,568 $ 7,808,736
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 14,184 $ 459,949
Accrued expenses.......................................... 45,982 208,913
---------- -----------
Total current liabilities......................... 60,166 668,862
---------- -----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A convertible preferred stock, $.01 par value,
473,395 shares authorized; 473,395 shares issued and
outstanding at December 31, 1998 and 1999; liquidation
preference of $1,785,646 at December 31, 1998 and
1999................................................... 4,734 4,734
Series B convertible preferred stock, $.01 par value,
679,332 shares authorized; none issued and outstanding
at December 31, 1998 and 679,332 shares issued and
outstanding as of December 31, 1999; liquidation
preference of $0 and $9,001,149 at December 31, 1998
and 1999, respectively................................. -- 6,793
Common stock, $.01 par value, 3,402,727 shares authorized;
1,500,000 shares issued and outstanding at December 31,
1998 and 1999.......................................... 15,000 15,000
Additional paid-in capital................................ 1,588,635 10,723,353
Deferred compensation..................................... -- (152,144)
Deficit accumulated during the development stage.......... (456,967) (3,457,862)
---------- -----------
Total stockholders' equity........................ 1,151,402 7,139,874
---------- -----------
Total liabilities and stockholders' equity........ $1,211,568 $ 7,808,736
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 118
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 7, 1997
DECEMBER 31, (DATE OF INCEPTION)
------------------------ TO DECEMBER 31,
1998 1999 1999
--------- ----------- -------------------
<S> <C> <C> <C>
Operating expense:
Sales and marketing......................... $ 44,849 $ 959,637 $ 1,004,486
Product development......................... 284,752 1,395,042 1,705,038
General and administrative.................. 258,660 805,776 1,088,715
--------- ----------- -----------
Total operating expense and
operating loss.................... (588,261) (3,160,455) (3,798,239)
--------- ----------- -----------
Interest income (expense):
Interest income............................. 17,379 159,560 176,939
Interest expense............................ (37,924) -- (37,924)
--------- ----------- -----------
Interest income (expense), net........... (20,545) 159,560 139,015
--------- ----------- -----------
Net loss............................ $(608,806) $(3,000,895) $(3,659,224)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 119
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
PREFERRED STOCK ADDITIONAL DURING THE STOCKHOLDERS'
------------------- COMMON PAID-IN DEFERRED DEVELOPMENT EQUITY
SERIES A SERIES B STOCK CAPITAL COMPENSATION STAGE (DEFICIT)
-------- -------- ------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 1,000,000 shares of
common stock................. $ -- $ -- $10,000 $ -- $ -- $ -- $ 10,000
Net loss....................... -- -- -- -- -- (49,523) (49,523)
------ ------ ------- ----------- --------- ----------- -----------
Balance at December 31, 1997... -- -- 10,000 -- -- (49,523) (39,523)
Issuance of 500,000 shares of
common stock................. -- -- 5,000 45,000 -- -- 50,000
Value of preferential
conversion feature on notes
payable...................... -- -- -- 30,000 -- -- 30,000
Change from S-Corporation to
C-Corporation................ -- -- -- (201,362) -- 201,362 --
Issuance of 397,667 shares of
Series A preferred stock, net
of issuance costs of
$33,193...................... 3,977 -- -- 1,462,830 -- -- 1,466,807
Conversion of $245,000 of
convertible notes and related
accrued interest of $7,924
into 75,728 shares of Series
A preferred stock............ 757 -- -- 252,167 -- -- 252,924
Net loss....................... -- -- -- -- -- (608,806) (608,806)
------ ------ ------- ----------- --------- ----------- -----------
Balance at December 31, 1998... 4,734 -- 15,000 1,588,635 -- (456,967) 1,151,402
Issuance of 679,332 shares of
Series B preferred stock, net
of issuance costs of
$50,134...................... -- 6,793 -- 8,944,222 -- -- 8,951,015
Deferred compensation.......... -- -- -- 190,496 (190,496) -- --
Amortization of deferred
compensation................. -- -- -- -- 38,352 -- 38,352
Net loss....................... -- -- -- -- -- (3,000,895) (3,000,895)
------ ------ ------- ----------- --------- ----------- -----------
Balance at December 31, 1999... $4,734 $6,793 $15,000 $10,723,353 $(152,144) $(3,457,862) $ 7,139,874
====== ====== ======= =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 120
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 7, 1997
DECEMBER 31, (DATE OF INCEPTION)
------------------------ TO DECEMBER 31,
1998 1999 1999
---------- ----------- ----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (608,806) $(3,000,895) $(3,659,224)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense....................... 5,224 61,127 66,351
Stock-based compensation expense........... 50,000 38,352 88,352
Interest expense related to preferential
conversion feature on notes payable...... 30,000 -- 30,000
Changes in operating assets and
liabilities:
Increase in prepaid expenses and other
assets................................ (25,512) (19,548) (45,060)
Increase in accounts payable............. 14,184 445,765 459,949
Increase in accrued expenses............. 47,461 162,931 216,837
---------- ----------- -----------
Net cash used in operating activities...... (487,449) (2,312,268) (2,842,795)
---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........... (61,598) (298,909) (363,871)
Purchases of investments...................... -- (2,664,102) (2,664,102)
---------- ----------- -----------
Net cash used in investing activities...... (61,598) (2,963,011) (3,027,973)
---------- ----------- -----------
Cash flows from financing activities:
Repayment of related party notes payable...... (48,000) -- (48,000)
Proceeds from issuance of related party notes
payable and convertible notes payable...... 238,000 -- 293,000
Proceeds from issuance of convertible
preferred stock, net of issuance costs..... 1,466,807 8,951,015 10,417,822
Proceeds from issuance of common stock........ -- -- 10,000
---------- ----------- -----------
Net cash provided by financing
activities............................... 1,656,807 8,951,015 10,672,822
---------- ----------- -----------
Net increase in cash and cash
equivalents.............................. 1,107,760 3,675,736 4,802,054
Cash and cash equivalents at beginning of
period........................................ 18,558 1,126,318 --
---------- ----------- -----------
Cash and cash equivalents at end of period...... $1,126,318 $ 4,802,054 $ 4,802,054
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 121
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND PRESENTATION
Bidder's Edge, Inc. (the "Company") was incorporated on April 7, 1997 to
develop and market a Web site that aggregates auction sites on the world wide
web. By aggregating the content of numerous auction sites, the Company provides
a bidder with one site to search and bid for the desired product, while
providing the auction site with additional views of their site. As of December
31, 1999, the Company aggregated over 150 auction sites on the Internet through
its Internet auction Web site, BiddersEdge.com. In addition, the Company has
developed co-branded Web sites with a corporate partner using the Company's
technology.
Since inception, the Company has devoted substantially all of its efforts
to research and development of its technology, business and financial planning,
raising capital and recruiting new employees. No revenues have been derived from
operations. Accordingly, the Company is considered a development stage
enterprise, as defined by Statement of Financial Accounting Standards ("SFAS")
No. 7, and the accompanying financial statements represent those of a
development stage enterprise.
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations, include, but are
not limited to, rapid technology change, uncertainty of market acceptance of the
Company's services, competition from substitute products and larger companies,
protection of proprietary technology, strategic relationships and dependence on
key individuals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
During the year ended December 31, 1998, the holders of $245,000 in the
Company's notes payable converted the notes and related accrued interest of
$7,924 into 75,728 shares of the Company's Series A preferred stock, which was a
non-cash financing activity.
INVESTMENTS
The Company's investments include primarily investments in marketable debt
securities, which are recorded at cost, net of amortization of premiums and
discounts. All premiums or discounts are amortized over the remaining term of
the related security using the straight-line method, which does not differ
significantly from the level-yield method. The Company's investments are
accounted for in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company's investments are
accounted for as held-to-maturity securities as of December 31, 1999. The
Company had no investments as of December 31, 1998. The classification of
investments is determined on the date of acquisition.
F-34
<PAGE> 122
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company reviews its investment portfolio as deemed necessary and, where
appropriate, adjusts investments for other-than-temporary impairments.
As of December 31, 1999, the carrying value of the Company's
held-to-maturity securities approximated their fair value. All short-term
investments have contractual maturities of less than three months from December
31, 1999, and all long-term investments have contractual maturities of less than
eighteen months from December 31, 1999.
FINANCIAL INSTRUMENTS
The Company's financial instruments, which are comprised of cash in demand
deposit accounts, investments in commercial paper, investments in corporate debt
securities and accounts payable, are carried at amortized cost, which
approximates their fair value at December 31, 1998 and 1999. Fair values are
based on quoted market prices and assumptions covering the amount and timing of
estimated future cash flows at assumed discount rates, reflecting varying
degrees of perceived risk. These financial instruments potentially expose the
Company to concentrations of credit risk. This risk is limited due to
investments being made in corporate debt of several companies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the assets. No property and equipment was retired or disposed of
in any period presented.
Depreciation periods for property and equipment are as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... 2-3 years
Office furniture and equipment.............................. 5 years
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the net realizable value of its property and
equipment and other assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of," relying on a number of
factors including operating results, business plans, economic projections and
anticipated future cash flows. 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 recognized
during the years ended December 31, 1998 or 1999.
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.
F-35
<PAGE> 123
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prior to September 17, 1998, the Company had elected subchapter S status
for federal income tax purposes and, accordingly, no income tax benefit is
presented for periods prior to September 17, 1998 as losses were attributable
personally to the stockholders.
SALES AND MARKETING EXPENSES
Sales and marketing expenses include salaries and costs of the Company's
advertising and certain other indirect costs.
ADVERTISING COSTS
All costs of advertising the services offered by the Company are expensed
as incurred and included in sales and marketing expenses. Advertising expense
totaled approximately $420,000 for the year ended December 31, 1999. The Company
did not incur any advertising expense during the year ended December 31, 1998.
PRODUCT DEVELOPMENT COSTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("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. The
Company adopted SOP No. 98-1 effective January 1, 1999 for costs associated with
development of its Web site. The adoption of SOP No. 98-1 did not have a
material impact on the Company's financial position or results of operations, as
costs related to modifying and updating the Company's Web site were
insignificant during the year ended December 31, 1999. Product development
expenditures are charged to operations as incurred.
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 in fixed amounts and
with fixed exercise prices 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. When the exercise price of stock options granted to employees is
less than the fair market value of common stock at the date of grant, the
Company records that difference multiplied by the number of shares under option
as deferred compensation, which is then amortized over the vesting period of the
options. The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," 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.
COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. SFAS No. 130 requires the Company to display an
amount representing comprehensive income (loss) for the year in a financial
statement that 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 1999.
F-36
<PAGE> 124
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT DISCLOSURES
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 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. Management has determined that
the Company has only one operating segment as of December 31, 1998 and 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". 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, as amended by SFAS No. 137, is effective for
financial statements for all fiscal quarters of fiscal years beginning after
June 15, 2000. 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. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Computer equipment.................................... $58,297 $311,607
Office furniture and equipment........................ 6,665 52,264
------- --------
64,962 363,871
Less accumulated depreciation......................... (5,224) (66,351)
------- --------
$59,738 $297,520
======= ========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Professional services................................. $17,500 $126,768
Accrued compensation.................................. 22,864 55,441
Marketing............................................. -- 26,479
Other................................................. 5,618 225
------- --------
$45,982 $208,913
======= ========
</TABLE>
F-37
<PAGE> 125
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 139,221 $ 1,099,607
Research and development credits............... -- 103,343
Cash basis method of accounting................ 13,955 251,205
Property and equipment......................... 1,809 --
--------- -----------
Gross deferred tax assets................... 154,985 1,454,155
Less: valuation allowance................... (154,985) (1,449,292)
--------- -----------
Net deferred tax assets..................... -- 4,863
--------- -----------
Deferred tax liabilities:
Property and equipment......................... -- 4,863
--------- -----------
Total deferred tax liabilities......... -- 4,863
--------- -----------
Net deferred tax asset...................... $ -- $ --
========= ===========
</TABLE>
For 1998 and 1999, the Company has provided a full valuation allowance
against its net deferred tax assets since realization of these benefits could
not be reasonably assured. Management evaluates the positive and negative
evidence periodically. There were no deferred tax assets or liabilities for the
periods prior to September 17, 1998 because the Company had elected subchapter S
status prior to that date.
As of December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $2,730,000. The net operating loss
carryforwards expire in various amounts starting in 2018 and 2003 for federal
and state tax purposes, respectively. As of December 31, 1999, the Company had
federal and state research and development tax credits of approximately $75,000
and $28,000, respectively, which expire in 2019 and 2014, respectively. The
utilization of the federal net operating loss carryforwards and research and
development tax credits 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.
6. CONVERTIBLE NOTES PAYABLE
During 1998, the Company issued seven convertible notes payable totaling
$195,000 bearing interest at 8% and due one year from the date of issue. During
1997, the Company had also issued two convertible notes payable totaling $50,000
bearing interest at 8% and due one year from the date of issue (collectively
with the convertible notes payable issued in 1998, the "Convertible Notes
Payable"). The Convertible Notes Payable provided that upon the issuance of a
Qualified Financing, as defined, the Convertible Notes Payable would
automatically convert into the equity instruments issued in the Qualified
Financing using a conversion rate equal to or 20% less than the price per share
obtained in the Qualified Financing. In connection with the
F-38
<PAGE> 126
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's issuance of Series A Preferred Stock in September 1998 as described in
Note 8, the holders of the Convertible Notes Payable converted the $245,000 of
Convertible Notes Payable and related accrued interest of $7,924 into 75,728
shares of the Company's Series A preferred stock. The Company recognized a
non-cash charge of $30,000 during the year ended December 31, 1998 related to
the beneficial conversion feature of certain of the Convertible Notes Payable.
7. CAPITAL STOCK
During the year ended December 31, 1999, the Company's Certificate of
Incorporation was amended and restated to authorize 3,402,727 shares of common
stock with a par value of $0.01 and 1,152,727 shares of preferred stock with a
par value of $0.01, of which 473,395 were designated as Series A preferred stock
and 679,332 were designated as Series B preferred stock. At all times, the
Company reserves 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 options to purchase the
Company's common stock.
In April 1997, the Company issued 1,000,000 restricted shares of the
Company's common stock at a price of $0.01 per share, the par value of the
common stock, to the two founders of the Company. Under the terms of the
issuance, the founders vested in 333,280 of the shares immediately and monthly
thereafter for two years. In May 1998, the Company removed the restriction from
these shares and immediately vested the remaining unvested shares. In May 1998,
the Company also issued 500,000 shares of the Company's common stock to the new
chief executive officer, and as a result, recognized a compensation charge of
$50,000 and a corresponding increase to additional paid-in capital.
8. CONVERTIBLE PREFERRED STOCK
In September 1998, the Company sold 397,667 shares of Series A preferred
stock in a private placement transaction in exchange for proceeds of $1,500,000,
or $3.772 per share, with related costs of issuance of $33,193. In July 1999,
the Company sold 679,332 shares of Series B preferred stock in a private
placement transaction in exchange for proceeds of $9,001,149, or $13.25 per
share, with related costs of issuance of $50,134.
DIVIDENDS
The holders of the Series A and Series B 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 in accordance with
Company's Certificate of Incorporation, as amended. No cash dividends may be
paid to any of the holders of shares of common stock unless a dividend has been
declared and paid to holders of the Series A and Series B preferred stock in an
amount equivalent to the dividend that would be declared payable based on the
number of common shares into which the preferred stock is convertible.
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A and Series B preferred stock are entitled to receive an
amount equal to the higher of: (i) the original issue price per share, subject
to certain adjustments as defined, plus accrued but unpaid dividends or (ii) the
amount that the Series A and Series B holders would have received if they had
converted their shares to common stock immediately prior to such liquidation,
F-39
<PAGE> 127
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dissolution or winding up of the Company. The holders of Series A and Series B
preferred stock rank equally on liquidation. 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 liquidation payments have been made in
full to the holders of Series A and Series B preferred stock, the remaining
assets of the Company will be distributed to the holders of common stock.
CONVERSION
Each share of Series A and Series B 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 of the
Series A and Series B preferred stock is automatic upon the closing of a firm
commitment for an underwritten public offering with net proceeds to the Company
of at least $15,000,000 and at a price greater than $18 per share. Conversion of
the Series A and Series B preferred stock is also automatic upon the election of
holders of at least 70% of the total number of the preferred shares to convert
their preferred shares into common shares.
VOTING
Holders of the Series A and Series B preferred shares have voting rights on
an as if converted basis. In addition, the approval of the holders of a majority
of the shares of the Series A and Series B preferred stock is required for
certain matters that affect the rights of the Series A and Series B preferred
stock.
9. STOCK OPTIONS
In 1997, the Company adopted a stock option plan (the "Plan") which
provided for the grant of up to 220,000 stock options. In August 1999, the
Company increased the number of options authorized under the Plan to 450,000.
Stock options granted under the Plan have exercise periods not to exceed ten
years. Options granted under the Plan during the years ended December 31, 1998
and 1999 vest over periods of three to four years.
The Company applies 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 years ended December 31,
1998 and 1999 would have increased from $608,806 to $609,942 and from $3,000,895
to $3,019,582, respectively.
The fair value of each option is estimated on the grant date using the
minimum value method with the following weighted average assumptions used for
grants during the year ended December 31, 1998: risk free interest rate of 5.5%,
expected option term of four years, and a dividend yield of 0%. Assumptions used
for grants during 1999 were as follows: risk free interest rate of 5.8%,
expected option term of four years, and a dividend yield of 0%.
F-40
<PAGE> 128
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Plan as of December 31, 1997, 1998 and 1999
and changes during the years ended December 31, 1998 and 1999 and the period
from April 7, 1997 (date of inception) to December 31, 1997 is presented below:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICE
---------- --------
<S> <C> <C>
Granted................................................ 41,000 $0.10
Outstanding at December 31, 1997....................... 41,000 0.10
Granted................................................ 32,600 0.23
Forfeited.............................................. (21,000) 0.10
-------
Outstanding at December 31, 1998....................... 52,600 0.18
Granted................................................ 39,200 1.09
Forfeited.............................................. (4,000) 0.25
-------
Outstanding at December 31, 1999....................... 87,800 0.58
=======
</TABLE>
During May 1998, the Company granted an option to purchase 5,000 shares of
common stock at an exercise price of $.10 per share to a non-employee for
consulting services. This option vested one-third at the one-year anniversary of
the grant and ratably thereafter on a quarterly basis for the next two years. A
total of 2,500 of these options were vested at December 31, 1999. In addition,
as of December 31, 1999 the Company had granted 62,800 options at exercise
prices less than fair value. The average exercise price of these options was
$1.09. Accordingly, the Company has recorded a deferred compensation charge of
$190,496 ($47,956 in connection with the variable award to the non-employee for
consulting services and $142,540 in connection with the options granted to
employees at less than fair value) at December 31, 1999, of which $38,352 was
amortized to expense during the year ended December 31, 1999.
The weighted average fair value of options granted during the years ended
December 31, 1998 and 1999 was $0.63 and $3.87 per share, respectively.
The Company had 167,400 and 362,200 shares available for future grant at
December 31, 1998 and 1999, respectively. The following table summarizes
information about the Company's stock options as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
AT DECEMBER 31, 1999
-------------------------------
WEIGHTED AVERAGE
REMAINING OPTIONS EXERCISABLE
NUMBER CONTRACTUAL AT DECEMBER 31,
EXERCISE PRICE OUTSTANDING LIFE (YEARS) 1999
- -------------- ----------- ---------------- -------------------
<S> <C> <C> <C>
$0.10.............................. 25,000 8.0 16,112
$0.25.............................. 36,600 8.9 10,694
$1.50.............................. 26,200 9.8 --
------ ------
87,800 26,806
====== ======
</TABLE>
There were 6,667 options exercisable at December 31, 1998.
F-41
<PAGE> 129
BIDDER'S EDGE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company has several non-cancelable operating leases, primarily for
office space and office equipment, that extend through March 2002. While the
Company has no plans to terminate its office space lease, the Company may
terminate the lease for a termination fee of $58,710. Rental expense, including
maintenance charges, for operating leases during 1998 and 1999 was $6,925 and
$68,473, respectively.
The future minimum lease payments under the non-cancelable lease agreements
as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $192,500
2001...................................................... 267,500
2002...................................................... 29,500
--------
Total future minimum lease payments......................... $489,500
========
</TABLE>
In 1999, eBay, Inc. ("eBay"), a person-to-person on-line auction community,
filed a lawsuit in federal court against the Company alleging that the Company
cannot include auction content from eBay's Web site without eBay's permission.
The Company believes this lawsuit is without merit and intends to vigorously
defend this matter. However, an adverse resolution of this litigation could have
a material adverse effect on the Company's financial position, results of
operations or liquidity. No costs have been accrued for this possible loss
contingency.
11. RELATED PARTY TRANSACTION
During 1998, the Company borrowed a total of $43,000 from two officers and
directors of the Company (the "Related Party Notes"), which were subsequently
repaid by the Company. In addition during 1998, the Company repaid a $5,000 note
from an officer of the Company issued in 1997. Each of these Related Party Notes
had terms of one year or less and bore no interest during the original term. Had
the notes remained outstanding after the maturity date, interest would have been
payable on the Related Party Notes at a rate of 10% until paid in full. The
Company did not pay any interest on the Related Party Notes.
12. RETIREMENT PLAN
In February 1999, the Company adopted the Bidder's Edge 401(k) Plan (the
"Plan"). All employees who are eighteen years of age may participate in the
Plan. At the Company's discretion, the Company can contribute to the Plan on
behalf of the Plan's participants. During the year ended December 31, 1999, the
Company did not make a contribution to the Plan.
13. SUBSEQUENT EVENTS
On February 7, 2000, the Company entered into a letter of intent to merge
with OpenSite Technologies, Inc. ("OpenSite").
F-42
<PAGE> 130
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Forward-Looking Statements............ 19
Use of Proceeds....................... 19
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 37
Management............................ 66
Related Party Transactions............ 73
Principal Stockholders................ 74
Description of Capital Stock.......... 76
Shares Eligible for Future Sale....... 80
Legal Matters......................... 81
Underwriting.......................... 82
Experts............................... 84
Change in Accountants................. 84
Where You Can Find More Information... 84
Index to Financial Statements......... F-1
</TABLE>
------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
5,000,000 Shares
OPENSITE TECHNOLOGIES, INC.
Common Stock
[OPENSITE LOGO]
GOLDMAN, SACHS & CO.
CHASE H&Q
THE ROBINSON-HUMPHREY COMPANY
WIT SOUNDVIEW
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 131
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 23,468
National Association of Securities Dealers, Inc. fee........ 5,000
Nasdaq National Market listing fee.......................... 90,000
Accountants' fees and expenses.............................. 300,000*
Legal fees and expenses..................................... 250,000*
Blue Sky fees and expenses.................................. 5,000*
Transfer Agent's fees and expenses.......................... 15,000*
Printing and engraving expenses............................. 200,000*
Miscellaneous............................................... 1,532*
---------
Total Expenses......................................... $ 890,000
=========
</TABLE>
- ---------------
* Estimated.
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 7 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.
II-1
<PAGE> 132
In January 1998, we sold an aggregate 2,783,626 shares of Series A
preferred stock to Auction Ventures, LLC for an aggregate offering price of
$600,000. This issuance of securities was deemed to be exempt from registration
under the Securities Act of 1933, as amended, in reliance on Section 4(2)
thereof.
In August 1998, we sold 433,333 shares of restricted common stock to Kip A.
Frey for an aggregate offering price of $65,000. This issuance of securities was
deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Rule 701 promulgated hereunder.
In August 1998, we issued warrants to purchase an aggregate 315,790 shares
of common stock to Bandrowski Enterprises LLC in exchange for services. This
issuance of securities was deemed to be exempt from registration under the
Securities Act of 1933, as amended, in reliance on Section 4(2) thereof.
In August and September 1998, we sold an aggregate 3,333,333 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. This issuance of securities was
deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) thereof.
In October 1998, we sold 60,000 shares of restricted common stock to James
R. Ford for an aggregate offering price of $13,500. This issuance of securities
was deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Rule 701 promulgated hereunder.
In March and April 1999, we sold an aggregate 8,000,000 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 Generale Capital Corporation, Southeast Interactive Technology
Fund II, LLC, and Wakefield Group II, LLC for an aggregate offering price of
$24,000,000. This issuance of securities was deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) thereof.
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.
II-2
<PAGE> 133
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1+ -- Form of Underwriting Agreement.
3.1* -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.3* -- Amended and Restated Bylaws of the Registrant.
4.1* -- See Exhibits 3.1 and 3.3 for provisions of the Amended and
Restated Certificate 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* -- Amended and Restated Executive Employment Agreement dated as
of July 8, 1999 by and between OpenSite and Kip A. Frey.
10.8* -- Amended and Restated Restricted Stock Agreement dated as of
July 8, 1999 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.
10.12* -- Form of Indemnity Agreement.
10.13* -- Form of OpenSite Business Partner Agreement.
10.14* -- Form of OpenSite Concierge Auction Hosting and Services
Agreement.
10.15* -- Form of License Agreement.
10.16* -- Office Space Lease commencement date July 1, 1999 by CMD
Properties, Inc. and OpenSite.
10.17+ -- Letter of Intent dated February 7, 2000 between OpenSite and
Bidder's Edge, Inc.
10.18+ -- Strategic Marketing Agreement dated as of December 23, 1999
between Excite@Home, Inc. and OpenSite.
10.19+ -- OpenSite Employee Stock Purchase Plan.
10.20+ -- OpenSite 2000 Stock Incentive Plan.
10.21+ -- Employment Letter Agreement dated June 14, 1999 by and
between OpenSite and Tim Oakley.
16.1* -- Letter from KPMG LLP, dated July 23, 1999.
21.1* -- List of Subsidiaries.
23.1+ -- Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-3
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
23.2+ -- Consent of PricewaterhouseCoopers LLP.
23.3+ -- 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>
- ---------------
+ Filed herewith.
* Previously filed.
** 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-4
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina on the 16th day of March, 2000.
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
--------- ----- ----
<C> <S> <C>
/s/ KIP A. FREY President, Chief Executive March 16, 2000
- --------------------------------------------------- Officer (Principal Executive
Kip A. Frey Officer) and Director
* Vice President and Chief March 16, 2000
- --------------------------------------------------- Financial Officer (Principal
Timothy K. Oakley Financial and Accounting
Officer)
* Director March 16, 2000
- ---------------------------------------------------
Justin Hall-Tipping
* Director March 16, 2000
- ---------------------------------------------------
Ross B. Kenzie
* Director March 16, 2000
- ---------------------------------------------------
Mitchell Mumma
* Director March 16, 2000
- ---------------------------------------------------
Michael Brader-Araje
* Director March 16, 2000
- ---------------------------------------------------
Alan J. Taetle
</TABLE>
II-5
<PAGE> 136
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1+ -- Form of Underwriting Agreement.
3.1* -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.3* -- Amended and Restated Bylaws of the Registrant.
4.1* -- See Exhibits 3.1 and 3.3 for provisions of the Amended and
Restated Certificate 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* -- Amended and Restated Executive Employment Agreement dated as
of July 8, 1999 by and between OpenSite and Kip A. Frey.
10.8* -- Amended and Restated Restricted Stock Agreement dated as of
July 8, 1999 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.
10.12* -- Form of Indemnity Agreement.
10.13* -- Form of OpenSite Business Partner Agreement.
10.14* -- Form of OpenSite Concierge Auction Hosting and Services
Agreement.
10.15* -- Form of License Agreement.
10.16* -- Office Space Lease commencement date July 1, 1999 by CMD
Properties, Inc. and OpenSite.
10.17+ -- Letter of Intent dated February 7, 2000 between OpenSite and
Bidder's Edge.
10.18+ -- Strategic Marketing Agreement dated as of December 23, 1999
between Excite@Home, Inc. and OpenSite.
10.19+ -- OpenSite Employee Stock Purchase Plan.
10.20+ -- OpenSite 2000 Stock Incentive Plan.
10.21+ -- Employment Letter Agreement dated June 14, 1999 by and
between OpenSite and Tim Oakley.
16.1* -- Letter from KPMG LLP, dated July 23, 1999.
21.1* -- List of Subsidiaries.
</TABLE>
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
23.1+ -- Consent of PricewaterhouseCoopers LLP.
23.2+ -- Consent of PricewaterhouseCoopers LLP.
23.3+ -- 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>
- ---------------
+ Filed herewith.
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
OPENSITE TECHNOLOGIES, INC.
COMMON STOCK
--------------------
UNDERWRITING AGREEMENT
____________ __, 2000
Goldman, Sachs & Co.,
Chase Securities Inc.,
The Robinson-Humphrey Company, LLC, and
Soundview Technology Group, Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
OpenSite Technologies, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of ........ shares (the "Firm Shares") and, at the election of the
Underwriters, up to ........ additional shares (the "Optional Shares") of
common stock ("Stock") of the Company (the Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-79629)
(the "Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which
became effective upon filing, no other document with respect to the Initial
Registration
<PAGE> 2
2
Statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration Statement, if
any, has been issued and no proceeding for that purpose has been initiated or,
to our knowledge, threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission under
the Act is hereinafter called a "Preliminary Prospectus"; the various parts of
the Initial Registration Statement and the Rule 462(b) Registration Statement,
if any, including all exhibits thereto and including the information contained
in the form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective, each as amended at the time
such part of the Initial Registration Statement became effective or such part
of the Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration Statement";
and such final prospectus, in the form first filed pursuant to Rule 424(b)
under the Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the Registration Statement
and any amendment thereto, and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there has not been any change in either the capital stock
or long-term debt of the Company or any of its subsidiaries in excess of $___
in any such case,
<PAGE> 3
3
or any material adverse change, or any development which could reasonably be
expected to result in a prospective material adverse change, in or affecting
the general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise than as
set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid
and non-assessable and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly
and validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other material agreement or material instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the
<PAGE> 4
4
property or assets of the Company or any of its subsidiaries is subject, nor
will such action result in any violation of the provisions of the Certificate
of Incorporation or By-laws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the issue
and sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act of the
Shares and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(j) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(k) The statements set forth in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale," insofar
as they purport to constitute a summary of the terms of the Stock, and under
the caption "Underwriting", insofar as they purport to describe the provisions
of the laws and documents referred to therein, are accurate, complete and fair
in all material respects;
(l) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company", as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");
(n) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(o) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries and of Bidder's Edge
Inc. are independent public accountants as required by the Act and the rules
and regulations of the Commission thereunder;
<PAGE> 5
5
(p) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries has been or
will be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem has had or will have a material adverse effect on the general affairs,
management, the current or future consolidated financial position, business
prospects, stockholders' equity or results of operations of the Company and its
subsidiaries or result in any material loss or interference with the Company's
business or operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000;
(q) None of the Company nor any of its subsidiaries, nor any of
their respective officers, directors or affiliates has taken or will take,
directly or indirectly, any action designed or intended to stabilize or
manipulate the price of any security of the Company, or which caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company;
(r) Each of the Company and its subsidiaries owns or possesses
the right to use all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as being owned
or used by it for the conduct of its business; and, except as set forth in the
Prospectus, neither the Company nor any of its subsidiaries is aware of any
claim to the contrary or any challenge by any other person to the rights of the
Company or any of its subsidiaries with respect to the foregoing; to the
Company's knowledge, neither the business of the Company nor the business of
any of its subsidiaries as now conducted and as proposed to be conducted (as
described in the Registration Statement) does or will infringe or conflict with
any patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses or other intellectual property or franchise right of any person; and,
except as described in the Prospectus, no claim has been made against the
Company or any of its subsidiaries alleging the infringement by the Company or
any of its subsidiaries of any patent, trademark, service mark, trade name,
copyright, trade secret, license, other intellectual property right or
franchise right of any person other than claims which, if successful, could not
be expected to have, singularly or in the aggregate, a material adverse effect
on the condition (financial or otherwise), results of operations, business or
prospects of the Company and its subsidiaries, taken as a whole, or prevent or
adversely affect in any material respect the ability of the Company to perform
its obligations under this Agreement (a "Material Adverse Effect");
(s) Each of the Company and its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in
<PAGE> 6
6
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences; and
(t) No person or entity has the right to require that shares of
Stock or other securities of the Company be registered as part of the
Registration Statement because of the filing or effectiveness of the
Registration Statement or otherwise, except for persons and entities who have
expressly waived such right or who have been given proper notice and have
failed to exercise such right within the time or times required under the terms
and conditions of such right.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $________________, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto and (b) in
the event and to the extent that the Underwriters shall exercise the election
to purchase Optional Shares as provided below, the Company agrees to issue and
sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I
hereto and the denominator of which is the maximum number of Optional Shares
that all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ___________________ Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to
the Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours'
prior notice to the Company shall be delivered by or on behalf of the Company
to Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf
of such
<PAGE> 7
7
Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs &
Co. at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
_____________, 2000 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(j) hereof, will be delivered at the offices
of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, all at such Time of Delivery. A meeting will be held at the Closing
Location at .......p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any
<PAGE> 8
8
order preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its best
efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any event shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent; provided, that the Company may
issue securities in connection with the acquisition of, or joint venture or
similar transaction with, another busiess or entity (including without
limitation the issuance of up to ____ shares of Stock to shareholders of
Bidder's Edge Inc. in connection with the Company's acquisition thereof);
provided further, that the terms of such
<PAGE> 9
9
acquisition shall prohibit the resale or other disposition, or registration
thereof, during the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus;
(f) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of
each fiscal year (beginning with the fiscal quarter ending after the effective
date of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver
to you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date
of this Agreement, and the Company shall at the time of filing either pay to
the Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
6. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants
in connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing
<PAGE> 10
10
documents (including any compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering
and sale under state securities laws as provided in Section 5(b) hereof,
including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
the cost of preparing stock certificates; the cost and charges of any transfer
agent or registrar; and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, and Sections 8 and 11 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the
Shares to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company herein are, at and as of such Time of Delivery, true
and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the Act
and in accordance with Section 5(a) hereof; if the Company has elected
to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have become effective by 10:00 P.M., Washington, D.C. time, on the
date of this Agreement; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Simpson Thacher & Bartlett, counsel for the
Underwriters, shall have furnished to you such written opinion, dated
such Time of Delivery, with respect to matters as you may reasonably
request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon
such matters;
(c) Morris, Manning & Martin, L.L.P. and Hutchison &
Mason, PLLC, counsels for the Company, shall have furnished to you
their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) Each of the Company and its subsidiaries
has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation and has all power and authority
necessary to own and hold its properties and to conduct its
business as described in the Prospectus, except where
<PAGE> 11
11
the failure to so qualify or have such power or authority
would not have, singularly or in the aggregate, a Material
Adverse Effect.
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and all of the
issued shares of Stock of the Company have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof
contained in the Prospectus. The Shares to be issued and sold
by the Company to the Underwriters hereunder have been duly
and validly authorized and, when issued and delivered against
payment therefor as provided herein, will be duly and validly
issued, fully paid and non-assessable and free of any
preemptive rights pursuant to the Company's Certificate of
Incorporation or Bylaws or the Delaware General Corporation
Law or, to our knowledge, similar contractual rights and will
conform in all material respects to the description thereof
contained in the Prospectus.
(iii) There are no preemptive rights pursuant to
the Company's Certificate of Incorporation or Bylaws or the
Delaware General Corporation Law or, to the knowledge of such
counsel, other similar contractual rights to subscribe for or
to purchase, or any restriction upon the voting or transfer
of, any shares of the Stock.
(iv) All the issued shares of capital stock of
each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and,
except to the extent set forth in the Prospectus, are owned
by the Company directly or indirectly through one or more
wholly-owned subsidiaries, free and clear of any claim, lien,
encumbrance, security interest, restriction upon voting or
any other claim of any third party.
(v) This Agreement has been duly authorized,
executed and delivered by the Company.
(vi) The execution, delivery and performance of
this Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument that is filed as an exhibit to the Registration
Statement, nor will such actions result in any violation of
the provisions of the charter or by-laws of the Company or of
any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets (except for statutes,
rules, orders or regulations the violation of which would
not, singularly or in the aggregate, have a Material Adverse
Effect); except for (i) the registration of the Shares under
the Securities Act and the Exchange Act and (ii) such
consents, approvals, authorizations, registrations or
qualifications as may be required under applicable state
securities laws in connection with the purchase and
<PAGE> 12
12
distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or
registration with, any such court or governmental agency or
body is required for the execution, delivery and performance
of this Agreement by the Company and the consummation of the
transactions contemplated hereby.
(vii) The statements made in the Prospectus under
the caption "Description of Capital Stock," insofar as they
purport to constitute summaries of the terms of the Stock
(including the Shares), constitute accurate summaries of the
terms of the Stock in all material respects.
(viii) The descriptions in the Prospectus under
the captions "Risk Factors--Shares Eligible for Future Sale
Could Adversely Affect Stock Price in the Future,"
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources;
Recent Accounting Pronouncements," "Business--Licensing,
Intellectual Property and Proprietary Rights,"
"Management--Employment Agreements," "Description of Capital
Stock," and "Shares Eligible for Future Sale" of statutes,
legal or governmental proceedings and contracts and other
documents are accurate in all material respects; and to the
best of such counsel's knowledge, there are no statutes,
legal or governmental proceedings, contracts or other
documents of a character required to be described in the
Prospectus or to be filed as exhibits to the Registration
Statements which are not described or filed as required.
(ix) To such counsel's knowledge, each of the
Company and its subsidiaries possesses all licenses,
certificates, authorizations and permits issued by, and has
made all declarations and filings with, the appropriate
state, federal and foreign regulatory agencies and bodies
which are necessary or desirable for the ownership of its
properties and the conduct of its business as described in
the Prospectus, except where any failures to possess or make
the same, singularly or in the aggregate, would not have a
Material Adverse Effect; and to such counsel's knowledge, the
Company has not received notification of any revocation or
modification of any such license, authorization or permit.
(x) To such counsel's knowledge and except as
set forth in the Prospectus, there is no legal or
governmental proceeding pending to which the Company or any
of its subsidiaries is a party or to which any property or
assets of the Company or any of its subsidiaries is subject
which, singularly or in the aggregate, if determined
adversely to the Company or any of its subsidiaries, could
have a Material Adverse Effect; and, to such counsel's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
(xi) The Initial Registration Statement was
declared effective under the Securities Act as of the date
and time specified in such opinion; the Rule 462(b)
Registration Statement, if any, was filed with the Commission
on the date specified
<PAGE> 13
13
therein, the Prospectus was timely filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the rules and
regulations of the Commission specified in such opinion on
the date specified therein and no stop order suspending the
effectiveness of either of the Registration Statements has
been issued and, to such counsel's knowledge, no proceeding
for that purpose has been initiated or threatened by the
Commission.
(xii) The Registration Statements (or, if
applicable, the Registration Statements as amended by any
post-effective amendment prior to such Closing Date), as of
their respective Effective Dates, and the Prospectus (or, if
applicable, the Prospectus as amended or supplemented prior
to such Closing Date), as of its date (other than the
financial statements and other financial data contained
therein, as to which such counsel need express no opinion)
complied as to form in all material respects with the
requirements of the Securities Act and the rules and
regulations of the Commission thereunder.
(xiii) To such counsel's knowledge, no person or
entity has the right to require shares of Stock or other
securities of the Company to be registered as part of the
Registration Statements because of the filing or
effectiveness of the Registration Statements or otherwise,
except for persons and entities who have expressly waived
such right or who have been given proper notice and have
failed to exercise such right within the time or times
required under the terms and conditions of such right.
(xiv) Neither the Company nor any of its
subsidiaries is and, immediately after giving effect to the
offering of the Shares to be sold by the Company to the
Underwriters and the application of the proceeds thereof as
described in the Prospectus will become, an "investment
company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations of the
Commission thereunder.
Such counsel shall also have furnished to the
Representatives a written statement, addressed to the
Underwriters and dated such Time of Delivery, in form and
substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to the Company in
connection with the preparation of the Registration
Statements and the Prospectus (or, if applicable, the
Registration Statements as amended by any post-effective
amendment prior to such Time of Delivery and, if applicable,
the Prospectus as amended or supplemented prior to such Time
of Delivery), (y) based on such counsel's examination of the
Registration Statements and the Prospectus (or, if
applicable, the Registration Statements as amended by any
post-effective amendment prior to such Time of Delivery and,
if applicable, the Prospectus as amended or supplemented
prior to such Time of Delivery) and such counsel's
investigations made in connection with the preparation of the
Registration Statements and the Prospectus (or, if
applicable, the Registration Statements as amended by any
post-effective amendment prior to such Time of
<PAGE> 14
14
Delivery and, if applicable, the Prospectus as amended or
supplemented prior to such Time of Delivery) and conferences
with certain officers and employees of and with auditors for
and counsel to the Company, nothing has come to such
counsel's attention that has caused them to believe that the
Registration Statements (or, if applicable, the Registration
Statements as amended by any post-effective amendment prior
to such Time of Delivery), as of their respective effective
dates, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein
not misleading, or that the Prospectus (or, if applicable,
the Prospectus as amended or supplemented prior to such Time
of Delivery) contains any untrue statement of a material fact
or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading; it being understood that such counsel need
express no opinion as to the financial statements or other
financial data contained in the Registration Statements or
the Prospectus.
The foregoing statement may be qualified by a statement to
the effect that such counsel has not independently verified the accuracy,
completeness or fairness of the statements contained in the Registration
Statements or the Prospectus and takes no responsibility therefor except to the
extent set forth in the opinion described in clauses (vii) and (viii) above.
(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery,
PricewaterhouseCoopers LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the executed
copy of the letter delivered prior to the execution of this Agreement is
attached as Annex I(a) hereto and a draft of the form of letter to be delivered
on the effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus, and (ii) since
the respective dates as of which information is given in the Prospectus there
shall not have been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any development involving
a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is in the judgment of the Representatives so material and adverse as
to make it impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
<PAGE> 15
15
(f) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or NASDAQ; (ii)
a suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities declared by
either Federal or New York State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares on the terms and in the manner contemplated in the
Prospectus;
(g) The Shares to be sold at such Time of Delivery shall
have been duly listed, subject to notice of issuance, for quotation on NASDAQ;
(h) The Company has obtained and delivered to the
Underwriters executed copies of an agreement from the officers, directors and
shareholders of the Company listed on Schedule II hereto, substantially to the
effect set forth in Subsection 5(e) hereof in form and substance satisfactory
to you;
(i) The Company shall have complied with the provisions
of Section 5(c) hereof with respect to the furnishing of prospectuses on the
New York Business Day next succeeding the date of this Agreement; and
(j) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of officers of the
Company satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to the
performance by the Company of all of its obligations hereunder to be performed
at or prior to such Time of Delivery, as to the matters set forth in
subsections (a) and (e) of this Section and as to such other matters as you may
reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, 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, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment
<PAGE> 16
16
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, 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, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
<PAGE> 17
17
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the Act.
<PAGE> 18
18
9 (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another party or other
parties satisfactory to you to purchase such Shares on such terms. In the event
that, within the respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Shares, or the Company notifies you
that it has so arranged for the purchase of such Shares, you or the Company
shall have the right to postpone such Time of Delivery for a period of not more
than seven days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary. The term "Underwriter" as used in this
Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have
not been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon terminate, without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10 The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect,
<PAGE> 19
19
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any officer or director or controlling person
of the Company, and shall survive delivery of and payment for the Shares.
11 If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Sections 6 and 8 hereof; but, if for any other reason,
any Shares are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter except as provided
in Sections 6 and 8 hereof.
12 In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Goldman,
Sachs & Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13 This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14 Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
15 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 20
20
16 This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
<PAGE> 21
21
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and each of the Representatives plus one
for each counsel counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
OpenSite Technologies, Inc.
By:
----------------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Chase Securities Inc.
The Robinson-Humphrey Company LLC
SoundView Technology Group, Inc.
By:
-------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
TOTAL NUMBER OF SHARES TO BE
FIRM SHARES PURCHASED IF
TO BE PURCHASED MAXIMUM OPTION
EXERCISED
<S> <C> <C>
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
THE ROBINSON-HUMPHREY COMPANY, LLC
SOUNDVIEW TECHNOLOGY GROUP, INC.
WACHOVIA SECURITIES, INC.
[NAMES OF OTHER UNDERWRITERS]
--------------- -----------------
Total
=============== =================
</TABLE>
<PAGE> 23
SCHEDULE II
LIST OF OFFICERS, DIRECTORS AND SHAREHOLDERS SUBJECT TO A LOCK-UP AGREEMENT
<PAGE> 24
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives") and are
attached hereto;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and are attached hereto and on the basis
of specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding whether
the unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that cause them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the period from inception to December 31, 1996 and for the three most
recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such fiscal period and years;
1
<PAGE> 25
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i)the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated financial
statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in clause (B) were not determined on a basis substantially
consistent with the basis for the audited consolidated financial
statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
2
<PAGE> 26
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to
in clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
3
<PAGE> 1
EXHIBIT 5.1
March 16, 2000
OpenSite Technologies, Inc.
2800 Meridian Parkway
Durham, North Carolina 27713
Re: Registration Statement on Form S-1
Gentlemen:
We have acted as counsel for OpenSite Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to a Registration Statement on Form
S-1 (the "Registration Statement"), of a proposed offering of an aggregate of
5,000,000 shares of the Company's common stock, $.01 par value per share (the
"Company Shares"). In addition, the Company has granted to the underwriters an
option to purchase 750,000 shares of Common Stock to cover over-allotments, if
any (the "Over-Allotment Shares").
We have examined such documents, corporate records, and other instruments
as we have considered necessary and advisable for purposes of rendering this
opinion.
In making the foregoing examinations, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, we have relied, to the extent we deem reasonably
appropriate, upon representations or certificates of officers or directors of
the Company and upon documents, records and instruments furnished to us by the
Company, without independent check or verification of their accuracy.
Based upon and subject to the foregoing, we are of the opinion that the
Company Shares and any Over-Allotment Shares being sold by the Company, when
issued, sold and delivered as contemplated in the Registration Statement, will
be duly authorized and validly issued and fully paid and nonassessable.
We hereby consent to the filing of this Opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
MORRIS, MANNING & MARTIN
a Limited Liability Partnership
By: /s/ Grant W. Collingsworth
-------------------------------------
Grant W. Collingsworth, Partner
<PAGE> 1
EXHIBIT 10.17
CONFIDENTIAL
February 4, 2000
VIA FACSIMILE
Mr. James Carney
President and Chief Executive Officer
Bidder's Edge, Inc.
131 Middlesex Turnpike
Burlington, Massachusetts 01803
Dear Mr. Carney:
We are pleased to present you with the term sheet for the acquisition of
Bidder's Edge, Inc. by OpenSite Technologies, Inc. dated February 4, 2000.
The intent of the attached Term Sheet is to establish a foundation for
preparing and executing a Definitive Transaction Agreement (as defined below)
among the foregoing parties. The terms of the proposed transaction set forth
below are subject to the completion of legal, technical, financial and other
due diligence as well as the execution of the Definitive Transaction Agreement.
This Term Sheet is non-binding except for the provisions regarding Public
Disclosure, No Shop, Access and Cooperation and Expenses and Fees. Please
acknowledge your agreement to the terms set forth in the Term Sheet as the
basis on which we will prepare the Definitive Transaction Agreement and your
agreement to be bound by the Public Disclosure, No Shop, Access and Cooperation
and Expenses and Fees provisions by signing this letter below and returning a
copy to me by return fax to (919) 287-0310 no later than February 7, 2000.
Regards,
OPENSITE TECHNOLOGIES, INC.
Kip A. Frey
President and Chief Executive Officer
Acknowledged by:
Bidder's Edge, Inc.
By: /s/ James Carney
---------------------------------------------
James Carney
Its: President and Chief Executive Officer
1
<PAGE> 2
CONFIDENTIAL
Term Sheet
FOR THE ACQUISITION BY OPENSITE TECHNOLOGIES, INC.
OF BIDDER'S EDGE, INC.
February 4, 2000
This Term Sheet sets forth in general terms the provisions under which
OpenSite Technologies, Inc. ("OpenSite") proposes to acquire all of the
outstanding shares of capital stock of Bidder's Edge, Inc., a Delaware
corporation ("Target"). The principal terms relating to such proposed
transaction (the "Transaction") are as follows:
STRUCTURE: OpenSite and Target will review the
structure of the transaction consistent
with the intention of the parties to
maximize operational and tax efficiency.
Shareholders of Target will receive
OpenSite Common Shares (subject to pooling
of interest limitations) in exchange for
their Target Shares and OpenSite will
assume all Target Options as described
below. The Parties will enter into a merger
agreement with customary terms, including
representations, warranties (which
representations and warranties shall be
identical for each party with respect to
its business) and indemnifications, the
survival of which will conform to the
requirements for "pooling of interests"
accounting treatment.
SHARE CONSIDERATION: The aggregate purchase price for all
outstanding Target Common Shares, Target
Preferred Shares and Target Common Shares
issuable as of the date of the Definitive
Transaction Agreement upon exercise or
conversion, as the case may be, of
outstanding vested Target Options or other
rights to acquire Target Common Shares,
with cash paid for fractional shares, will
be 8,941,307 shares of OpenSite Common
Stock (which represents 23% of the issued
and outstanding capital stock and awarded
options of OpenSite as of January 28, 2000
plus the OpenSite Common Stock issued in
the Transaction).
2
<PAGE> 3
TAX AND ACCOUNTING TREATMENT: The Transaction is intended to qualify as a
tax-free reorganization, and as a "pooling
of interests" for accounting purposes.
TREATMENT OF TARGET OPTIONS: OpenSite will assume the Target Options and
the Target Option Plans, with adjustments
to the exercise price and number of shares
to preserve the spread between exercise
price and market value of the target shares
as of the Definitive Transaction Agreement
and reflect the OpenSite Common Shares
exchange ratio, and otherwise with
substantially the same terms as the
OpenSite Stock Option Plan. OpenSite will
convert existing Target Incentive Stock
Options and Non-Qualified Stock Option
Programs into comparable OpenSite Programs.
EMPLOYMENT AGREEMENTS: OpenSite will require employment agreements
with James Carney ("Carney"), Kimbo Mundy
and Peter Leeds and other identified
employees mutually agreeable to both
parties (collectively, the "Key Employees")
as a condition of closing the Transaction.
These employment agreements will include
customary provisions regarding termination
by OpenSite without cause and constructive
termination. "Constructive temination"
shall include the change of the Key
Employee's principal place of work for
OpenSite, without his consent, to a
location more than 50 miles from the
current principal office of Target. If Key
Employee is terminated without cause or by
constructive termination, all OpenSite
Common shares subject to forfeiture and all
unvested stock options held by such Key
Employee shall become fully vested (subject
to forfeiture of such shares and options so
vested if the Key Employee breaches his
non-disclosure or non-competition covenants
with OpenSite). In addition, Carney's
employment agreement will provide that
Carney shall become vice president
responsible for the continued operations of
Target's business, with Carney reporting
directly to the president and CEO of
OpenSite. Any material reduction in
Carney's responsibilities will be
considered a constructive termination by
OpenSite. Target employees who become
employees of OpenSite will participate in
OpenSite's Stock Option Plan and any other
employee benefit plans available to
OpenSite employees generally.
NON-COMPETITION AGREEMENTS: All Target employees who become employees
of OpenSite will agree to enter into
OpenSite's standard Employee
Confidentiality and Proprietary Rights
Agreement. In addition, the Key Employees
will agree to enter into non-competition
agreements with OpenSite which will provide
for non-competition during the
3
<PAGE> 4
term of employment and for one (1) year
thereafter. The Key Employees of Target,
who do not become OpenSite employees will,
concurrent with the execution of the
Definitive Transaction Agreement, enter
into one (1) year non-competition
agreements which will be effective at the
time of the Closing.
SIGNING DATE; CLOSING DATE: The parties' objective is to execute the
Definitive Transaction Agreement as soon as
reasonably possible but not later than
March 15, 2000 and to close the Transaction
not later than April 15, 2000. As used
herein, "Definitive Transaction Agreement"
shall include, in addition to the
Definitive Transaction Agreement, any and
all employment agreements, noncompetition
agreements, and other ancillary agreements
and documents that may be contemplated by
the Definitive Transaction Agreement.
REGISTRATION OF OPENSITE SHARES: Subject to pooling of interest limitations,
shareholders of Target will receive demand
and piggyback registration rights (subject
to underwriters' cutbacks) on a pari passu
basis with the holders of OpenSite's Series
C Preferred Stock. Subject to pooling of
interest limitations, shareholders of
Target also will receive during the period
beginning 7 months from the effective date
of OpenSite's IPO and ending 1 year after
the effective date of such IPO, one demand
registration right if OpenSite has not
conducted or has not held an organizational
meeting for a secondary or selling
shareholder offering (with the sharholders
having the right to participate in such
offering through piggyback registration
rights whose exercise shall be independent
of the piggyback registration rights of the
other shareholders of OpenSite, but subject
to underwriters' cutbacks on a pro-rata
basis with other shareholders of OpenSite);
provided, however, no individual
shareholder of Target may demand
registration pursuant to any such
registration statement for an amount of
shares which would exceed the volume
permitted under Rule 144(e).
PUBLIC DISCLOSURE: Neither party will make any public
disclosure concerning the matters set forth
in this Term Sheet or the negotiation of
the proposed Transaction without the prior
written consent of the other party. If and
when a party desires to make any such
public disclosure, such party will give the
other party an opportunity to review and
consent to any such disclosure in advance
of public release, which consent will not
be unreasonably withheld or delayed.
Notwithstanding anything to the contrary
herein, to the extent that OpenSite or
Target is advised by their respective
counsel that disclosure of the matters set
forth in this Term Sheet
4
<PAGE> 5
is required by applicable laws or
securities exchange requirements, then
OpenSite or Target, as the case may be,
shall provide the other party reasonable
prior notice of such disclosure as well as
an opportunity to review and comment on
such disclosure in advance of public
release.
NO SHOP: Until the earlier of (the "No Shop
Period"): (i) the signing of the Definitive
Transaction Agreement, (ii) the date on
which OpenSite advises the Target in
writing that OpenSite does not wish to
proceed with the proposed Transaction, or
(iii) March 15, 2000, neither Target nor
any affiliate of Target nor any officer,
director, employee or principal stockholder
thereof, will, directly or indirectly,
solicit, encourage, provide any information
to, or enter any agreement with any entity
or person other than OpenSite concerning
any sale or acquisition of all or any
material number of the shares or assets of
Target or any merger of Target or any
subsidiary of Target or any sale of any
material assets or any sale of any shares
of Target other than pursuant to presently
outstanding options, warrants or other
convertible securities.
During the No Shop Period, neither OpenSite
nor any affiliate of OpenSite nor any
officer, director, employee or principal
stockholder thereof, will, directly or
indirectly, solicit, encourage, provide any
information to, or enter into any agreement
with any entity or person other than Target
concerning any acquisition of all or any
material number of shares or assets of any
competitor of Target, except that OpenSite
may engage in discussions with
AuctionWatch.com as long as such
discussions do not address specific terms
of a merger or acquisition with
AuctionWatch.com.
ACCESS AND COOPERATION Unless the Transaction is sooner
terminated, for a period of 30 days after
the date of this Term Sheet, Target shall
ensure that OpenSite and its
representatives will have full access to
Target and its officers, counsel,
investment bankers, auditors, books and
records; full opportunity to investigate
Target's titles to property and the
condition and nature of its assets,
business and liabilities; and full
opportunity to review Target's business
plan with key officers of Target.
Unless the Transaction is sooner
terminated, for a period of 30 days after
the date of this Term Sheet, OpenSite shall
ensure that Target and its representatives
will have full access to OpenSite and its
officers, counsel, investment bankers,
auditors, books and records; full
opportunity to investigate OpenSite's
titles to
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<PAGE> 6
property and the condition and nature of
its assets, business and liabilities; and
full opportunity to review OpenSite's
business plan with key officers of
OpenSite.
PRINCIPAL CONDITIONS: Target shareholders and Board must have
approved the Definitive Transaction
Agreement; OpenSite's Board must have
approved the Definitive Transaction
Agreement; OpenSite shall have received a
letter from its outside auditors that the
Transaction qualifies for pooling of
interests treatment; OpenSite shall have
received a letter from the Target's outside
auditors that Target is poolable; the
Transaction shall be treated as a tax free
exchange; no injunction or order must be
threatened or in effect by any governmental
agency prohibiting the Transaction; the
employment agreements, the non-competition
agreements, and any other ancillary
agreements contemplated by the Definitive
Transaction Agreement must be in place;
shareholders of Target exercising
dissenters' rights shall own less than five
percent (5%) of Target's outstanding
shares; the representations and warranties
of the parties in the Definitive
Transaction Agreement must have been true
and correct in all material respects when
made; Target has provided audited financial
statements for its last three (3) fiscal
years; and all covenants of the parties in
the Definitive Transaction Agreement
required to be satisfied prior to Closing
must have been satisfied.
FOUNDER'S STOCK If the transaction is not structured as a
pooling of interests, then the OpenSite
Common shares issued to the Key Employees
of Target will be subject to the following
forfeiture provisions:
<TABLE>
<CAPTION>
If Employment Is Terminated: Amount Forfeited
---------------------------- ----------------
<S> <C>
Within 180 days of Closing 50%
After 180 days but within 216 days of Closing 42%
After 216 days but within 252 days of Closing 34%
After 252 days but within 288 days of Closing 26%
After 288 days but within 324 days of Closing 18%
After 324 days but within 360 days of Closing 9%
After 360 days of Closing 0%
</TABLE>
TERMINATION: The Definitive Transaction Agreement may be
terminated by mutual consent of the
parties, or by either party if the
Transaction: (a) has not been consummated
by April 15, 2000;
6
<PAGE> 7
(b) is enjoined by a court or a
governmental body; (c) cannot be
consummated due to a breach of any
representation, warranty, covenant or
agreement on the part of the other party;
(d) is disapproved by the Target
shareholders; or (e) shareholders of Target
exercising dissenters' rights own more than
five percent (5%) of Target's outstanding
shares.
EXPENSES AND FEES: Generally, OpenSite, on the one hand, and
the shareholders of Target, on the other
hand, will each bear their own fees and
expenses; provided, however, that in the
event the parties consummate the
Transaction substantially according to the
terms of this Term Sheet, OpenSite will pay
Target's actual out of pocket expenses in
an amount up to one hundred thousand
dollars ($100,000).
INDEMNIFICATION OF OPENSITE: Target's shareholders will jointly and
severally indemnify and hold OpenSite and
its officers, directors and affiliates
harmless from and against certain losses or
liabilities that may be suffered by
OpenSite due to any breach of any provision
of the Definitive Transaction Agreement or
any ancillary document. This
indemnification survives until the earlier
of one (1) year after closing of the
Transation or when OpenSite publishes
audited financial statements which include
combined results of OpenSite and Target.
Ten percent (10%) of the OpenSite Shares to
be issued to each Target shareholder (the
"Holdback Shares") will be pledged to and
held by an independent escrow agent to
secure the indemnification obligations and
will be released from escrow at the
expiration of the indemnification period.
Absent fraud or intentional misconduct,
each Target shareholder's liability is
limited to the amount of such shareholder's
Holdback Shares. Notwithstanding the
forgoing, OpenSite can only collect on
indemnity claims if they exceed a $250,000
"basket," in which case the claims are paid
in full without regard to the basket.
Indemnification claims will be satisfied in
shares of OpenSite stock and recourse to
the Holdback Shares will be OpenSite's
exclusive remedy for breaches (other than
fraud or intentional misconduct) of the
Definitive Transaction Agreement or any
ancillary documents. The E-Bay litigation
currently pending against Target will be
excluded from indemnification by Target's
shareholders.
7
<PAGE> 8
A breach of any representation or warranty
by OpenSite also will be subject to a
$250,000 "basket" and will be subject to
aggregate limitation of $10,000,000.
RESTRICTIONS ON TRANSFER: Sales of OpenSite Shares by Affiliates of
Target will be restricted under the pooling
of interests rules until OpenSite has
released post-Closing financial statements
with at least thirty (30) days of combined
financial results which shall occur as soon
as reasonably practicable after Closing. In
addition, sale of OpenSite shares will be
otherwise limited under Rule 144.
VOTING AGREEMENT: Target's and OpenSite's officers,
directors, principal shareholders and
Preferred Stockholders hold in excess of
the required vote to approve the
Transaction, and they will execute an
agreement to vote their shares in favor of
the Transaction.
BOARD SEAT: One designee of the Target founders and one
designee of Landmark Communications will be
elected to the Board of Directors of
OpenSite and, consistent with other
contractual rights of investors to have
directors on OpenSite's Board of Directors,
shall be re-elected until the first annual
meeting of shareholders of OpenSite
following its initial public offering. The
OpenSite Board of Directors will be
increased to nine (9) members. OpenSite
will take all actions reasonably necessary
to ensure the election of the Target board
members in accordance with the above.
GOVERNING LAW: This Term Sheet shall be governed by
Delaware law without regard to principles
of conflicts of laws.
8
<PAGE> 1
CONFIDENTIAL EXHIBIT 10.18
STRATEGIC MARKETING AGREEMENT
Excite@Home, Inc. and OpenSite Technologies, Inc.
This Strategic Marketing Agreement ("Agreement") is entered into as of December
23, 1999 ("Effective Date") by Excite@Home, Inc., a Delaware corporation with
offices at 450 Broadway Street, Redwood City, CA 94063 ("E@H") and OpenSite
Technologies, Inc., 2800 Meridian Parkway, Durham, NC 27713, a Delaware
corporation ("OpenSite") (collectively, the "Parties").
WHEREAS, OpenSite develops and markets software and services to enable branded
Web-based dynamic pricing solutions and is the developer and owner of the
BidStream.com aggregation site for web-based auctions; and
WHEREAS, E@H (Nasdaq: ATHM) is a global media company, centered around its
narrowband portal, Excite (www.excite.com). It also maintains or plans to
maintain business to business portals or sites known as Work.com and
Excitestorebuilder.com ("Applicable Sites") that offer content and interactive
services across both narrowband and broadband, and offer advertisers targeted
marketing solutions across all platforms of delivery; and
WHEREAS, E@H and OpenSite desire to set forth in this Agreement certain aspects
of a strategic marketing relationship between OpenSite and E@H, limited to
Applicable Sites whereby (1) OpenSite will license to E@H its "AuctionNow" and
"Dynamic Pricing Toolkit" software, (2) OpenSite will be the preferred provider
of dynamic pricing technology for E@H's Applicable Sites, (3) OpenSite will
purchase Advertising and services from E@H and its subsidiary, MatchLogic, Inc.,
with respect to Applicable Sites and elsewhere; and (4) OpenSite will cooperate
to establish the Co-branded Sites that will link to the Applicable Sites; and
WHEREAS, OpenSite and E@H will share revenue generated from Advertising on the
Co-branded Site, AuctionNow Galleries and participating OpenSite powered auction
sites; and
WHEREAS, OpenSite and E@H will share all revenues generated from OpenSite's
dynamic pricing products and services licensed through the Applicable Sites; and
WHEREAS, OpenSite will commit to certain levels of spending on E@H and
MatchLogic services and on E@H Advertising opportunities.
NOW, THEREFORE, in exchange for valuable and adequate consideration and the
terms set forth below, the Parties agree as follows:
Definitions:
a) ADVERTISING. Non-Matchlogic banner advertising, promotional placements,
sponsorships, links, hyperlinks, graphical links to other sites, and/or
other impressions on the Applicable Sites or on other Excite sites.
OpenSite/E@H
Page 1
<PAGE> 2
CONFIDENTIAL
b) APPLICABLE SITES. Shall be limited to the unique individual domains of
Work.com and Excitestorebuilder.com (only as it exists as sub-domain
storefront solution hosted on Work.com).
c) CO-BRANDED SITES. Web pages (1) resident an the Bidstream.com site
that are created by E@H, match the look and feel of an Applicable
Site, are linked to the Applicable Site, display some or all of the
BidStream content, identify BidStream and OpenSite as the content
providers and (2) resident on an Applicable Site that are created by
E@H, match the look and feel of an Applicable Site and offer auction
functionality to visitors of Applicable Sites through the use of the
AuctionNow Software.
d) CONTENT PRESENCE. Content or application based software available
through the Applicable Sites, or links from any of the Dynamic Pricing
Technology Services Providers as defined in Section 2 a) i) to an
Applicable Site.
e) DOCUMENTATION. The written, electronic or recorded work generally
provided by OpenSite to licensed End-Users in connection with the
Software that describes the function and features of said Software.
f) EXCITESTORE BUILDER. The E@H branded business-focused Web-Sites
providing merchant site and storefront enablement.
g) GALLERY. One of several individual auctions pursuant to a single
AuctionNow license grant, that is capable of being administered
directly by E@H or a customer of E@H.
h) SOFTWARE. OpenSite's AuctionNow and Dynamic Pricing Toolkit Software.
i) TERM. As defined in Section 13 hereof.
j) USER DATA. As defined in Section 14(c) hereof.
k) UTILIZATION RATE. The number of impressions successfully targeted
divided by the total number of impressions evaluated to reach said
targets.
1. CO-BRANDED SITES.
a) OpenSite and E@H will work together to link the Co-branded Sites into
the Applicable Sites.
b) E@H will develop, host, and maintain, at its expense, the Applicable
Sites. E@H will have sole control over the "look and feel" of the
Applicable Sites and will be responsible for any hardware or labor or
software and or service technology (including updates thereto)
reasonably necessary to maintain the Applicable Sites as described
herein.
OpenSite/E@H
Page 2
<PAGE> 3
CONFIDENTIAL
c) OpenSite will develop, host, and maintain, at its expense, the
Co-branded Site(s) resident on BidStream.com in accordance with the
mutually agreed specifications and consistent with OpenSite standards.
E@H will provide creative as needed for the provision of this
Co-branded Site.
d) E@H will develop, host, and maintain, at its expense, the Co-branded
Site(s) resident on the Applicable Sites in accordance with mutually
agreed specifications consistent with E@H standards. OpenSite will
provide creative as needed for the provision of this Co-branded Site.
e) E@H will display links from Applicable Sites to the Co-branded Sites.
E@H will have sole discretion and control over the number, placement
and positioning of such links. Notwithstanding, OpenSite will have an
opportunity to review and comment an such placement and positioning
prior to implementation.
f) Attached hereto as EXHIBIT G s a "Scope of Work" that illustrates the
plan, methodologies, financial and other obligations of the parties in
relation to the Applicable Sites, the Co-branded Sites, Advertisement
serving, AuctionNow offering and AuctionNow hosting.
2. STRATEGIC RELATIONSHIP.
a) E@H grants to OpenSite the right during the Term, to be the preferred
and dominant Dynamic Pricing Technology Services Provider (as defined
below) for the Applicable Sites.
i) "Dynamic Pricing Technology Services Provider" shall mean, in
addition to OpenSite, one or more of the entities named below,
not to exceed five (5) in number (exclusive of OpenSite) at any
given moment. The following companies, with the addition of
OpenSite, are the initial Dynamic Pricing Technology Services
Providers: FairMarket, Moai, WebVision, Trading Dynamics, and
Beyond Solutions. OpenSite may replace company names on the
preceding list not more than once quarterly.
ii) OpenSite, as the "Preferred and Dominant" Dynamic Pricing
Technology Services Provider on the Applicable Sites will have at
least three (3) times the prominence and exposure as any other
Dynamic Pricing Technology Services Provider, as measured by
aggregate number of impressions and number of pixels. E@H may
display ads for E@H's own products and services anywhere in the
E@H Network, and may display ads for Dynamic Pricing Technology
Service Providers in the Applicable Sites.
OpenSite/E@H
Page 3
<PAGE> 4
CONFIDENTIAL
b) At any time during the Term, on 120 days prior written notice,
E@H may permit any other Dynamic Pricing Technology Services
Provider to have a Content Presence on the Applicable Sites. In
such event, OpenSite will have 60 days (from the date of E@H's
written notification to deliver a written notice to E@H
terminating this Agreement. If OpenSite elects to terminate under
this Section 2(b), it will continue to purchase the services and
Advertising provided in Section 2 hereof for the balance of the
E@H 120-day notice period. Upon the expiration of such notice
period OpenSite would have no further monetary obligations
hereunder. Absent such 120 notice to OpenSite from Excite
regarding a proposed Content Presence, in the event that Opensite
delivers a written notice terminating under this Section 2 b),
the cure period described in section 13 b) shall apply.
c) The Parties acknowledge that E@H has formed and will continue to
form relationships with third party Dynamic Pricing Technology
Services Providers related to all sites other than the Applicable
Sites, and these relationships shall have no effect on this
Agreement or any rights and liabilities pursuant to this
Agreement.
2A. INSERTION ORDER.
a) During the Term of this Agreement, OpenSite will purchase Advertising
and other services from MatchLogic as specified in separate Insertion
Orders ("IO"). The actual IOs must be agreed to in writing and signed
by the parties' respective representatives prior to becoming
effective. The IO will be subject to the E&H standard terms and
conditions (attached hereto as EXHIBIT B) as they may be amended for
general use by E@H or Matchlogic from time to time. In the event of
any inconsistencies between this Agreement and the attached Exhibit B,
Exhibit B shall control. The parties expect that changes to the
agreed-upon advertising placements may be desirable at various points
during the term of this advertising commitment. In the event that one
or more of the defined placements or services do not perform to
OpenSite's satisfaction or are no longer available, or the Utilization
Rate falls below 10%, the parties will negotiate in good faith to
develop new target parameters. In addition, the parties will negotiate
in good faith to replace the IO describing such placement or service
with an IO describing a new placement or service of similar value.
OpenSite shall not be charged any penalty fees for such changes.
The parties will not make such changes more than once per calendar
quarter.
Pursuant to the IO(s) (attached in Exhibit B) OpenSite agrees to pay for
Advertising and other services from E@H and Matchlogic in the following
minimum amounts:
(i) From the time of execution hereof through March 31, 2001: $4
million;
(ii) From April 1, 2001 through March 31, 2002: $5 million; and
(iii) From April 1, 2002 through March 31, 2003: $6 million.
OpenSite/E@H
Page 4
<PAGE> 5
CONFIDENTIAL
The parties intend that foregoing spending obligations will be applied
ratably, $8 million to Applicable Sites and $7 million to MatchLogic.
Payments related to the Applicable Sites will be for Advertising
services used approximately ratably throughout the relevant period.
Payments for Matchlogic services (to be mutually agreed upon) will be
made for services, including those targeted specifically to
business-to-business markets, and advertising spending on third party
sites as and when incurred and/or directed by OpenSite, during the
relevant period. All services and Advertising purchased from E@H and
MatchLogic by OpenSite pursuant to this Section shall be at prices for
services and CPMs which are no more than competitive market rates, and
no less favorable than other similar reasonably contemporaneous
services and Advertising arrangements between Work.com and MatchLogic,
on the one hand, and entities similarly situated to OpenSite on the
other.
3. CO-MARKETING.
a) E@H will feature the Co-branded Sites prominently throughout the
Applicable Sites, subject to OpenSite's right to review and approve
the specific uses of the OpenSite and BidStream brands, such approval
not to be unreasonably withheld.
b) OpenSite will receive such brand attribution on the Co-branded sites
as the Parties may mutually agree, and as is consistent with E@H
co-brand standards.
c) E@H will use commercially reasonable efforts to feature OpenSite in
relevant public statements including, but not limited to, relevant
press releases, releases regarding OpenSite's participation in E@H's
Applicable Sites launch events, sales promotions, and trade shows at
E@H's discretion, with review approval of OpenSite. Specifically, E@H
and OpenSite will issue a joint press release at or about the time of
execution hereof stating that E@H has chosen OpenSite to be its
preferred Dynamic Pricing Technology Services Provider for the
Applicable Sites. Each party will designate a marketing coordinator
who will serve as the main point of contact for the other party
regarding joint marketing activities. Notwithstanding the foregoing,
the parties agree that there shall be no statements or releases made
by OpenSite regarding any possible or actual equity investments
without the express prior written approval of E@H, and Opensite shall
indemnify E@H against any such OpenSite breach.
4. AUCTIONNOW AVAILABILITY.
a) Subject to the terms of the Services Level Agreement (SLA) between the
parties and attached hereto as Exhibit A, OpenSite will host (arrange
for the placement of the Software on servers at a remote third party
site), and maintain, at E@H expense, the AuctionNow Software as
available through the Applicable Sites in accordance with
specifications to be mutually agreed by the Parties.
OpenSite/E@H
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CONFIDENTIAL
b) E@H will bear all system operation software and or service technology
costs, hardware costs, Gallery end-user customer service costs and
operation costs incurred in connection with the operation of
AuctionNow as available through the Applicable Sites.
c) Administration of the Software and the use by end-users of the
Galleries will be the responsibility of E@H, which will also be the
sole point of contact for the Gallery end-users.
5. I/MALL TRANSACTION PROCESSING.
The parties will negotiate in good faith to evaluate the use of
"I/Mall" as one of the transaction processing engines to which the
Software is integrated.
6. SALE OF ADVERTISING.
E@H and or Matchlogic shall have the right sell and serve all
Advertising an the Applicable Sites, Co-branded Sites and
participating OpenSite-powered auctions, which shall include but not
be limited to banner advertising and E@H sponsorship module
advertising. OpenSite will work with E@H, and use its commercially
reasonable efforts to accommodate E@H's technical requirements, to
serve targeted banners and sponsorship placement$, and to create and
target additional Advertising positions within the Co-branded Sites
and elsewhere.
7. AUCTIONNOW REVENUE.
E@H will use commercially reasonable efforts to promote the
availability of the Software on the Applicable Sites and to generate
Software-related revenue from making auctions available through the
Applicable Sites using the Software.
8. PAYMENTS.
a) During the term of this Agreement, E@H shall pay to OpenSite
seventy-five percent (75%) of all gross Software-related revenue from
the conduct of auctions on the Applicable Sites and net Advertising
revenue, (net of out-of-costs of sale, not to exceed 17%) derived
from the sale of Advertising on the Co-branded Sites, until such time
as cumulative payments to OpenSite pursuant to all provisions of this
Agreement equal or exceed two million dollars ($2,000,000) prior to
March 31, 2001, or three million dollars ($3,000,000) during the
period from April 1, 2001 through March 31, 2002, or four million
dollars ($4,000,000) during the period from April 1, 2002 through
March 31, 2003. The remaining twenty-five percent (25%) of all gross
Software-related revenue from the conduct of auctions on the
Applicable Sites and net
OpenSite/E@H
Page 6
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CONFIDENTIAL
Advertising revenue shall be retained by E@H. Once any threshhold
described, in this Section 8 (a) has been reached, the parties will
thereafter share the revenue described therein equally.
b) Payments of the fees described herein shall be due and payable within
thirty (30) days after the close of the calendar month in which either
party realizes the revenue derived from these transactions. OpenSite's
designated point of contact for billing and fee purposes is Vice
President, Finance at the address listed above, and E@H's designated
point of contact for billing and fee purposes is Controller at the
address listed above. Either party may change the designations in this
subsection by providing written notice to the other.
c) E@H will make commercially reasonable business reports and
documentation available to OpenSite an a periodic basis, not less
frequently than quarterly, that will provide the basis for all revenue
sharing calculations required hereunder. OpenSite will have a right to
audit such calculations during normal business hours through a
nationally recognized accounting firm, not more frequently than once
annually, at its own expense.
9. (REMOVED BY AGREEMENT)
10. TRADEMARK OWNERSHIP.
a) OpenSite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to E@H hereunder.
b) OpenSite will retain all right, title and interest in and to its
OpenSite, BidStream.com and other proprietary Web sites worldwide
including, but not limited to, ownership of all copyrights, look and
feel and other intellectual property rights therein.
c) E@H will retain all right, title, and interest in and to its
broadband and narrowband sites, including but not limited to the
Work.com site, the @Home site, the Excite site, the Webcrawler site,
and the C2000 site worldwide including, but not limited to, ownership
of all copyrights, look and feel and other intellectual property
rights therein.
d) E@H will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to OpenSite hereunder.
OpenSite/E@H
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<PAGE> 8
e) Each party hereby grants to the other a non-exclusive, limited license
to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each party's reasonable policies regarding such usage
as established from time to time.
f) Upon the expiration or termination of this Agreement, each party will
cease using the software and/or service technologies, trademarks,
service marks and/or trade names of the other except:
i) As the Parties may agree in writing; or
ii) To the extent permitted by applicable law.
11. LICENSE.
a) OpenSite hereby grants to E@H, for the Term of this Agreement, a non-
exclusive license to use the AuctionNow Software and Documentation
(1500 Galleries of up to 1000 items each) in accordance with the terms
and conditions of the OpenSite license agreement attached hereto as
EXHIBIT C at an annual fee of $250,000, payable in advance, plus $125
per Gallery per year for each Gallery used in excess of one thousand
five hundred (1500).
b) OpenSite hereby grants to E@H, for the Term of this Agreement, a non-
exclusive license to use the DYNAMIC PRICING ENGINE TOOLKIT
Software and Documentation in accordance with the terms and conditions
of the OpenSite license agreement attached hereto as EXHIBIT D.
c) E@H acknowledges that OpenSite retains title to and ownership of and
all proprietary rights with respect to the AuctionNow or DYNAMIC
PRICING ENGINE TOOLKIT Software and Documentation. The AuctionNow or
DYNAMIC PRICING ENGINE TOOLKIT Software and Documentation are or may
be protected by patent, copyright, trademark, trade secret and/or
other laws and international treaty provisions. The AuctionNow or
DYNAMIC PRICING ENGINE TOOLKIT Software and Documentation are licensed
and not sold.
12. SUPPORT.
OpenSite will provide telephone and email support for THE DYNAMIC PRICING
ENGINE TOOLKIT Software and Documentation to E@H during the Term pursuant
to the maintenance and support agreement attached hereto as EXHIBIT F.
Further, OpenSite will provide telephone and email support for the
AuctionNow Software and Documentation to E@H during the Term pursuant to
the maintenance and support agreement attached hereto as EXHIBIT E.
OpenSite/E@H
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CONFIDENTIAL
13. TERM AND TERMINATION.
a) This Agreement will begin on the Effective Date and will continue
until March 31, 2003 (the "Term") unless terminated in accordance with
the provisions of this Agreement.
b) Either party may terminate this Agreement upon written notice to the
other party if the other party materially fails to perform or observe
any of its obligations under this Agreement and such failure cannot be
remedied or, if remediable, is not cured within sixty (60) days after
written notice thereof from the terminating party.
c) Upon the consummation of a merger, acquisition, or similar transaction
(excluding an IPO) through which a change in more than 50% of the
equity ownership of OpenSite occurs, OpenSite shall have 30 days to
terminate this Agreement. In the event of a termination under this
Section 13(c) OpenSite shall pay to E@H an amount equal to five (5)
percent of the balance of its spending commitment hereunder, without
regard to any early termination of this Agreement under Section 13(d)
hereof. Such amount shall be payable ratably over a period of eighteen
(18) months following the notification of termination hereunder. In
the event of such a merger, acquisition or similar transaction, in
which a change of more than 50% of the equity ownership of OpenSite
occurs, if OpenSite does not elect to terminate this Agreement, the
parties agree that the Matchlogic related spending commitment
described in 2A may be reached by OpenSite spending for the benefit of
either a) OpenSite or b) the acquiring or newly controlling company,
subject to Matchlogic's reasonable approval.
d) If aggregate payments to OpenSite pursuant to all provisions of this
Agreement for the period from the Effective Date to March 31, 2002 do
not equal or exceed five million dollars ($5,000,000), either party
shall have the right to terminate the agreement on 60 days written
notice; provided, however, that if Opensite offers Work.com (as an
Independent entity) an opportunity to purchase OpenSite Common Stock
and if WORK.COM (as an Independent entity) accepts such offer and
makes an investment, and provided Work.com (as an independent entity)
does not reduce such investment by selling any portion of the
investment from the time initially made until March 31, 2002, then
neither party shall have any right to terminate under this Section
13(d (this must reference this particular sub section)). The parties
agree that no public statement may be made about this Section 13(d)
without the express prior written consent of both parties and that
failure to acquire express prior written consent of both parties shall
be a material breach of the Agreement.
e) If the quality of the Software or the services provided to the
Gallery end users using the Software are not at least comparable to
other similar service(s) on the Internet, based on ranking by a
cross-section of third party reviewers (to be agreed to by E@H and
OpenSite), in terms of features and functionality
OpenSite/E@H
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CONFIDENTIAL
including user interface, product services, accessibility and reliability
(the. "Default Standard"), E@H or OpenSite, as the case may be, shall
notify the other in writing, and such other shall use its best efforts to
bring the Software or service to the Default Standard. If the notifying
party determines that the other party has not met the Default Standard
within sixty (60) days following such notification, the notifying party may
terminate this Agreement upon 30 day's written notice.
f) All undisputed payments that have accrued prior to the termination or
expiration of this Agreement will be payable in full within thirty
(30) days thereof.
g) The provisions of Section 14 (Confidentiality and User Data), Section
15 (Indemnity), (Limitation of Liability) and Section 16 i) (Dispute
Resolution) will survive any termination or expiration of this
Agreement.
14. CONFIDENTIALITY AND USER DATA.
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers') business
or activities that is proprietary and confidential, which shall
include all business, financial, technical and other information of a
party marked or designated by such party as "confidential or
proprietary" or information which, by the nature of the circumstances
surrounding the disclosure, ought in good faith to be treated as
confidential. This Section 14 imposes no obligation on either party
with respect to Confidential Information which it can clearly
establish (a) was in the possession of or was known by it without an
obligation to maintain its confidentiality prior to its receipt from
the other party; (b) is or becomes generally known to the public
without violation of this Agreement; (c) is obtained from a third
party having the right to disclose it without an obligation of
confidentiality; or (d) was independently developed without
participation of individuals who have had access to the Confidential
or proprietary Information. Either party may disclose Confidential or
proprietary Information to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required
by law provided it gives the other party written notice of the
proposed disclosure with sufficient time to seek relief and that such
disclosure, if made, is made in a fashion to maximize the protection
of the Confidential Information from further disclosure or (ii) on a
"need-to-know" basis under an obligation of confidentiality to its
legal counsel, accountants, banks and other financing sources and
their advisors. Each party shall notify, inform and bind its employees
and contractors to all limitations, duties and obligations regarding
use, access to, and nondisclosure of Confidential or proprietary
Information.
b) Each party agrees (i) that it will not disclose to any third party or
use any Confidential Information disclosed to it by the other except
as expressly permitted in this Agreement and (ii) that it will take
all reasonable measures to maintain the confidentiality of all
Confidential Information of the other party in
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CONFIDENTIAL
its possession or control, which will in no event be less than the measures
it uses to maintain the confidentiality of its own information of similar
importance.
c) For the purposes of this Agreement, "User Data" means information
submitted by users of the Applicable Site(s) or the Co-branded Site(s)
during the Term of the Agreement. Both Parties will retain all rights
to make use of any User Data obtained through this Agreement.
d) Neither party will use User Data to specifically target any users of
the other party's sites, as distinct from all users of such party's
sites, for solicitations (except as specifically provided in this
Agreement), either individually or in the aggregate, during the Term
of this Agreement and for a period of twelve (12) months following the
expiration or termination of this Agreement.
e) Neither party will sell, disclose, transfer or rent any User Data
which could reasonably be used to identify a specific named individual
("Individual Data") to any third party nor will either party use
Individual Data on behalf of any third party without the express
permission of the individual user. Where user permission for
dissemination of Individual Data to third Parties has been obtained,
each party will use commercially reasonable efforts to require the
third party recipients of Individual Data to provide an "unsubscribe"
feature in any email communications generated by, or on behalf of, the
third party recipients of Individual Data. Neither party will make any
use of any User or Confidential Data which is adverse to the
competitive interests of the other without the prior written
permission of such other.
15. WARRANTIES, INDEMNITY AND LIMITATION OF LIABILITY.
a) Each party hereby represents and warrants that it is duly organized
and has the unrestricted right to enter into and perform this
Agreement.
b) OpenSite will indemnify, defend and hold harmless E@H, its affiliates,
officers, directors, employees, consultants and agents from any and
all third party claims, liability, damages and/or costs (including,
but not limited to, attorneys fees) arising from:
i) Its breach of any representation or covenant in this Agreement;
or
ii) Any claim arising from the OpenSite Site, or any OpenSite
supplied material, content or services on the Co-Branded site
excluding material, content or services provided by E@H.
c) E@H will promptly notify OpenSite of any and all such claims and will
reasonably cooperate with OpenSite with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts E@H in any way and such obligation, liability,
prejudice or impact can reasonably be expected to
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CONFIDENTIAL
be material, then such settlement shall require E@H'S written consent
(not to be unreasonably withheld or delayed) and E@H may have its own
counsel in attendance at all proceedings and substantive negotiations
relating to such claim.
d) E@H will indemnify, defend and hold harmless OpenSite, its affiliates,
officers, directors, employees, consultants and agents from any and
all third party claims, liability, damages and/or costs (including,
but not limited to, attorneys fees) arising from:
i) Its breach of any representation or covenant in this Agreement;
or
ii) Any claim arising from the E@H Site(s) other than material,
content or services provided by OpenSite.
e) OpenSite will promptly notify E@H of any and all such claims and will
reasonably cooperate with E@H with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts OpenSite in any way and such obligation,
liability, prejudice or impact can reasonably be expected to be
material, then such settlement shall require OpenSite's written
consent (not to be unreasonably withheld or delayed) and OpenSite may
have its own counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
f) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND
HEREBY DISCLAIMS ANY AND ALL WARRANTIES, IMPLIED OR OTHERWISE,
INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
g) IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT (INCLUDING LOSS OF PROFITS, USE, DATA OR
OTHER ECONOMIC ADVANTAGE), HOWEVER IT MAY ARISE, WHETHER FOR BREACH OF
THIS AGREEMENT, INCLUDING BREACH OF WARRANTY, OR IN TORT, EVEN IF THAT
PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
LIABILITY FOR SUCH INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGE SHALL BE EXCLUDED EVEN IF THE EXCLUSIVE REMEDIES
PROVIDED FOR IN THIS AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE.
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CONFIDENTIAL
16. MISCELLANEOUS.
a) FORCE MAJEURE. Any delay in or failure of performance by either party
under this Agreement will not be considered a breach of this
Agreement and will be excused to the extent caused by any occurrence
beyond the reasonable control of such party including, but not limited
to, acts of God, power outages and governmental restrictions, so long
as the party so effected gives prompt notice and makes all reasonable
efforts to perform. Notwithstanding the foregoing, in no case shall
performance be excused for a period in excess of six (6) months.
b) COMPLIANCE WITH APPLICABLE LAW. The Parties agree to comply strictly
with all such laws and regulations applicable to this Agreement.
c) INDEPENDENT CONTRACTORS. The Parties are independent contractors under
this Agreement and no other relationship is intended, including a
partnership, franchise, joint venture, agency or employer/employee
relationship. Neither party shall act in a manner that expresses or
implies a relationship other than that of independent contractor, nor
may either party bind the other party. Neither party makes any
representation to the other of any minimum benefit that may be derived
by a Party hereunder.
d) CONFIDENTIALITY OF TERMS. Pursuant to Section 14, "Confidential
Information and User Data", the terms and conditions of this Agreement
shall be considered Confidential Information of both Parties and may
not be disclosed without the prior written consent of the other party;
provided, however, that either party may describe this Agreement in
any filings with the Securities and Exchange Commission to the extent
it determines is advisable or desirable but may not include a copy of
this Agreement as an exhibit to any such filings without the prior
written consent of the other party.
e) NOTICE. Any notice under this Agreement shall be in writing and
delivered by personal delivery, express courier, confirmed facsimile,
confirmed email or certified or registered mail, return receipt
requested, and will be deemed effective upon personal delivery, one
(1) day after deposit with express courier, upon confirmation of
receipt of facsimile or email or five (5) days after deposit in the
mail.
FOR NOTICE TO E@H: General Counsel
Excite@Home, Inc., 450 Broadway Street
Redwood City, CA 94063 Fax (650) 556-3430
FOR NOTICE TO OPENSITE: Vice President, Business & Legal Affairs
OpenSite Technologies, Inc. 2800 Meridian Parkway
Durham, NC 27713 Fax (919) 544-9367
f) ASSIGNMENT. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent (which will not be
unreasonably
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CONFIDENTIAL
withheld), except that no such consent will be required in connection
with a merger, reorganization or sale of all, or substantially all,
of such party's capital stock or assets; or (ii) Excite@Home's
assignment of this Agreement to a third party formed for the purpose
of developing, managing and maintaining the Work.com Site. Any attempt
to assign this Agreement other than as permitted above will be null
and void.
g) NO WAIVER. Any waiver of any provision of this Agreement, or delay by
either party in the enforcement of any right hereunder, shall neither
be construed as a continuing waiver nor create an expectation of
non-enforcement of that or any other right.
h) SAVINGS. If any term or provision of this Agreement is found to be
invalid under any applicable statute or rule of law, then that
provision notwithstanding, this Agreement shall remain in full force
and effect and only such provision shall be deemed omitted, unless
such an omission would frustrate the intent of the Parties with
respect to any material aspect of the relationship established hereby,
in which case, this Agreement shall terminate.
i) DISPUTE RESOLUTION. The Parties agree that any breach of either of the
Parties' obligations regarding trademarks, service marks or trade
names, confidentiality and/or User Data would result in irreparable
injury for which there is no adequate remedy at law. Therefore, in the
event of any breach or threatened breach of a party's obligations
regarding trademarks, service marks or trade names or confidentiality,
the aggrieved party will be entitled to seek equitable relief in
addition to its other available legal remedies in a court of competent
jurisdiction.
i) Disputes arising between the Parties hereunder regarding
trademarks, service marks or trade names, confidentiality and/or
User Data are subject to the following two requirements: (1)
OpenSite may only commence proceedings regarding trademarks,
service marks or trade names, confidentiality and/or User Data
against E@H in a state or federal court sitting in California,
applying California law without regard to its choice of law
provisions, and (2) E@H may only commence legal proceedings
regarding trademarks, service marks or trade names,
confidentiality and/or User Data against OpenSite in a state or
federal court sitting in North Carolina, applying North Carolina
law, law without regard to its choice of law provisions, provided
that once litigation is initiated by one of the Parties, the
other may assert counterclaims in those proceedings.
ii) In the event of disputes between the Parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names, confidentiality and/or User Data,
the Parties will first attempt to resolve
OpenSite/E@H
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CONFIDENTIAL
the dispute(s) through good faith negotiation. Such negotiation
must include at a minimum a meeting, in person, between the
Chief Executive Officers of the parties hereto in an attempt to
resolve the dispute. In the event that the dispute(s) cannot be
resolved through such good faith negotiation, the Parties will
refer the dispute(s) to a mutually acceptable mediator in the
city or county in which the defendant has its principle place of
business.
iii) In the event that disputes between the Parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks,
service marks or trade names, confidentiality and/or User Data,
cannot be resolved through good faith negotiation or mediation,
the Parties will refer the dispute(s) to the American Arbitration
Association for resolution through binding arbitration by a
single arbitrator pursuant to the American Arbitration
Association's rules applicable to commercial disputes in the city
or county in which the defendant has its principle place of
business.
j) PAROLE EVIDENCE. This Agreement is the Parties' entire understanding
and agreement with respect to its subject matter. It supersedes all
prior or contemporaneous oral or written communications, proposals,
warranties and representations with respect to its subject
acknowledgment, or similar communication between the Parties during
the term of this Agreement. No modification to this Agreement will be
binding, unless in writing and signed by a duly authorized
representative of each party.
k) COUNTERPARTS. This Agreement may be executed in counterparts, each of
which, when taken together, will serve to evidence the Parties'
binding agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
OpenSite Technologies, Inc. Excite@Home, Inc.
By: /s/ Thomas F. Hanlon, III By:
------------------------------- ------------------------------
Name: Thomas F. Hanlon, III Name:
------------------------------- ------------------------------
Title: V.P. of Sales & B.P. Title:
------------------------------- ------------------------------
Date: 12/27/99 Date
------------------------------- ------------------------------
OpenSite/E@H
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CONFIDENTIAL
OpenSite Technologies, Inc. Excite@Home, Inc.
By: By: /s/ Donald P. Hutchison
------------------------------- ------------------------------
Name: Name: Donald P. Hutchison
------------------------------- ------------------------------
Title: . Title: SVP
------------------------------- ------------------------------
Date: Date 12/27/99
------------------------------- ------------------------------
EXHIBIT A
SERVICES LEVEL AGREEMENT
OpenSite/E@H
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<PAGE> 1
EXHIBIT 10.19
OPENSITE TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE OF PLAN
OpenSite Technologies, Inc. has adopted this employee stock purchase
plan to encourage the employees of the Company (and its participating affiliated
companies) to acquire a proprietary interest, or to increase their existing
proprietary interest, in the Company. The Board of Directors of the Company
believes that employee ownership of the Company's stock will serve as an
incentive, encouraging employees to continue their employment and to perform
diligently their duties as employees. It is further intended that the Plan
qualify as an "employee stock purchase plan" within the meaning of Code ss.423.
ARTICLE II
DEFINITIONS
When used in this Plan with a initial capital letters, the following
terms shall have the meanings set forth below:
2.1 BOARD shall mean the Board of Directors of the Company.
2.2 CODE shall mean the Internal Revenue Code of 1986, as amended.
2.3 COMMITTEE shall mean the group of individuals appointed by the
Board to administer the Plan, pursuant to Section 10.1.
2.4 COMMON STOCK shall mean the common stock of the Company.
2.5 COMPANY shall mean OpenSite Technologies, Inc..
2.6 EFFECTIVE DATE shall mean the day on which the Common Stock is
initially offered for purchase to the public pursuant to an initial public
offering registered pursuant to the Securities Act of 1933, as amended. 2.7
ELIGIBLE EMPLOYEE shall mean, with respect to an Offering Period, an Employee
who is not described by the following:
(a) any Employee who is regularly scheduled to work
(determined as of the Enrollment Date for such Offering Period) 20
hours or less per week;
(b) any Employee who is regularly scheduled to work
(determined as of the Enrollment Date for such Offering Period) for not
more than five (5) months in any calendar year; and
(c) any Employee who, immediately after an option is
granted hereunder, would own shares of the Common Stock, or of the
stock of a parent or subsidiary corporation of the Company, possessing
5% or more of the total combined voting power or value of all classes
of such stock. In determining whether an Employee owns 5% of such
shares, (A) the attribution of ownership rules of Code ss.424(d) shall
apply, and (B) an Employee shall be deemed to own the shares of stock
underlying any outstanding option which he has been granted (whether
under the Plan or any other plan or arrangement).
<PAGE> 2
2.8 EMPLOYEE shall mean any individual who is a common-law
employee of any Participating Company. Certain Employees are not eligible to
participate in the Plan, pursuant to Article III hereof.
2.9 ENROLLMENT DATE shall mean the last business day of the
calendar month immediately preceding each Offering Commencement Date, except
that, with respect to the initial Offering Period, the Enrollment Date shall be
the earlier of (1) the last business day of the calendar month immediately
following the calendar month in which the initial registration statement
registering the shares of Common Stock issuable hereunder pursuant to the
Securities Act of 1933, as amended, is declared effective, or (2) the date which
is thirty (30) days following the date on which the initial registration
statement registering the shares of Common Stock issuable hereunder pursuant to
the Securities Act of 1933, as amended, is declared effective.
2.10 FAIR MARKET VALUE shall mean, as of any date, the value of
Common Stock determined as follows:
(a) For purposes of making purchases under the Plan which
are made on the open market, the Fair Market Value of the Common Stock
shall be the actual market price on the date and at the time of the
purchase;
(b) For purposes other than making purchases under the
Plan, the Fair Market Value of the Common Stock shall be determined as
follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system,
including without limitation the National Market of the
National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value per share
shall be the closing sale price for the Common Stock (or the
mean of the closing bid and asked prices, if no sales were
reported), as quoted on such exchange or system on the date of
such determination, as reported in THE WALL STREET JOURNAL or
such other source as the Committee deems reliable;
(ii) If the Common Stock is not listed on any
established stock exchange or a national market system, its
Fair Market Value per share shall be the average of the
closing dealer "bid" and "ask" prices of a share of the Common
Stock as reflected on the NASDAQ interdealer quotation system
of the National Association of Securities Dealers, Inc. on the
date of such determination;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Board.
(iv) If, for any reason, the Fair Market Value
per share cannot be ascertained or is unavailable for the date
in question, the Fair Market Value per share shall be
determined as of the nearest preceding date on which such Fair
Market Value can be ascertained under the appropriate method
indicated above.
(c) Notwithstanding the above provisions, for purposes of
making purchases under the Plan during the initial Offering Period, the
Fair Market Value per share of the Common Stock as of the Effective
Date shall be deemed to be the price per share at which the Common
Stock is offered to the public by the Company pursuant to the Company's
initial public offering.
2.11 OFFERING COMMENCEMENT DATE shall mean the first day of each
Offering Period.
2.12 OFFERING EXERCISE DATE shall mean the last day of each
Offering Period.
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2.13 OFFERING PERIOD shall mean the period during which each option
granted pursuant to the Plan is in effect. The duration and timing of Offering
Periods may be changed by the Committee pursuant to Section 4.2 of this Plan.
2.14 OFFERING PERIOD PAY shall mean, with respect to an Offering
Period, the product of (i) the number of complete payroll periods in such
Offering Period, times (ii) such Employee's Total Pay for the payroll period
which ends on or immediately prior to the Offering Commencement Date of such
Offering Period.
2.15 PARTICIPATING COMPANY shall mean (i) the Company, and (ii) any
"parent corporation" or "subsidiary corporation" (as defined in Code
ss.ss.424(e) and (f)) of the Company which have been designated by the Board and
which have adopted (by formal written resolutions of the board of directors of
such corporation) the Plan for the benefit of its employees.
2.16 PLAN shall mean the OpenSite Technologies, Inc. Employee Stock
Purchase Plan.
2.17 TOTAL PAY shall mean, with respect to an Employee for a
payroll period, all compensation reported to the Internal Revenue Service for
federal income tax purposes on Form W-2, plus any before-tax contributions made
to plans covered by Code ss.ss.401(k) and 125, but excluding extraordinary
compensation items such as bonuses or commissions, which are paid during such
payroll period. The determination of what items shall constitute Total Pay shall
be made by the Committee in its complete and absolute discretion.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION BY ELIGIBLE EMPLOYEES. An Eligible Employee of a
Participating Company shall be eligible to participate in the Plan as of the
first day of the Offering Period which next begins upon completion of thirty
(30) days of continuous employment with the Company if the Employee is an
Eligible Employee as of such date.
3.2 TRANSFERS TO/FROM ELIGIBLE CLASS. An Employee who ceases to be
an Eligible Employee during an Offering Period but who remains an Employee shall
be treated as if he had made an election to modify his payroll deductions to
zero effective for payroll periods ending on or after the date on which such
Employee ceased to be an Eligible Employee. An Employee who becomes an Eligible
Employee during an Offering Period and who was an Employee prior to the date on
which such Employee became an Eligible Employee hereunder shall be entitled to
participate in the Plan as of the later of (i) the first day of the Offering
Period which next begins upon completion of thirty (30) days of continuous
employment with the Company if the Employee is an Eligible Employee as of such
date, or (ii) the first day of the Offering Period which next begins on or after
the date on which such Employee becomes an Eligible Employee if the Employee is
an Eligible Employee on such date.
ARTICLE IV
OFFERING PERIODS
4.1 QUARTERLY OFFERING PERIODS. The Plan shall be implemented by a
continuous series of Offering Periods. The initial Offering Periods under the
Plan shall be each calendar year quarter: January 1 through March 31, April 1
through June 30, July 1 through September 30, and October 1 through December 31.
The first Offering Period shall commence on the Effective Date and shall end on
September 30, 2000.
4.2 OTHER OFFERING PERIODS. Without amendment to the Plan, the
Committee may, in its sole discretion, designate other periods as Offering
Periods. These periods may be more or less frequent and may be in addition to or
in lieu of the quarterly Offering Periods described in Section 4.1 above.
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<PAGE> 4
ARTICLE V
ELECTION TO PARTICIPATE
5.1 ELECTION. Each Employee who is eligible to participate in the
Plan may file with the Committee, on or before 5:00 p.m. on any Enrollment Date
(within such time period as provided by the Committee), an election form
authorizing specified regular payroll deductions over the next succeeding
Offering Period. These payroll deductions shall be on an after-tax basis, so
that all applicable federal, state, local and Social Security taxes shall apply.
At the time an Employee files his election form, he shall elect to have payroll
deductions made on each payday during the Offering Period, in whole dollars, in
an amount which is not greater than twenty percent (20%) of such Employee's
Total Pay for each payroll period occurring during said Offering Period. No cash
contributions or payments may be made by an Employee to the Plan. Payroll
deductions for an Employee shall commence on the first payroll period beginning
after the Offering Commencement Date (or, in lieu of the Offering Commencement
Date for the initial Offering Period, any date specified by the Employee
occurring during the period beginning with the date on which the initial
registration statement registering the shares of Common Stock issuable hereunder
pursuant to the Securities Act of 1933, as amended, is declared effective, and
ending with the Enrollment Date), and shall end on the last payroll in the
Offering Period before the Offering Exercise Date, to which such authorization
is applicable, unless sooner terminated by the Employee.
5.2 DEEMED ELECTION. An Employee who has entered into a written
agreement with the Company not to be eligible for participation in this Plan
and/or any employee benefit plans of the Company shall, by entering into such
written agreement, automatically be considered to have elected to have none of
his pay deducted under this Plan during any Offering Period which begins while
such written agreement is in effect.
5.3 ACCOUNTS. The Committee shall establish a bookkeeping account
for each Employee in the Plan and shall credit each Employee's payroll
deductions to his account. Any funds actually held in Accounts shall remain part
of the general assets of the Company and may be used by the Company for any
corporate purpose.
5.4 WITHDRAWALS. By written notice to the Committee during an
Offering Period (on such form or in such manner as the Committee may specify),
an Employee may elect to cease his payroll deductions and withdraw, effective as
of the Offering Exercise Date of such Offering Period, the total amount (but not
less than the total amount) credited to his Account. Any such withdrawn amount
shall be paid to the Employee, in cash or its equivalent, without interest, as
promptly as administratively practicable after such Offering Exercise Date. An
Employee who elects to withdraw the total amount credited to his Account shall
cease participation in the Plan as of the Offering Exercise Date and shall not
participate again until the second Offering Commencement Date following such
Offering Exercise Date, provided he files an election form with the Committee on
or before the Enrollment Date for such second succeeding Offering Commencement
Date. Payroll deductions shall cease as soon as administratively practicable
after the Committee receives such election, and any option granted to the
Employee under the Plan shall terminate on the date the Committee receives such
election.
5.5 Modifications. By written notice to the Committee (on such
form or in such manner as the Committee may specify), an Employee may elect to
modify his payroll deductions and increase or decrease (but not to zero) the
amount to be withheld from his pay and credited to his Account during such
Offering Period under the Plan effective for each payroll period occurring on or
after the receipt by the Committee of such election or as soon thereafter as
administratively practicable.
5.6 LEAVE OF ABSENCE. For purposes of participation in the Plan,
an Employee who is on a leave of absence shall be deemed to be an Employee for
the first ninety (90) days of such leave of absence; provided, that as of the
close of business on the 90th day of such leave of absence, the Employee's
employment (solely for purposes of the Plan) shall be deemed to have terminated
unless the
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<PAGE> 5
Employee shall have returned to his regular employment prior to the close of
business on such 90th day, except as otherwise required by law. If an Employee's
employment is terminated earlier by the Company, for any reason, his right to
participate in the Plan shall terminate simultaneously.
5.7 INTEREST. No interest will accrue or be paid on any payroll
deductions contributed to the Plan or credited to the Account of any Employee.
ARTICLE VI
GRANTING OF OPTIONS
6.1 NUMBER OF OPTION SHARES. On each Offering Commencement Date,
each eligible Employee shall be granted an option to purchase a maximum number
of shares of the Common Stock determined by dividing twenty percent (20%) of his
Offering Period Pay by eighty-five percent (85%) of the Fair Market Value of one
share of the Common Stock on such Offering Commencement Date.
6.2 DURATION. Each option granted on an Offering Commencement Date
shall terminate on the immediately following Offering Exercise Date, unless
terminated earlier pursuant to the terms of the Plan.
6.3 ANNUAL LIMIT ON OPTIONS GRANTED. No option to purchase shares
under the Plan shall be granted to an Employee if such option, when combined
with all other options granted under all of the Code ss. 423 employee stock
purchase plans of the Company, its parents and its subsidiary corporations,
would permit such Employee to purchase shares of the Common Stock with a Fair
Market Value (determined at the time the option is granted) in excess of $25,000
for each calendar year in which the option is outstanding at any time,
determined in accordance with Code ss.423(b)(8).
6.4 OPTION EXERCISE PRICE. The Option Exercise Price of each share
of the Common Stock shall be the lesser of (i) eighty-five percent (85%) of the
Fair Market Value of such share on the Offering Commencement Date, or (ii)
eighty-five (85%) of the Fair Market Value of such share on the Offering
Exercise Date.
ARTICLE VII
EXERCISE OF OPTIONS
7.1 AUTOMATIC PURCHASE. As of each Offering Exercise Date and
except as provided in Sections 7.2 and 7.3 hereof, the Committee shall purchase,
for each Employee having funds credited to his Account, the number of whole
shares of the Common Stock which is the lesser of (i) the maximum number of such
shares for which such Employee has been granted an option to purchase during
such Offering Period, or (ii) the number of whole shares of the Common Stock
determined by dividing the amount credited to his Account by the Option Exercise
Price. Fractional shares shall be issued in the Employee's Account, but upon a
distribution of shares from the Employee's Account, fractional shares shall be
distributed in the form of cash based on the Fair Market Value at liquidation of
such shares, with liquidation to occur in accordance with the Plan's
administrative practices.
7.2 EMPLOYEE ELECTION. Notwithstanding any provisions to the
contrary contained herein, by giving written notice to the Committee during an
Offering Period (at such time or in such manner as the Committee may direct), an
Employee may elect, effective as of the Offering Exercise Date of such Offering
Period, to exercise his option for a specified number of full shares, not less
than 5, but less than the anticipated number of full shares of the Common Stock
which the Committee otherwise would purchase for him pursuant to the terms of
Section 7.1 hereof. If an Employee makes such an election, the shares of the
Common Stock which he has elected to purchase will be delivered to him, and the
balance of his accumulated payroll deductions credited to his Account will be
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<PAGE> 6
paid to him, in cash or its equivalent and without interest, as soon as
practicable after the Offering Exercise Date of such Offering Period in which
such election is made. An Employee who elects to exercise his option for less
than the full anticipated number of shares shall cease to participate in the
Plan following such Offering Exercise Date and shall not participate again until
the second Offering Commencement Date following such Offering Exercise Date,
provided he files an election form with the Committee on or before the
Enrollment Date for such second Offering Commencement Date.
7.3 MAXIMUM DOLLAR AMOUNT OF COMMON STOCK PURCHASED.
Notwithstanding any provisions to the contrary contained herein, no Employee may
use the amount credited to his Account pursuant to the Plan during any calendar
year for purchase of Common Stock exceeding twenty-five thousand dollars
($25,000) in Fair Market Value (determined as of the Offering Commencement
Date). When this amount of Common Stock has been purchased, any excess amount
credited to an Employee's Account (including any excess resulting from an
inability to purchase a whole share) shall be returned to such Employee, payroll
deductions for such Employee shall cease, and such Employee shall be ineligible
to participate in any subsequent Offering Period occurring during that same
calendar year. Such Employee's election automatically shall become effective on
the first Offering Commencement Date of the next succeeding calendar year,
subject to the termination provisions herein.
ARTICLE VIII
DELIVERY OF COMMON STOCK; SHAREHOLDER RIGHTS
As soon as practicable after each Offering Exercise Date, the Company
shall issue and deliver to each Employee certificates representing the shares of
the Common Stock, if any, purchased for such Employee, together with any cash to
which he may be entitled hereunder. Upon issuance of such certificates (but not
prior thereto), the Employee shall have all of the rights and privileges of a
shareholder of the Company with respect to such shares. Common Stock to be
delivered to an Employee pursuant to the Plan shall be registered in the name of
the Employee.
ARTICLE IX
STOCK RESERVED FOR OPTIONS
9.1 SHARES RESERVED FOR ISSUANCE UNDER THE PLAN. The Company shall
reserve a total of seven hundred thousand (700,000) shares of the Common Stock
for issuance and purchase by Employees under the Plan; provided, however, this
total number of shares of Common Stock that may be issued pursuant to this Plan
shall be automatically increased on the last trading day of the final calendar
month of each fiscal year of the Company, beginning with the fiscal year ending
December 31, 2001, by a number of shares equal to one percent (1%) of the number
of shares of Common Stock outstanding on the last trading day of the month
preceding the such final calendar month, but in no event shall any such annual
increase exceed three hundred thousand (300,000) shares. The number of shares of
the Common Stock reserved for the Plan may be further adjusted as provided in
Article XII. The shares of the Common Stock reserved for the Plan may be shares
now or hereafter authorized but unissued or may be shares of treasury stock.
9.2 SHARES SUBJECT TO UNEXERCISED OPTIONS. If and to the extent
that any right to purchase reserved shares of the Common Stock shall not be
exercised by the Employee who is the holder of such right, or if such right
shall terminate as provided herein, then the shares subject to such right to
purchase (i) shall again become available for purposes of the Plan, and (ii)
shall not be deemed to increase the number of shares of the Common Stock
reserved for purposes of the Plan.
ARTICLE X
ADMINISTRATION OF PLAN
10.1 APPOINTMENT OF COMMITTEE. The Plan shall be administered by a
Committee, which shall consist of those persons so designated by the Board. The
Board from time to time may remove members from, or add members to, the
Committee. Vacancies on the Committee shall be filled by the Board. The Board
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may at any time assume the powers, duties and responsibilities of the Committee,
and shall have such power, duties and responsibilities at any time that no
Committee is appointed.
10.2 MEETINGS. The Committee shall select one of its members as
Chairman and shall hold meetings at such times and places as the Chairman shall
determine. A majority of the members of the Committee shall constitute a quorum,
and the Committee may act by vote of a majority of its members at a meeting at
which a quorum is present, or without a meeting by a written consent to their
action signed by all members of the Committee.
10.3 AUTHORITY. The Committee may request advice or assistance or
employ such other persons as are necessary for proper administration of the
Plan. Subject to the express provisions of the Plan, the Committee shall have
authority to interpret the Plan, to prescribe rules and regulations for
administering the Plan, and to make all other determinations necessary or
advisable in administering the Plan; all of such determinations shall be final
and binding upon all persons, unless otherwise determined by the Board. Without
amendment to the Plan, the Committee shall be authorized to:
(a) limit the frequency and/or number of changes in the
payroll deduction amounts withheld during an Offering Period;
(b) permit payroll withholding in excess of the amount
designated by an Employee in order to adjust for delays or mistakes in
the Company's processing of properly completed election forms;
(c) establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Company Stock for each Employee properly
correspond with amounts withheld from the Employee's paychecks; and
(d) establish such other limitations or procedures as it
may determine, in its sole discretion, advisable which are consistent
with the terms of the Plan.
ARTICLE XI
RIGHTS NOT TRANSFERABLE
Rights under the Plan are not transferable by an Employee other than by
will or the laws of descent and distribution and are exercisable during his
lifetime only by him.
ARTICLE XII
ADJUSTMENT IN CASE OF CHANGES
AFFECTING THE COMPANY'S STOCK
12.1 GENERAL RULE. In the event of a split, subdivision or
consolidation of outstanding shares of the Common Stock, or in the event of any
"corporate transaction", as defined in Treas. Reg. ss.1.425-1(a)(1)(ii), other
than a transaction described in Section 12.2 hereof, the number of shares of the
Common Stock reserved or authorized to be reserved under the Plan and the number
and price of such shares subject to purchase pursuant to options outstanding
hereunder, in the sole discretion of the Committee, may be adjusted in such
manner as may be deemed necessary or equitable by the Committee to give proper
effect to such event. If any adjustment hereunder would create a fractional
share or a right to acquire a fractional share, (1) such fractional share shall
be disregarded, and the number of shares available under the Plan or the number
of shares to which any Employee shall be entitled will be the next lower number
of shares, rounding all fractions downward, or (2) such fractional share shall
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be taken into account, as determined by the Board (or the Committee), consistent
with the administrative practices of the Plan. Notwithstanding anything herein
to the contrary, all adjustments to the shares of the Common Stock shall be made
in such a manner as to comply with the requirements of Code ss.424 and to
preserve the options' status under Code ss.423.
12.2 DISSOLUTION OR CERTAIN MERGERS. A dissolution or liquidation
of the Company or a merger or consolidation in which the Company is not the
surviving corporation, shall cause each outstanding option to terminate;
provided, that each Employee shall, in such event, have paid to him in cash the
amount credited to his Account at that time prior to such dissolution or
liquidation, or merger or consolidation in which the Company is not the
surviving corporation.
12.3 RIGHTS OF EMPLOYEES. Except as hereinabove expressly provided,
no Employee shall have any rights by reason of any subdivision or consolidation
of shares of stock of any class or any other increase or decrease in the number
of shares of stock of any class by reason of any dissolution, liquidation,
merger or consolidation or spin-off of the assets or stock of another
corporation; and any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of the Common Stock subject to the option. The grant of an
option pursuant to the Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
ARTICLE XIII
TERMINATION OF EMPLOYMENT OR DEATH OF EMPLOYEE
13.1 TERMINATION OF EMPLOYMENT. In the event of an Employee's
termination of employment (for any reason other than death) during a Offering
Period (other than the last day of such Offering Period), any option granted to
him under the Plan shall terminate immediately upon the date his employment
ends, and the amount credited to his Account shall be refunded to him in cash as
soon as administratively practicable after the earlier of (1) the Offering
Exercise Date of such Offering Period, or (2) the payroll period next following
the termination of employment.
13.2 DEATH. In the event of an Employee's death during a Offering
Period (other than the last day of such Offering Period), any option granted to
him under the Plan for such Offering Period shall terminate immediately upon the
date of his death, and the amount credited to his Account for such Offering
Period shall be paid in cash to the person(s) designated as his beneficiary as
soon as administratively practicable following the earlier of (1) the Offering
Exercise Date of such Offering Period, or (2) the payroll period next following
his termination of employment. Also, in the event any shares of the Common Stock
and/or any cash is payable to the deceased Employee with respect to an Offering
Period ending on or before his date of death, such shares and/or cash shall be
paid to the person(s) designated as his beneficiary.
13.3 BENEFICIARY. An Employee may file with the Committee a written
designation of a beneficiary who is to receive any Common Stock or cash pursuant
to the Plan in the event of the death of such Employee prior to delivery to him
of such Common Stock or cash. Such designation of beneficiary may be changed by
the Employee, and upon receipt by the Committee of proof of the identity at the
Employee's death of a beneficiary validly designated by him pursuant to the
Plan, the Company shall deliver such Common Stock or cash to such beneficiary.
In the absence of a validly-designated beneficiary who is living at the time of
such Employee's death, the Company shall deliver such Common Stock or cash to
the estate of such Employee. No designated beneficiary shall, prior to the death
of the Employee by whom he has been designated, acquire any interest in the
Common Stock or cash which may be credited to the account of the Employee under
the Plan. Any decision by the Committee as to the person or persons to whom to
distribute the Common Stock or cash shall be binding and shall not create any
liability whatsoever on the part of the Company or the Committee or its members.
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ARTICLE XIV
AMENDMENT AND TERMINATION OF THE PLAN
14.1 AMENDMENT. The Board may amend the Plan in any respect;
provided, any amendment (i) increasing the number of shares of the Common Stock
reserved under the Plan, (ii) changing the designated class of employees
eligible to participate in the Plan, or (iii) materially increasing the benefits
accruing to Employees under the Plan, must be approved within 12 months of the
adoption of such an amendment by the holders of a majority of the voting power
of the outstanding shares of the Common Stock.
14.2 TERMINATION. The Plan and all rights of Employees hereunder
shall terminate:
(a) as of the Offering Exercise Date that Employees
become entitled to purchase a number of shares of the Common Stock that
substantially exhausts the number of such shares available for issuance
under the Plan, to such an extent that the Board and the Committee
determine that no subsequent options are practicable; or
(b) in the sole discretion of the Board, as of the end of
any Offering Period with respect to future Offering Periods.
14.3 COMPLIANCE. To the extent necessary for compliance with Code
ss.423 (or any successor provisions), the Company shall obtain shareholder
approval in such a manner and to such a degree as may be required for any
amendment to or termination of the Plan.
ARTICLE XV
NOTICES
All notices or other communications by an Employee to the Committee
pursuant to or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Committee at the location, or
by the person, designated by the Committee for the receipt thereof.
ARTICLE XVI
INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors, the members of the Committee shall be indemnified by the Company
against reasonable expenses (including, without limitation, attorneys' fees)
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal, 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 or any option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
to the extent required by and in the manner provided by the Bylaws of the
Company relating to indemnification of directors) 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 members did not act in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company. ARTICLE XVII
WITHHOLDING REQUIREMENTS
At the time the option is exercised, in whole or in part, or at the
time some or all of the Common Stock issued under the Plan is disposed of, the
Employee must make adequate provision for the Company's federal, state, or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company may, but will
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<PAGE> 10
not be obligated to, withhold from the Employee's compensation the amount
necessary for the Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
ARTICLE XVIII
CONSTRUCTION OF PLAN
For purposes of the Plan, masculine, feminine, neuter, singular or
plural pronouns shall be deemed to refer to such person, persons or entity as
may be appropriate in the context.
ARTICLE XIX
EXPENSES OF PLAN
The Company shall pay all operational expenses of the Plan, including,
without limitation, all brokerage commissions due and payable for the purchase
of Common Stock; provided, however, all expenses associated with the sale of
Common Stock after purchase under the Plan shall not be considered an
operational expense of the Plan, and shall be borne by the owner of such Common
Stock.
ARTICLE XX
COMPLIANCE
The Plan is intended to comply with the requirements of Code ss.423
(and any of its successor provisions). Pursuant to Code ss.423, an Employee may
be eligible for certain favorable tax treatment with regard to Common Stock
purchased under the Plan, if no disposition of the Common Stock is made by such
Employee within 2 years after the date of the granting of the option to him
under the Plan nor within 1 year after the transfer of the Common Stock to him.
ARTICLE XXI
EMPLOYEE STATEMENTS AND REPORTING
On or before January 31 of each calendar year, the Committee shall
provide a statement to each Employee who exercised an option under the Plan
during the previous calendar year. The Employee's statement shall contain the
following information: the name, address and employer identification number of
the Company, the date the Common Stock was transferred to the Employee, the
number of shares which were transferred to the Employee, and the type of option
under which the transferred shares were acquired. In addition, pursuant to Code
ss.6039, the Committee shall make any and all filings necessary to the Internal
Revenue Service with regard to options granted and exercised under the Plan.
ARTICLE XXII
EFFECTIVE DATE OF PLAN
The Plan shall become effective as of the Effective Date; provided,
within twelve (12) months of the adoption of the Plan by the Board, the Plan is
approved by the holders of a majority of the voting power of the outstanding
shares of the Common Stock. If the Plan is not so approved, the Plan shall not
become effective and any prior grant of options hereunder shall be null and void
AB INITIO.
IN WITNESS WHEREOF, the Plan is hereby executed by a duly authorized
officer of the Company, on this ____________ day of _________________________,
2000.
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COMPANY:
OpenSite Technologies, Inc.
By: ____________________________________
Title: __________________________________
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<PAGE> 1
EXHIBIT 10.20
OPENSITE TECHNOLOGIES, INC.
2000
STOCK INCENTIVE PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company by
providing the opportunity to purchase Shares or to receive compensation which is
based upon appreciation in the value of Shares to Employees and Key Persons in
order to attract and retain Employees and Key Persons by providing an incentive
to work to increase the value of Shares and a stake in the future of the Company
which corresponds to the stake of each of the Company's shareholders. The Plan
provides for the grant of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards and Stock Appreciation Rights to aid the Company in
obtaining these goals.
SECTION 2.
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular, and reference to one gender shall include the other gender.
2.1 BOARD means the Board of Directors of the Company.
2.2 CAUSE shall mean an act or acts by an employee involving (a)
the use for profit or disclosure to unauthorized persons of confidential
information or trade secrets of the Company, (b) the breach of any contract with
the Company, (c) the violation of any fiduciary obligation to the Company, (d)
the unlawful trading in the securities of the Company or of another corporation
based on information gained as a result of the performance of services for the
Company, (e) a felony conviction or the failure to contest prosecution of a
felony, or (f) willful misconduct, dishonesty, embezzlement, fraud, deceit or
civil rights violations, or other unlawful acts.
2.3 CHANGE OF CONTROL means either of the following:
(a) any transaction or series of transactions pursuant to
which the Company sells, transfers, leases, exchanges or disposes of
substantially all (I.E., at least eighty-five percent (85%)) of its assets for
cash or property, or for a combination of cash and property, or for other
consideration; or
(b) any transaction pursuant to which persons who are not
current shareholders of the Company acquire by merger, consolidation or other
business combination, or by a purchase of an interest in the Company, an
interest in the Company so that after such transaction, the shareholders of the
Company immediately prior to such transaction no longer have a controlling
(i.e., 50% or more) voting interest in the Company.
2.4 CODE means the Internal Revenue Code of 1986, as amended.
2.5 COMMITTEE means any committee appointed by the Board to
administer the Plan, as specified in Section 5 hereof. Any such committee shall
be comprised entirely of Directors.
2.6 COMMON STOCK means the common stock of the Company.
2.7 COMPANY means OpenSite Technologies, Inc., a Delaware
corporation, and any successor to such organization.
<PAGE> 2
2.8 DIRECTOR means a member of the Board.
2.9 EMPLOYEE means an employee of the Company, a Subsidiary or
a Parent.
2.10 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.11 EXERCISE PRICE means the price which shall be paid to purchase
one (1) Share upon the exercise of an Option granted under this Plan.
2.12 FAIR MARKET VALUE of each Share on any date means the price
determined below on the last business day immediately preceding the date of
valuation:
(a) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value per share shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange or system
on the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable; or
(b) If the Common Stock is not listed on any established stock
exchange or a national market system, its Fair Market Value per share shall be
the average of the closing dealer "bid" and "ask" prices of a share of the
Common Stock as reflected on the NASDAQ interdealer quotation system of the
National Association of Securities Dealers, Inc. on the date of such
determination; or
(c) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
2.13 FORCED RELOCATION OR TRANSFER shall mean a situation where an
employee is required by his new employer after a Change of Control to transfer
to a site of employment which is located further than fifty (50) miles from the
employee's site of employment immediately prior to the Change of Control. For
this purpose, an employee's site of employment shall be his site of employment
to which he is assigned as his home base, from which his work is assigned, or to
which he is to report.
2.14 INSIDER means an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.15 ISO means an option granted under this Plan to purchase Shares
which is intended by the Company to satisfy the requirements of Code ss.422 as
an incentive stock option.
2.16 KEY PERSON means (i) a member of the Board who is not an Employee,
(ii) a consultant, distributor or other person who has rendered or committed to
render valuable services to the Company, a Subsidiary or a Parent, (iii) a
person who has incurred, or is willing to incur, financial risk in the form of
guaranteeing or acting as co-obligor with respect to debts or other obligations
of the Company, or (iv) a person who has extended credit to the Company. Key
Persons are not limited to individuals and, subject to the preceding definition,
may include corporations, partnerships, associations and other entities.
2.17 NON-ISO means an option granted under this Plan to purchase
Shares which is not intended by the Company to satisfy the requirements of
Code ss.422.
2.18 OPTION means an ISO or a Non-ISO.
2.19 OUTSIDE DIRECTOR means a Director who is not an Employee and
who qualifies as (1) a "non-employee director" under Rule 16b-3(b)(3) under the
1934 Act, as amended from time to time, and (2) an "outside director" under Code
ss.162(m) and the regulations promulgated thereunder.
OpenSite Technologies, Inc. 2000 Stock Incentive Plan
Page 2 of 13
<PAGE> 3
2.20 PARENT means any corporation which is a parent of the Company
(within the meaning of Codess.424).
2.21 PARTICIPANT means an individual who receives a Stock Incentive
hereunder.
2.22 PERFORMANCE-BASED EXCEPTION means the performance-based
exception from the tax deductibility limitations of Code ss.162(m).
2.23 PLAN means the OpenSite Technologies, Inc. 2000 Stock
Incentive Plan, as may be amended from time to time.
2.24 SHARE means a share of the Common Stock of the Company.
2.25 SIGNIFICANT AND SUBSTANTIAL REDUCTION IN BENEFITS shall mean a
reduction in the pension, welfare or fringe benefits provided to an employee
which is both significant and substantial when expressed as a dollar amount or
when expressed as a percentage of the individual's dollar compensation. Any
modification or elimination of benefits which results solely from the provision
of new benefits to an employee by a successor employer as a result of a Change
of Control shall not be deemed to be a significant and substantial reduction in
benefits where such new benefits are identical to the benefits provided to
similarly situated employees of the successor employer.
2.26 STOCK INCENTIVE means an ISO, a Non-ISO, a Restricted Stock
Award or a Stock Appreciation Right.
2.27 STOCK INCENTIVE AGREEMENT means an agreement between the
Company and a Participant evidencing an award of a Stock Incentive.
2.28 SUBSIDIARY means any corporation which is a subsidiary of the
Company (within the meaning of Codess.424(f)).
2.29 SURRENDERED SHARES means the Shares described in Section 8.2
which (in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 8.
2.30 TEN PERCENT SHAREHOLDER means a person who owns (after taking
into account the attribution rules of Code ss.424(d)) more than ten percent
(10%) of the total combined voting power of all classes of shares of either the
Company, a Subsidiary or a Parent.
2.31 VESTING TERMINATION shall mean a termination of the employment
of an employee where such termination is done by the Company without Cause, or
where such termination is done voluntarily by the employee due to, and within
thirty (30) days of, (a) a decreases in the salary or wages of the employee, (b)
a Significant and Substantial Reduction in Benefits of the employee, and/or (c)
a Forced Relocation or Transfer of the employee.
SECTION 3.
SHARES SUBJECT TO STOCK INCENTIVES
The initial number of Shares that may be issued pursuant to Stock
Incentives under this Plan shall be 3,500,000 (the "Authorized Shares"). The
Authorized Shares shall be increased on January 1 of each year (the "year of
calculation") beginning on January 1, 2001, so that the number of Authorized
Shares shall be equal to the sum of (1) the aggregate number of Shares subject
to existing Stock Incentives granted under this plan prior to January 1 of the
year of calculation, (2) the aggregate number of Shares previously issued under
this Plan prior to January 1 of the year of calculation, and (3) 2,000,000
Shares; provided, however, in no event shall the increase in the Authorized
Shares from one fiscal year to the next exceed 2,000,000 Shares and in no event
shall the number of Authorized Shares from one fiscal year to the next decrease.
All amounts hereunder in Section 3 shall be adjusted pursuant to Section 11.
Such Shares shall be reserved, to the extent that the Company deems appropriate,
from authorized but unissued Shares, and from Shares which have been reacquired
by the Company. Furthermore, any Shares subject to a Stock Incentive which
OpenSite Technologies, Inc. 2000 Stock Incentive Plan
Page 3 of 13
<PAGE> 4
remain after the cancellation or expiration of such Stock Incentive thereafter
shall again become available for use under this Plan, but any Surrendered Shares
which remain after the surrender of an ISO or a Non-ISO under Section 8 shall
not again become available for use under this Plan. Notwithstanding anything
herein to the contrary, no Participant may be granted Options or Stock
Appreciation Rights covering an aggregate number of Shares in excess of
2,500,000 in any calendar year. Also, notwithstanding anything herein to the
contrary, the number of restricted shares of common stock available for issuance
under the Plan under this Plan at any time shall not exceed twenty percent (20%)
of the Authorized Shares at such time.
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan, as documented hereby, shall be the
date it is adopted by the Board, as noted in resolutions effectuating such
adoption, provided the shareholders of the Company approve this Plan within
twelve (12) months after such effective date. If such effective date comes
before such shareholder approval, any Stock Incentives granted under this Plan
before the date of such approval automatically shall be granted subject to such
approval.
SECTION 5.
ADMINISTRATION
5.1 GENERAL ADMINISTRATION. This Plan shall be administered by the
Board. The Board, acting in its absolute discretion, shall exercise such powers
and take such action as expressly called for under this Plan. The Board shall
have the power to interpret this Plan and, subject to the terms and provisions
of this Plan, to take such other action in the administration and operation of
the Plan as it deems equitable under the circumstances. The Board's actions
shall be binding on the Company, on each affected Employee or Key Person, and on
each other person directly or indirectly affected by such actions.
5.2 AUTHORITY OF THE BOARD. Except as limited by law or by the
Articles of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Board shall have full power to select Employees and Key
Persons who shall participate in the Plan, to determine the sizes and types of
Stock Incentives in a manner consistent with the Plan, to determine the terms
and conditions of Stock Incentives in a manner consistent with the Plan, to
construe and interpret the Plan and any agreement or instrument entered into
under the Plan, to establish, amend or waive rules and regulations for the
Plan's administration, and to amend the terms and conditions of any outstanding
Stock Incentives as allowed under the Plan and such Stock Incentives. Further,
the Board may make all other determinations which may be necessary or advisable
for the administration of the Plan.
5.3 DELEGATION OF AUTHORITY. The Board may delegate its authority
under the Plan, in whole or in part, to a Committee appointed by the Board
consisting of not less than two (2) directors. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board. If the Board or Committee so chooses, the Board or Committee may
delegate its authority under the Plan, in whole or in part, to two or more
members of management. Any delegate to which Board authority under this Plan has
been properly delegated shall act according to the policies and procedures set
forth in the Plan and to those policies and procedures established by the Board
or by such delegate, and such delegate shall have such powers and
responsibilities as are set forth by the delegating party. Reference to the
Board in this Plan shall specifically include reference to any delegate to which
Board authority under this Plan has been properly delegated where Board
authority has been delegated to such delegate, and any action by such delegate
pursuant to a delegation of
OpenSite Technologies, Inc. 2000 Stock Incentive Plan
Page 4 of 13
<PAGE> 5
authority shall be deemed an action by the Board under the Plan. Notwithstanding
the above, the Board may assume the powers and responsibilities granted to a
delegate at any time, in whole or in part. With respect to Committee
appointments and composition, only a Committee (or a sub-committee thereof)
comprised solely of two (2) or more Outside Directors may grant Stock Incentives
which will meet the Performance-Based Exception, and only a Committee comprised
solely of Outside Directors may grant Stock Incentives to Insiders that will be
exempt from Section 16(b) of the Exchange Act.
5.4 DECISIONS BINDING. All determinations and decisions made by
the Board or a delegate pursuant to the provisions of this Plan and all related
orders and resolutions of the Board or a delegate shall be final, conclusive and
binding on all persons, including the Company, its stockholders, Directors,
Employees, Key Persons, Participants, and their estates and beneficiaries
5.5 INDEMNIFICATION FOR DECISIONS. No member of the Board or any
delegate shall be liable for any action taken or determination made hereunder in
good faith. Service on the Committee or otherwise as a delegate shall constitute
service as a director of the Company so that the members of the Committee or a
delegate shall be entitled to indemnification and reimbursement as directors of
the Company pursuant to its bylaws and applicable law.
SECTION 6.
ELIGIBILITY
Employees and Key Persons selected by the Board shall be eligible for
the grant of Stock Incentives under this Plan, but no Employee or Key Person
shall have the right to be granted a Stock Incentive under this Plan merely as a
result of his or her status as an Employee or Key Person. Only Employees shall
be eligible to receive a grant of ISO's.
SECTION 7.
TERMS OF STOCK INCENTIVES
7.1 TERMS AND CONDITIONS OF ALL STOCK INCENTIVES.
(a) The Board, in its absolute discretion, shall grant Stock
Incentives under this Plan from time to time and shall have the right to grant
new Stock Incentives in exchange for outstanding Stock Incentives. Stock
Incentives shall be granted to Employees or Key Persons selected by the Board,
and the Board shall be under no obligation whatsoever to grant Stock Incentives
to all Employees or Key Persons, or to grant all Stock Incentives subject to the
same terms and conditions.
(b) The number of Shares as to which a Stock Incentive shall
be granted shall be determined by the Board in its sole discretion, subject to
the provisions of Section 3 as to the total number of shares available for
grants under the Plan.
(c) Each Stock Incentive shall be evidenced by a Stock
Incentive Agreement executed by the Company and the Participant, which shall be
in such form and contain such terms and conditions as the Board in its
discretion may, subject to the provisions of the Plan, from time to time
determine.
(d) The date a Stock Incentive is granted shall be the date on
which the Board has approved the terms and conditions of the Stock Incentive
Agreement and has determined the recipient of the Stock Incentive and the number
of Shares covered by the Stock Incentive and has taken all such other action
necessary to complete the grant of the Stock Incentive.
7.2 TERMS AND CONDITIONS OF OPTIONS. Each grant of an Option shall
be evidenced by a Stock Incentive Agreement which shall specify whether the
Option is an ISO or Non-ISO and incorporate such other terms and conditions as
the Board, acting in its absolute discretion, deems consistent with the terms of
this Plan, including (without limitation) a restriction on the number of Shares
subject to the Option which first become exercisable or subject to surrender
during any calendar year.
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<PAGE> 6
The Board and/or the Company shall have complete discretion,
notwithstanding subsection (a) above, to modify the terms and provisions of an
Option in accordance with Section 13 of this Plan even though such modification
may change the Option form an ISO to Non-ISO.
In determining Employee(s) or Key Person(s) to whom an Option
shall be granted and the number of Shares to be covered by such Option, the
Board may take into account the recommendations of the Chief Executive Officer
of the Company and its other officers, the duties of the Employee or Key Person,
the present and potential contributions of the Employee or Key Person to the
success of the Company, the anticipated number of years of service remaining
before the attainment by the Employee of retirement age, and other factors
deemed relevant by the Board, in its sole discretion, in connection with
accomplishing the purpose of this Plan. An Employee or Key Person who has been
granted an Option to purchase Shares, whether under this Plan or otherwise, may
be granted one or more additional Options. If the Board grants an ISO and a
Non-ISO to an Employee on the same date, the right of the Employee to exercise
or surrender one such Option shall not be conditioned on his or her failure to
exercise or surrender the other such Option.
(a) EXERCISE PRICE. Subject to adjustment in accordance with
Section 11 and the other provisions of this Section, the Exercise Price shall be
as set forth in the applicable Stock Incentive Agreement. With respect to each
grant of an ISO to a Participant who is not a Ten Percent Shareholder, the
Exercise Price shall not be less than the Fair Market Value on the date the ISO
is granted. With respect to each grant of an ISO to a Participant who is a Ten
Percent Shareholder, a Ten Percent Shareholder shall not be less than one
hundred ten percent (110%) of the Fair Market Value on the date the ISO is
granted. If a Stock Incentive is a Non-ISO, the Exercise Price for each Share
shall be no less than the minimum price required by applicable state law, or by
the Company's governing instrument, or $0.01, whichever price is greater. Any
Stock Incentive intended to meet the Performance-Based Exception must be granted
with an Exercise Price equivalent to or greater than the Fair Market Value of
the Shares subject thereto.
(b) OPTION TERM. Each Option granted under this Plan shall be
exercisable in whole or in part at such time or times as set forth in the
related Stock Incentive Agreement, but no Stock Incentive Agreement shall:
(i) make an Option exercisable before the date such
Option is granted; or
(ii) make an Option exercisable after the earlier of:
(A) the date such Option is exercised in full, or
(B) the date which is the tenth (10th) anniversary
of the date such Option is granted, if such Option is a Non-ISO or an ISO
granted to a non-Ten Percent Shareholder, or the date which is the fifth (5th)
anniversary of the date such Option is granted, if such Option is an ISO granted
to a Ten Percent Shareholder.
A Stock Incentive Agreement may provide for the exercise of an
Option after the employment of an Employee has terminated for any reason
whatsoever, including death or disability. The Employee's rights, if any, upon
termination of employment will be set forth in the applicable Stock Incentive
Agreement.
(c) PAYMENT. Options shall be exercised by the delivery of a
written notice of exercise to the Company, setting forth the number of Shares
with respect to which the Option is to be exercised accompanied by full payment
for the Shares. Payment for shares of Stock purchased pursuant to exercise of an
Option shall be made in cash or, unless the Stock Incentive Agreement provides
otherwise, by delivery to the Company of a number of Shares which have been
owned and completely paid for by the holder for at least six (6) months prior to
the date of exercise (I.E., "mature shares" for accounting purposes) having an
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<PAGE> 7
aggregate Fair Market Value equal to the amount to be tendered, or a combination
thereof. In addition, unless the Stock Incentive Agreement provides otherwise,
the Option may be exercised through a brokerage transaction following
registration of the Company's equity securities under Section 12 of the
Securities Exchange Act of 1934 as permitted under the provisions of Regulation
T applicable to cashless exercises promulgated by the Federal Reserve Board.
However, notwithstanding the foregoing, with respect to any Option recipient who
is an Insider, a tender of shares or a cashless exercise must (1) have met the
requirements of an exemption under Rule 16b-3 promulgated under the Exchange
Act, or (2) be a subsequent transaction the terms of which were provided for in
a transaction initially meeting the requirements of an exemption under Rule
16b-3 promulgated under the Exchange Act. Unless the Stock Incentive Agreement
provides otherwise, the foregoing exercise payment methods shall be subsequent
transactions approved by the original grant of an Option. Except as provided in
subparagraph (f) below, payment shall be made at the time that the Option or any
part thereof is exercised, and no Shares shall be issued or delivered upon
exercise of an Option until full payment has been made by the Participant. The
holder of an Option, as such, shall have none of the rights of a stockholder.
Notwithstanding the above, and in the sole discretion of the
Board, an Option may be exercised as to a portion or all (as determined by the
Board) of the number of Shares specified in the Stock Incentive Agreement by
delivery to the Company of a promissory note, such promissory note to be
executed by the Participant and which shall include, with such other terms and
conditions as the Board shall determine, provisions in a form approved by the
Board under which: (i) the balance of the aggregate purchase price shall be
payable in equal installments over such period and shall bear interest at such
rate (which shall not be less than the prime bank loan rate as determined by the
Board) as the Board shall approve, and (ii) the Participant shall be personally
liable for payment of the unpaid principal balance and all accrued but unpaid
interest. Other methods of payment may also be used if approved by the Board in
its sole and absolute discretion and not prohibited under the Stock Incentive
Agreement.
(d) CONDITIONS TO EXERCISE OF AN OPTION. Each Option granted
under the Plan shall vest and shall be exercisable at such time or times, or
upon the occurrence of such event or events, and in such amounts, as the Board
shall specify in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of an Option, the Board, at any time before complete
termination of such Option, may accelerate the time or times at which such
Option may vest or be exercised in whole or in part. The Board may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, without limitation, vesting or performance-based
restrictions, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
(e) TRANSFERABILITY OF OPTIONS. An Option shall not be
transferable or assignable except by will or by the laws of descent and
distribution and shall be exercisable, during the Participant's lifetime, only
by the Participant, or in the event of the disability of the Participant;
provided, however, that in the event the Participant is incapacitated and unable
to exercise his or her Option, such Option may be exercised by such
Participant's legal guardian, legal representative, or other representative whom
the Board deems appropriate based on applicable facts and circumstances. The
determination of incapacity of a Participant and the determination of the
appropriate representative of the Participant who shall be able to exercise the
Option if the Participant is incapacitated shall be determined by the Board in
its sole and absolute discretion. Notwithstanding the foregoing, a Non-ISO may
also be transferred as a bona fide gift (i) to his spouse or lineal descendant
or lineal ascendant, (ii) to a trust for the benefit of one or more individuals
described in clause (i), (iii) to a partnership of which the only partners are
one or more individuals described in clause (i), or (iv) to other persons with
the prior approval of the Board in its sole and absolute discretion, in which
case the transferee shall be subject to all provisions of the Plan, the Stock
Incentive Agreement and the Exercise and Shareholder Agreement provided by the
Company in connection with the exercise of the Option and purchase of Shares. In
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<PAGE> 8
the event of such a gift, the Optionee shall promptly notify the Board of such
transfer and deliver to the Board such written documentation as the Board may in
its discretion request, including, without limitation, the written
acknowledgment of the donee that the donee is subject to the provisions of the
Plan, the Stock Incentive Agreement and the Exercise and Shareholder Agreement.
(f) SPECIAL PROVISIONS FOR CERTAIN SUBSTITUTE OPTIONS.
Notwithstanding anything to the contrary in this Section, any Option in
substitution for a stock option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code ss.424(a) is
applicable, may provide for an exercise price computed in accordance with Code
ss.424(a) and the regulations thereunder and may contain such other terms and
conditions as the Board may prescribe to cause such substitute Option to contain
as nearly as possible the same terms and conditions (including the applicable
vesting and termination provisions) as those contained in the previously issued
stock option being replaced thereby.
7.3 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right may be granted in connection with all or any portion of a
previously or contemporaneously granted Option or not in connection with an
Option. A Stock Appreciation Right shall entitle the Participant to receive upon
exercise or payment the excess of: (I) the Fair Market Value of a specified
number of Shares at the time of exercise, over (II) a specified price which
shall be not less than the Exercise Price for that number of Shares in the case
of a Stock Appreciation Right granted in connection with a previously or
contemporaneously granted Option, or in the case of any other Stock Appreciation
Right not less than one hundred percent (100%) of the Fair Market Value of that
number of Shares at the time the Stock Appreciation Right was granted. A Stock
Appreciation Right granted in connection with an Option may only be exercised to
the extent that the related Option has not been exercised. The exercise of a
Stock Appreciation Right shall result in a pro rata surrender of the related
Option to the extent the Stock Appreciation Right has been exercised.
(a) PAYMENT. Upon exercise or payment of a Stock Appreciation
Right, the Company shall pay to the Participant the appreciation in cash or
Shares (at the aggregate Fair Market Value on the date of payment or exercise)
as provided in the Stock Incentive Agreement or, in the absence of such
provision, as the Board may determine.
(b) CONDITIONS TO EXERCISE. Each Stock Appreciation Right
granted under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Board shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of a Stock Appreciation Right, the Board, at any time before complete
termination of such Stock Appreciation Right, may accelerate the time or times
at which such Stock Appreciation Right may be exercised in whole or in part.
(c) TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Except as
otherwise provided in a Participant's Stock Incentive Agreement, no Stock
Appreciation Right granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Stock Incentive Agreement, all Stock Appreciation Rights granted
to a Participant under the Plan shall be exercisable, during the Participant's
lifetime, only by the Participant; provided, however, that in the event the
Participant is incapacitated and unable to exercise his or her Stock
Appreciation Right, such Stock Appreciation Right may be exercised by such
Participant's legal guardian, legal representative, or other representative whom
the Board deems appropriate based on applicable facts and circumstances. The
determination of incapacity of a Participant and the determination of the
appropriate representative of the Participant shall be determined by the Board
in its sole and absolute discretion. Notwithstanding the foregoing, except as
otherwise provided in the Stock Incentive Agreement, (A) a Stock Appreciation
Right which is granted in connection with the grant of a Non-ISO may be
transferred, but only with the Non-ISO, and (B) a Stock Appreciation Right which
is not granted in connection with the grant of a Non-ISO, may be transferred as
a bona fide gift, (i) to his spouse or lineal descendant or lineal ascendant,
(ii) to a trust for the benefit of one or more individuals described in clause
(i), (iii) to a partnership of which the only partners are one or more
individuals described in clause (i), or (iv) to other persons with the prior
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<PAGE> 9
approval of the Board in its sole and absolute discretion, in which case the
transferee shall be subject to all provisions of the Plan and the Stock
Incentive Agreement. In the event of such a gift, the Optionee shall promptly
notify the Board of such transfer and deliver to the Board such written
documentation as the Board may in its discretion request, including, without
limitation, the written acknowledgment of the donee that the donee is subject to
the provisions of the Plan and the Stock Incentive Agreement.
7.4 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. Shares
awarded pursuant to Restricted Stock Awards shall be subject to such
restrictions as determined by the Board for periods determined by the Board.
Unless the applicable Stock Incentive Agreement provides otherwise, holders of
Restricted Stock Awards shall be entitled to vote and receive dividends during
the periods of restriction to the same extent as holders of unrestricted Common
Stock. The Board shall have the power to permit, in its discretion, an
acceleration of the expiration of the applicable restriction period with respect
to any part or all of the Shares awarded to a Participant. The Board may require
a cash payment from the Participant in an amount no greater than the aggregate
Fair Market Value of the Shares awarded determined at the date of grant in
exchange for the grant of a Restricted Stock Award or may grant a Restricted
Stock Award without the requirement of a cash payment. A Restricted Stock Award
may be transferred, except as otherwise provided in the Stock Incentive
Agreement, as a bona fide gift (i) to his spouse or lineal descendant or lineal
ascendant, (ii) to a trust for the benefit of one or more individuals described
in clause (i), (iii) to a partnership of which the only partners are one or more
individuals described in clause (i), or (iv) to other persons with the prior
approval of the Board in its sole and absolute discretion, in which case the
transferee shall be subject to all provisions of the Plan and the Stock
Incentive Agreement. In the event of such a gift, the Optionee shall promptly
notify the Board of such transfer and deliver to the Board such written
documentation as the Board may in its discretion request, including, without
limitation, the written acknowledgment of the donee that the donee is subject to
the provisions of the Plan and the Stock Incentive Agreement.
SECTION 8.
SURRENDER OF OPTIONS
8.1 GENERAL RULE. The Board, acting in its absolute discretion,
may incorporate a provision in a Stock Incentive Agreement to allow an Employee
or Key Person to surrender his or Option in whole or in part in lieu of the
exercise in whole or in part of that Option on any date that:
(a) the Fair Market Value of the Shares subject to such Option
exceeds Exercise Price for such Shares, and
(b) the Option to purchase such Shares is otherwise
exercisable.
8.2 PROCEDURE. The surrender of an Option in whole or in part
shall be effected by the delivery of the Stock Incentive Agreement to the Board,
together with a statement signed by the Participant which specifies the number
of Shares ("Surrendered Shares") as to which the Participant surrenders his or
her Option and how he or she desires payment be made for such Surrendered
Shares.
8.3 PAYMENT. A Participant in exchange for his or her Surrendered
Shares shall receive a payment in cash or in Shares, or in a combination of cash
and Shares, equal in amount on the date such surrender is effected to the excess
of the Fair Market Value of the Surrendered Shares on such date over the
Exercise Price for the Surrendered Shares. The Board, acting in its absolute
discretion, can approve or disapprove a Participant's request for payment in
whole or in part in cash and can make that payment in cash or in such
combination of cash and Shares as the Board deems appropriate. A request for
payment only in Shares shall be approved and made in Shares to the extent
payment can be made in whole shares of Shares and (at the Board's discretion) in
cash in lieu of any fractional Shares.
8.4 RESTRICTIONS. Any Stock Incentive Agreement which incorporates
a provision to allow a Participant to surrender his or her Option in whole or in
part also shall incorporate such additional restrictions on the exercise or
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<PAGE> 10
surrender of such Option as the Board deems necessary to satisfy the conditions
to the exemption under Rule 16b-3 (or any successor exemption) to Section 16(b)
of the Exchange Act.
SECTION 9.
SECURITIES REGULATION
Each Stock Incentive Agreement may provide that, upon the receipt of
Shares as a result of the surrender or exercise of a Stock Incentive, the
Participant shall, if so requested by the Company, hold such Shares for
investment and not with a view of resale or distribution to the public and, if
so requested by the Company, shall deliver to the Company a written statement
satisfactory to the Company to that effect. Each Stock Incentive Agreement may
also provide that, if so requested by the Company, the Participant shall make a
written representation to the Company that he or she will not sell or offer to
sell any of such Shares unless a registration statement shall be in effect with
respect to such Shares under the Securities Act of 1933, as amended ("1933
Act"), and any applicable state securities law or, unless he or she shall have
furnished to the Company an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required. Certificates representing the Shares transferred upon the exercise
or surrender of a Stock Incentive granted under this Plan may at the discretion
of the Company bear a legend to the effect that such Shares have not been
registered under the 1933 Act or any applicable state securities law and that
such Shares may not be sold or offered for sale in the absence of an effective
registration statement as to such Shares under the 1933 Act and any applicable
state securities law or an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required.
SECTION 10.
LIFE OF PLAN
No Stock Incentive shall be granted under this Plan on or after the
earlier of:
(a) the tenth (10th) anniversary of the effective date of this Plan (as
determined under Section 4 of this Plan), in which event this Plan otherwise
thereafter shall continue in effect until all outstanding Stock Incentives have
been surrendered or exercised in full or no longer are exercisable, or
(b) the date on which all of the Shares reserved under Section 3 of
this Plan have (as a result of the surrender or exercise of Stock Incentives
granted under this Plan) been issued or no longer are available for use under
this Plan, in which event this Plan also shall terminate on such date.
SECTION 11.
ADJUSTMENT
Notwithstanding anything in Section 13 to the contrary, the number of
Shares reserved under Section 3 of this Plan, the limit on the number of Shares
which may be granted during a calendar year to any individual under Section 3 of
this Plan, the number of Shares subject to Stock Incentives granted under this
Plan, and the Exercise Price of any Options, shall be adjusted by the Board in
an equitable manner to reflect any change in the capitalization of the Company,
including, but not limited to, such changes as stock dividends or stock splits.
Furthermore, the Board shall have the right to adjust (in a manner which
satisfies the requirements of Code ss.424(a)) the number of Shares reserved
under Section 3, and the number of Shares subject to Stock Incentives granted
under this Plan, and the Exercise Price of any Options in the event of any
corporate transaction described in Code ss.424(a) which provides for the
substitution or assumption of such Stock Incentives. If any adjustment under
this Section creates a fractional Share or a right to acquire a fractional
Share, such fractional Share shall be disregarded, and the number of Shares
reserved under this Plan and the number subject to any Stock Incentives granted
under this Plan shall be the next lower number of Shares, rounding all fractions
downward. An adjustment made under this Section by the Board shall be conclusive
and binding on all affected persons and, further, shall not constitute an
increase in the number of Shares reserved under Section 3.
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<PAGE> 11
SECTION 12.
SALE OR MERGER OF THE COMPANY
Except to the extent that a Stock Incentive Agreement expressly
provides otherwise, if a Change of Control occurs, and the agreements
effectuating the Change of Control provide for the assumption or substitution of
the Stock Incentives granted under this Plan, each Stock Incentive shall have
its vesting and exercisability accelerated by one year as of the date of the
Change of Control so that, after such acceleration, the recipient of the Stock
Incentive shall be vested in such Stock Incentive as of any date of
determination after such Change of Control in accordance with the terms and
provisions of the Stock Incentive except that it shall be presumed that the date
of determination is actually one year later than the actual date of
determination. Except to the extent that a Stock Incentive Agreement expressly
provides otherwise, to the extent that the recipient of a Stock Incentive
granted under this Plan is employed by the Company immediately prior to a Change
of Control and the employment of such Stock Incentive recipient is terminated in
a Vesting Termination on or within one year following the Change of Control,
then, if the agreements effectuating the Change of Control provide for the
assumption or substitution of the Stock Incentives granted under this Plan, the
vesting and exercisability of the Stock Incentive of such recipient shall be
accelerated by an additional one year as of the date of the Vesting Termination
so that, after such acceleration, the recipient of the Stock Incentive shall be
vested in such Stock Incentive as of any date of determination after the date of
the Vesting Termination in accordance with the terms and provisions of the Stock
Incentive except that it shall be presumed that the date of determination is
actually two years later than the actual date of determination.
Except to the extent that a Stock Incentive Agreement expressly
provides otherwise, if the Company agrees to a Company Sale or a Company Merger
and such agreement does not provide for the assumption or substitution of the
Stock Incentives granted under this Plan, each Stock Incentive, shall
immediately become fully vested immediately prior to the closing of the
transaction effectuating the Change of Control, and, at the direction and
discretion of the Board, may be canceled unilaterally by the Company in exchange
for (a) whole Shares (or, subject to satisfying the conditions of an exemption
under Rule 16b-3 or any successor exemption to Section 16(b) of the Exchange
Act, for the whole Shares and cash in lieu of any fractional Share) which each
Participant otherwise would receive if he or she had the right to surrender or
exercise his or her outstanding Stock Incentive in full and he or she exercised
that right exclusively for Shares on a date fixed by the Board which comes
before such sale or other corporate transaction, or (b) cash or other property
equivalent in value, as determined by the Board in its sole discretion, to the
Shares described in clause (a) of this sentence.
SECTION 13.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of the Company:
(a) to increase the number of Shares reserved under Section 3, except as set
forth in Section 11, (b) to extend the maximum life of the Plan under Section 10
or the maximum exercise period under Section 7, (c) to decrease the minimum
Exercise Price under Section 7, or (d) to change the designation of Employees or
Key Persons eligible for Stock Incentives under Section 6. The Board also may
suspend the granting of Stock Incentives under this Plan at any time and may
terminate this Plan at any time. The Company shall not have the right to modify,
amend or cancel any Stock Incentive after it has been granted before such
unless: (I) the Participant consents in writing to such modification, amendment
or cancellation, or (II) there is a dissolution or liquidation of the Company or
a transaction described in Section 11 or Section 12, or (III) the Company would
otherwise have the right to make such modification, amendment or cancellation by
applicable law.
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<PAGE> 12
SECTION 14.
MISCELLANEOUS
14.1 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder of the Company as a result of the grant of a Stock Incentive to him
or to her under this Plan or his or her exercise or surrender of such Stock
Incentive pending the actual delivery of Shares subject to such Stock Incentive
to such Participant.
14.2 NO GUARANTEE OF CONTINUED RELATIONSHIP. The grant of a Stock
Incentive to a Participant under this Plan shall not constitute a contract of
employment, shall not confer on any Participant any right to continued
employment, and shall not confer on a Participant any rights upon his or her
termination of employment or relationship with the Company in addition to those
rights, if any, expressly set forth in the Stock Incentive Agreement which
evidences his or her Stock Incentive. Nothing contained in the Plan, or any
modification thereof, or any Stock Incentive granted under this Plan shall be
construed to give any Participant any rights to continued employment.
14.3 WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company as a
condition precedent for the fulfillment of any Stock Incentive, an amount
sufficient to satisfy Federal, state and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan. Whenever Shares are to be issued or cash paid
to a Participant upon exercise of an Option, the Company shall have the right to
require the Participant to remit to the Company, as a condition of exercise of
the Option, an amount sufficient to satisfy federal, state and local withholding
tax requirements at the time of exercise. However, notwithstanding the
foregoing, to the extent that a Participant is an Insider, satisfaction of
withholding requirements by having the Company withhold Shares may only be made
to the extent that such withholding of Shares (1) has met the requirements of an
exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) is a
subsequent transaction the terms of which were provided for in a transaction
initially meeting the requirements of an exemption under Rule 16b-3 promulgated
under the Exchange Act. Unless the Stock Incentive Agreement provides otherwise,
the withholding of shares to satisfy federal, state and local withholding tax
requirements shall be a subsequent transaction approved by the original grant of
a Stock Incentive. Notwithstanding the foregoing, in no event shall payment of
withholding taxes be made by a retention of Shares by the Company unless the
Company retains only Shares with a Fair Market Value equal to the minimum amount
of taxes required to be withheld.
14.4 NOTIFICATION OF DISQUALIFYING DISPOSITIONS OF ISO OPTIONS. If
a Participant sells or otherwise disposes of any of the Shares acquired pursuant
to an Option which is an ISO on or before the later of (1) the date two (2)
years after the date of grant of such Option, or (2) the date one (1) year after
the exercise of such Option, then the Participant shall immediately notify the
Company in writing of such sale or disposition and shall cooperate with the
Company in providing sufficient information to the Company for the Company to
properly report such sale or disposition to the Internal Revenue Service. The
Participant acknowledges and agrees that he may be subject to income tax
withholding by the Company on the compensation income recognized by Participant
from any such early disposition by either (or both) his payment to the Company
in cash or his payment out of the current wages or earnings otherwise payable to
him by the Company, and agrees that he shall include the compensation from such
early disposition in his gross income for federal tax purposes. Participant also
acknowledges that the Company may condition the exercise of any Option which is
an ISO on the Participant's express written agreement with these provisions of
this Plan.
14.5 TRANSFER. The transfer of an Employee between or among the
Company, a Subsidiary or a Parent shall not be treated as a termination of his
or her employment under this Plan.
14.5 CONSTRUCTION. This Plan shall be construed under the laws of
the State of Delaware.
14.6 SEVERABILITY. If any portion of this Plan is held invalid or
inoperative, the other portions of this Plan shall be deemed valid and operative
and, so far as is reasonable and possible, effect shall be given to the intent
manifested by the portion held invalid or inoperative.
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<PAGE> 13
596477.5
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Page 13 of 13
<PAGE> 1
EXHIBIT 10.21
[OPENSITE LOGO]
OpenSite Technologies, Inc.
P.O. Box 12542
Research Triangle Park
North Carolina 27709-2542
-------------------------
Phone: 919-544-1999
-------------------------
Fax: 919-544-9367
-------------------------
Web site: www.opensite.com
June 14, 1999
Mr. Tim Oakley
209 Chiselhurst Way
Cary, NC 27513
Dear Tim:
I am pleased to confirm our understanding of your employment terms with
OpenSite. We have agreed that your start date will be July 7, 1999. Your title
will be Senior Vice President and Chief Financial Officer. The position will
report directly to me. The other components of your package are:
SHORT TERM COMPENSATION: Your annual salary will be $175,000, which will be
paid in accordance with our normal payroll policies. You will be eligible for a
bonus of 40% of your base pay. Your bonus will be based upon company
performance (50%) and individual performance (50%) in relation to agreed upon
objectives. The bonus will be paid semi-annually. Your total target short-term
compensation is $245,000 consisting of $175,000 in salary and $70,000 in annual
incentives.
PERFORMANCE REVIEWS: You will be formally reviewed annually. Your resulting
long term and short-term compensation will be based upon performance and
competitive market comparisons for Chief Financial Officers within the high
technology industry, particularly in the areas of telecommunications,
information technology and the Internet.
LONG TERM COMPENSATION - STOCK OPTIONS: You will be granted a total of 350,000
stock options with a strike price of $5.00 per share (pre reverse split).
300,000 options will be subject to a time-based vesting schedule over four
years as described in section "A" below. 50,000 options will vest at the
completion of four years of service or upon achievement of agreed-upon
objectives over a six month period as described in section "B" below. The
options will be subject to the terms and conditions of the Plan and an option
award agreement that reflects your long-term compensation arrangement. All
subsequent references to options are post reverse split. The post reverse split
references assume a 2 for 1 split and will be recalculated if the split is
anything other than 2 for 1.
Section A: Time-Based Vesting for 150,000 Shares:
1) Six Months from date of hire 25%-50%*
2) Month seven to month forty eight 1.785%-1.190%* per month
*Explanation of Vesting Ranges: The minimum number of options that will vest on
your six-month anniversary will be 25% of the 150,000 grant or 37,500. That
1
<PAGE> 2
number may increase up to 50% of 150,000, or 75,000, to the extent the "market
value" (number of vested options times "average market price" as defined below)
of the minimum option grant does not exceed the grant value (vested shares
times strike price of $10.00) by $800,000. Further explanation is as follows:
- - At your six-month anniversary date, if the "average market price" of
OpenSite shares is equal to or greater than $31.34 then you will vest
in 25% of your option award (37,500 shares). The "average market
price" will be the average daily closing price for 22 trading days
prior to the six-month vesting date. In this case, the remaining 75%
will vest monthly at a rate of 1.786% per month for 42 months.
- - If on your six-month anniversary the average market price does not
exceed $31.34, then additional options will be subject to accelerated
vesting so as to provide a market value $800,000 greater than your
grant value (up to a limit of 37,500 additional vested options). The
remaining unvested options will then vest based on a formula to be
determined by subtracting the six month vesting percentage from 100%
and dividing this amount by the forty two remaining months of the
four year total vesting period.
- - If OpenSite does not go public within six months of your hire date
then a total of 50% of the shares will vest on your six-month
anniversary date.
Example of Time-Based Vesting:
At your six-month anniversary date, the average market price is
$25.00. When multiplied by 37,500 shares, this equals a market value
of $937,500. The difference between market value and grant vale thus
would be $562,500 ($25.00 minus $10.00 times 37,500 shares). Since the
market value minus grant value is less than $800,000, an additional
15,833 options would vest, bringing your total to 53,333, since 53,333
times the $15.00 delta equals $800,000. The remaining 64.4% (the ratio
of 150,000 minus 53,333 to 150,000) will be vested at a rate of 1.533%
monthly for a period of 42 months (64.4% divided by 42 months).
Section B -- Performance-Based Vesting.
The remaining 25,000 options will vest at the completion of four years of
service. However, if certain performance goals are achieved against the
following objectives, the vesting of these options will be accelerated:
- - 34%, or 8,500 options, will vest immediately if OpenSite's average
market price (as defined above), as of your six-month anniversary, is
greater than 125% of the offering price. If the IPO is delayed so
that average market price cannot be calculated, then the date for
calculation will be extended to
2
<PAGE> 3
allow for twenty-two trading days.
33%, or 8,250 options, will vest immediately based upon successful management
of the quarterly reporting process for the first two reporting periods after
the IPO. "Successful management" of this process will be determined by the CEO.
33%, or 8,250 options, will vest immediately based upon satisfactory achievement
of personal performance milestones during your first six months of employment,
to be agreed upon with the CEO.
It is our intent to put an annual option grant program in place during 1999 and
you will have the opportunity to participate in such a plan.
SIGNING BONUS: A signing bonus of $25,000 will be paid on your first day of
employment.
BENEFITS: You will be eligible for all our employee benefits that are outlined
in the enclosed benefit package.
VACATION: You will receive four weeks of vacation annually.
TERMINATION NOTICE: The company will give you a minimum of 12 months notice or
severance as below for any termination other than for "cause." Cause is
defined as criminal acts, gross negligence or refusal to follow the reasonable
directives of the CEO or the Board of Directors. If employment is terminated
without cause then you will receive a severance sum equal to your then current
salary plus any earned but unpaid bonuses.
Tim, we are extremely excited to welcome you as a key member of the OpenSite
management team. I know I speak for our Board and everyone here in extending
our warmest wishes. If the foregoing comports with your understanding of our
agreement, please so indicate by your signature below.
Sincerely,
/s/ Kip A. Frey
---------------------------------------
Kip A. Frey
President, CEO
AGREED AND ACCEPTED:
/s/ Tim Oakley
- --------------------------------------
Tim Oakley
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 of our report dated January 28, 2000, relating to the
financial statements of OpenSite Technologies, Inc., which appears 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
March 15, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 of our report dated February 7, 2000, relating to the
financial statements of Bidder's Edge, Inc., which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OPENSITE TECHNOLOGIES FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,599,244
<SECURITIES> 0
<RECEIVABLES> 2,385,814
<ALLOWANCES> 389,549
<INVENTORY> 0
<CURRENT-ASSETS> 13,323,497
<PP&E> 1,064,290
<DEPRECIATION> 458,147
<TOTAL-ASSETS> 14,947,549
<CURRENT-LIABILITIES> 5,000,583
<BONDS> 0
80,458,786
0
<COMMON> 62,365
<OTHER-SE> (70,574,185)
<TOTAL-LIABILITY-AND-EQUITY> 14,947,549
<SALES> 6,437,253
<TOTAL-REVENUES> 7,877,639
<CGS> 456,254
<TOTAL-COSTS> 1,862,804
<OTHER-EXPENSES> 18,819,244
<LOSS-PROVISION> 577,626
<INTEREST-EXPENSE> 5,330
<INCOME-PRETAX> (12,205,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,205,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,205,456)
<EPS-BASIC> (12.51)
<EPS-DILUTED> (12.51)
</TABLE>
