<PAGE>
As filed with the Securities and Exchange Commission on December 13, 1999
Registration No. 333-89069
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
C-bridge Internet Solutions, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7371 52-2001899
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number ) Identification Number)
of Incorporation or --------------------
organization)
C-bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02139
(617) 497-1707
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
Joseph M. Bellini
President and Chief Executive Officer
C-bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02139
(617) 497-1707
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copies to:
John A. Burgess, Esq. Mark L. Johnson, Esq.
Hale and Dorr LLP Richard G. Costello, Esq.
60 State Street Foley, Hoag & Eliot LLP
Boston, Massachusetts 02109 One Post Office Square
Telephone: (617) 526-6000 Boston, Massachusetts 02109
Telecopy: (617) 526-5000 Telephone: (617) 832-1000
Telecopy: (617) 832-7000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 13, 1999
[C-BRIDGE LOGO APPEARS HERE]
4,000,000 Shares
Common Stock
C-bridge Internet Solutions, Inc. is offering 4,000,000 shares of its common
stock. This is our initial public offering, and no public market currently
exists for our shares. We have applied to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "CBIS." We anticipate
that the initial public offering price will be between $8.00 and $10.00 per
share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to C-bridge............................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 600,000 shares of our common stock to cover over-allotments.
--------------
Robertson Stephens
SG Cowen
SoundView Technology Group
The date of this prospectus is December , 1999
<PAGE>
{C-bridge logo appears here]
<PAGE>
Description of the two page graphical foldout:
The outside cover of the gatefold is comprised of a bridge spanning the bottom
of the page. Under the bridge is water. Over the bridge is blue sky. In the
center of the page is the C-bridge logo with the text "Evolution In Technology"
and a small orange line underneath and the text "Revolution In Business"
underneath the orange line.
The background of the inside flap of the gatefold is comprised of a bridge
spanning the bottom of both the inside flap and inside front cover pages. Under
the bridge is water. Over the bridge is blue sky. Above the bridge, but below
the center of the foldout, are four screen shots of client web sites, two per
page.
The top of the left-hand page of the gatefold contains our logo with the text
"Internet...Intranet...Extranet" to the right. The remainder of the page
contains a graphic under the heading "C-bridge's Strategic eBusiness Approach."
The graphic begins with the text "Profit Life Cycle Management." The graphic is
comprised of three topics presented in an oval form. The first topic, presented
to the left top of the oval, contains the text "Enterprise Goals" with the
bullets "Measurements," "Operations," Resource Management," and "Scheduling"
underneath. The second topic, presented to the right center of the oval,
contains the text "Technology" with the bullets "Internet & Processes," "Data
Management" and "Backend Systems Integration" underneath. The third topic,
presented to the middle bottom of the oval, contains the text "Process" with the
bullets "Business Rules & Policies," "Supply & Service Chain" and "Industry
Specific" underneath. The three topics are connected by circular arrows around
the perimeter of the oval.
The top of the inside front cover of the gatefold contains a graphic that begins
with the text "Profit Life Cycle Management." The graphic is comprised of three
topics presented in an oval form. The first topic, presented to the left top of
the oval, contains the text "What to Change?" with the bullets "Strategy" and
"Diagnosis" underneath. The second topic, presented to the right center of the
oval, contains the text "What to Change to?" with the bullets "Rapid Solution,"
"Delivery Process" and "Change Management" underneath. The third topic,
presented to the middle bottom of the oval, contains the text "How to Make the
Change Happen" with the bullets "Implementation & On-going Profit Improvement"
and "Education & Empowerment" underneath. The three topics are connected by
circular arrows around the perimeter of the oval. Under the graphic are three
paragraphs with the headings to the left of each paragraph. The first paragraph
has the heading "Financial:" and contains the text "Profit Life Cycle Management
enables the organization to increase profits and return on resources with
consistent on-time delivery resulting in higher return on investment." The
second paragraph has the heading "Strategic:" and contains the text "Profit Life
Cycle Management provides the competitive edge for increased market share by
creating faster time-to-market throughout the enterprise." The third paragraph
has the heading "Operational:" and contains the text "Profit Life Cycle
Management synchronizes all levels of management, from senior management to
resource managers, by making decisions based on the same criteria and driving
rapid implementation."
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................. 31
Management............................................................... 44
Certain Transactions..................................................... 53
Principal Stockholders................................................... 56
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 61
Legal Matters............................................................ 63
Experts.................................................................. 63
Where You Can Find More Information...................................... 64
Index to Financial Statements............................................ F-1
</TABLE>
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C-BRIDGE is a registered trademark of C-bridge. All other trademarks or
trade names referred to in this prospectus are the property of their respective
owners.
3
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It contains a summary of the most significant aspects of the offering that you
should consider before investing in our common stock. This summary may not
contain all of the information that is important to you. You should read the
entire prospectus carefully.
C-bridge Internet Solutions
Our Business
We are a full service provider of Internet-based solutions designed to help
companies conduct business over the Internet, commonly known as eBusiness. We
add value to our clients by incorporating our expertise in business issue
diagnosis and resolution, business and technology strategy development and the
delivery of advanced Internet applications and eBusiness solutions.
Additionally, we offer clients executive education services on topics relevant
to senior executives' efforts to successfully develop and implement Internet
technologies and eBusiness strategies.
Our Services
We help companies interact effectively, both internally with employees and
externally with vendors, suppliers and customers, by employing eBusiness
solutions. We educate senior-level executives from companies on the Business
Week Global 1000 index at executive education seminars around the world,
diagnose new business strategies and systems architectures shortcomings and
then deliver strategic eBusiness solutions that are designed to enhance our
clients' core businesses, operations and communications.
We deliver our services through our proprietary methodology that provides
an integrated framework for each stage of a client engagement. The methodology
is based on a number of underlying principles:
. value driven;
. iterative development and change management;
. design patterns and reusable software; and
. proactive risk management.
Our diagnosis services are structured to improve our clients' understanding
of the power and potential of eBusiness solutions. During the diagnosis phase
we work with clients to help them understand the various ways to incorporate
Internet technologies into their business strategies, enable them to identify
and quantify prominent business opportunities where the Internet can be
leveraged to gain a competitive advantage and realize business value, evaluate
their current Internet capabilities and explore and create a vision of how a
chosen Internet strategy will result in measurable business value.
We use standard design patterns and reusable software components to
assemble our eBusiness solutions, increase reliability and product quality,
reduce costs and keep project teams focused on delivering business
functionality. Application development efforts are based on well-defined
specifications with release schedules that are closely aligned with business
priorities.
Our Market
We believe we are well-positioned to capitalize on the opportunity
presented by the rapid growth of the Internet. According to International Data
Corporation, the amount of commerce conducted over the Internet will exceed
$1.0 trillion by 2003. Faced with growing competition, deregulation and
globalization, companies are increasingly looking to utilize Internet
technologies to help build a competitive advantage. However,
4
<PAGE>
companies frequently require major technology investments in order to realize
the full value of their Internet strategies and often need outside technical
expertise to identify and evaluate viable Internet tools, develop feasible
systems architectures and implement strategies. The market for third-party
Internet professional service providers who perform these services has grown
significantly in recent years. International Data Corporation has forecasted
that the size of this market will grow from $7.8 billion in 1998 to $78.5
billion by 2003.
Our Strategy
Our goal is to become the leading provider of eBusiness services to Global
1000 companies. To achieve this objective, we are actively pursuing the
following strategies:
. continue to enhance our eBusiness framework and design patterns;
. develop and expand client relationships;
. capture and disseminate reusable knowledge and best practices;
. leverage and expand our industry-specific expertise; and
. expand our geographic presence.
Our Clients
We provide our services primarily to Global 1000 companies. Our customers
include Allmerica, Chevron, General Motors, Liz Claiborne, Polo Ralph Lauren
and Toyota. Our eBusiness solutions are designed to increase sales and improve
communications both internally and externally in order to achieve greater
customer satisfaction and enhance business identity.
Examples of a few of our business solutions include:
. creating an Internet-based solution that connects 8,000 Chevron gas
stations and convenience stores in order to recognize greater revenues
and profits by utilizing better economies of scale to assist Chevron
and its franchisees in optimizing their product mix and services;
. improving the Internet-based parts ordering system of Aviall, the
largest independent distributor of original aviation parts, to improve
speed and functionality as well as to provide additional electronic
commerce features;
. working with Aquent, formerly MacTemps, the world's largest placement
agency, to develop an eBusiness solution that addresses the changing
temporary placement market and extends Aquent's traditional placement
capabilities to the Internet; and
. refocusing Central Carolina Bank's eBusiness strategy towards specific
revenue-driven, customer-centric responses to banking patterns in the
industry to enable them to use the Internet to offer value-added
products and services, acquire and retain customers and increase cross-
selling of banking products.
Our Address
C-bridge was organized as a Delaware corporation in October 1996. Our
principal office is located at 219 Vassar Street, Cambridge, Massachusetts
02139 and our telephone number is (617) 497-1707. Our web site can be located
at www.c-bridge.com. Information contained on our web site should not be
considered a part of this prospectus.
5
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THE OFFERING
<TABLE>
<S> <C>
Common stock offered by C-bridge........ 4,000,000 shares
Common stock to be outstanding after
this offering......................... 17,303,242 shares
Use of proceeds......................... General corporate and working capital
purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.. CBIS
</TABLE>
The number of shares outstanding after this offering is based on our shares
of common stock outstanding as of September 30, 1999, gives effect to our sale
of 1,645,555 shares of series A convertible preferred stock in October 1999 and
the conversion of those shares into 1,645,555 shares of common stock that will
occur upon the completion of this offering, and excludes:
. 6,745,062 shares subject to options outstanding as of September 30,
1999 at a weighted average exercise price of $1.20 per share;
. 1,947,515 additional shares reserved for issuance under our stock
option plans; and
. 784,504 shares subject to warrants outstanding as of September 30, 1999
at a weighted average exercise price of $0.38.
--------------------
Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
6
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Summary Consolidated Financial Data
(in thousands, except per share data)
Set forth below are our summary consolidated statements of operations data
for the period from inception (October 31, 1996) through December 31, 1996, for
the years ended December 31, 1997 and 1998, and for the nine months ended
September 30, 1998 and 1999, and summary balance sheet data as of September 30,
1999, on an actual basis, on a pro forma basis to give effect to our sale of
1,645,555 shares of series A convertible preferred stock in October 1999 for
net proceeds of $9.9 million and the conversion of all of our outstanding
preferred stock into common stock that will occur upon the completion of this
offering, and on a pro forma as adjusted basis to give effect to the sale by us
of 4,000,000 shares of common stock in this offering at an assumed initial
public offering price of $9.00 per share, after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us.
This information should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
inception Year Ended Nine Months Ended
(October 31, 1996) December 31, September 30,
through ---------------- ------------------
Statement of Operations December 31, 1996 1997 1998 1998 1999
Data: ------------------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $ 3,169 $ 5,047 $ 3,208 $ 13,838
Loss from operations.... (193) (1,218) (3,640) (3,256) (3,118)
Net loss................ (193) (1,215) (3,869) (3,421) (2,931)
Basic and diluted net
loss per share........ $ (0.02) $ (0.12) $ (0.39) $ (0.35) $ (0.27)
Basic and diluted
weighted average
shares outstanding.... 10,000 10,000 9,992 9,912 10,713
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
Balance Sheet Data: ------- --------- -----------
<S> <C> <C> <C>
Working capital deficit.......................... $(1,811) $ 6,622 $39,102
Total assets..................................... 5,858 14,407 46,887
Line of credit................................... 1,449 189 189
Capital lease obligations........................ 317 317 317
Total stockholders' (deficit) equity ............ (671) 9,137 41,617
</TABLE>
7
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RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the following risks before you decide to buy our common stock. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. This could cause the
market price of our common stock to decline, and you could lose all or part of
your investment.
Risks Related to Our Business
Because we have a short operating history, there is a limited amount of
information about us upon which you can evaluate our business and potential for
future success.
We were incorporated in October 1996 and have only a limited operating
history upon which you can evaluate our business and prospects. You must
consider the risks and uncertainties frequently encountered by early stage
companies in new and rapidly evolving markets, such as the market for Internet
professional services. If we are unsuccessful in addressing these risks and
uncertainties, our ability to execute our business plan would be materially and
adversely affected.
We had an accumulated deficit of $8.3 million as of September 30, 1999, and we
expect to continue to incur operating losses for the foreseeable future.
We have had substantial losses since our inception and our operating losses
may continue and even increase in the future. We expect our operating expenses
to increase significantly, especially in the areas of sales, marketing and
recruiting, and, as a result, we will need to generate increased quarterly
revenues to become profitable. Accordingly, we cannot assure you that we will
ever become or remain profitable. If our revenues fail to grow at anticipated
rates or our operating expenses increase without a commensurate increase in our
revenues, our financial condition will be adversely affected. It is unlikely
that the growth rates we have experienced in recent periods will continue at
their current levels. Our inability to become profitable on a quarterly or
annual basis would have a material adverse effect on our business and financial
condition.
Our results of operations may vary from quarter to quarter in future periods,
and, as a result, we may fail to meet the expectations of our investors and
analysts, which could cause our stock price to fluctuate or decline.
Our revenues and results of operations have fluctuated significantly in the
past and could fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. These factors include:
. demand for our services;
. our ability to attract and retain clients;
. our ability to attract, retain and motivate qualified personnel;
. the number, timing and significance of new services introduced by our
competitors;
. our ability to develop, market and introduce new and enhanced services
on a timely basis;
. the level of service and price competition;
. changes in operating expenses; and
. changes in the mix of services offered.
Our operating expenses are relatively fixed
A substantial portion of our operating expense is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and
are therefore relatively fixed in the short term. Our operating expense levels
are based, in significant part, on our expectations of future revenue. If
actual revenues are below our expectations, our results of operations and
financial condition would be materially and adversely affected.
8
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Period-to-period comparisons may be unreliable
Due to all of the foregoing factors and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.
Our success depends on a limited number of significant clients, and our
revenues could be negatively affected by the loss of a major client or
significant project.
We generate much of our revenues from a limited number of clients. As a
result, if we lose a major client or large project, our revenues could be
materially and adversely affected. In 1998, for example, our three largest
clients, Chevron, Johnstone Supply and Toyota, accounted for approximately 51%
of our total net revenues. During the nine months ended September 30, 1999, our
three largest professional services clients, Allmerica, Chevron and U.S. West,
collectively accounted for approximately 54% of our total net revenues. In
addition, a fourth client, CEE, for whom we perform educational services,
accounted for 18% of our total net revenues for the nine months ended September
30, 1999.
We perform varying amounts of work for specific clients from year to year.
A major client in one year may not use our services in another year. In
addition, we may derive revenues from a major client that constitutes a large
portion of a particular quarter's total revenues. If we lose any major clients
or any of our clients cancel or significantly reduce a large project's scope,
our results of operations and financial condition could be materially and
adversely affected. In addition, we expect the size of these contracts to grow,
resulting in a continued dependence on significant clients. Also, if we fail to
collect a large account receivable, we could be subjected to significant
financial exposure.
Our lack of long-term client contracts reduces the predictability of our
revenues because these contracts may be canceled on short notice and without
penalty.
Our clients generally retain us on a project-by-project basis, rather than
under long-term contracts. As a result, a client may not engage us for further
services once a project is completed. Also, most of our clients can reduce or
cancel their contracts with little or no notice and without penalty. If a
significant client, or a number of clients, terminate, significantly reduce or
modify their contracts with us, our results of operations would be materially
and adversely affected. Consequently, you should not predict or anticipate our
future revenues based on the number of clients we have or the number and size
of our existing projects. When a client postpones, modifies or cancels a
project, we must shift our consultants to other projects to minimize the
adverse impact on our operating results. We cannot assure you that we will be
successful in efficiently shifting our consultants to new projects in the event
of project terminations.
We may lose money on fixed-price contracts.
As part of our strategy, we intend to enter into more fixed-price
contracts, rather than contracts based on payment for time and materials. For
the nine months ended September 30, 1999, fixed-price contracts represented
approximately 12% of our professional services revenues. In addition, the
average size of our contracts has increased in recent periods, which increases
our exposure to the financial risks of fixed-price contracts. We assume greater
financial risk on fixed-price contracts than on time-and-materials engagements,
and we cannot assure you that we will be able to successfully price our larger
contracts. We have only a limited history in estimating our costs for our
engagements, particularly for larger projects. In the past, we have had to
commit unanticipated resources to complete certain projects, resulting in lower
gross margins on these projects. We may experience similar situations in the
future. If we fail to estimate accurately the resources and time required for
an engagement, to manage client expectations effectively or to complete fixed-
price engagements within our budget, on time and to our clients' satisfaction,
we would be exposed to cost overruns, potentially leading to losses on these
engagements.
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We depend on our key personnel, and the loss of any key personnel could disrupt
our operations, adversely affect our business and result in reduced revenues.
Our future success will depend on the continued services and on the
performance of our senior management and other key employees, in particular the
services of:
. Joseph M. Bellini, our President and Chief Executive Officer;
. Richard C. Putz, our Executive Vice President, Worldwide Industries;
. R. Jeffrey Spurrier, our Executive Vice President, Worldwide
Operations;
. Mark A. Cosway, our Executive Vice President, Sales and Marketing;
. Donald W. Amaya, our Executive Vice President, Human Resources; and
. Richard O. Wester, our Vice President, Finance and Administration and
Chief Financial Officer.
The loss of the services of any of these individuals could seriously impair
our ability to execute our business plan, which could reduce our revenues and
have a material adverse effect on our business and results of operations.
Our ability to hire, train and retain qualified employees is crucial to our
ability to compete effectively.
To succeed, we must hire, train, motivate, retain and successfully manage
employees with skills related to the Internet and its rapidly changing
technologies. Because of the recent and rapid growth of the Internet,
professionals who have Internet expertise and can perform the services we offer
are scarce, and competition for these individuals is intense. We might not be
able to hire enough experienced professionals or to train, motivate, retain and
successfully manage the employees we do hire. This could hinder our ability to
complete existing projects and bid for new projects. In addition, because the
competition for qualified professionals in the Internet industry is intense,
hiring, training, motivating and retaining professionals with the strategic,
technical and creative skills we need is both time-consuming and expensive.
While our key employees are subject to non-competition agreements, these
agreements may be difficult to enforce. As a result, our employees may leave us
and work for our competitors or start their own companies in competition with
us. If we fail to attract, train and retain key personnel, our business would
be materially and adversely affected.
We may not be able to successfully manage our growth which could adversely
affect our business.
We have grown rapidly and expect to continue to grow rapidly, both by
hiring new employees and serving new industry and geographic markets. Our
recent growth has placed, and is expected to continue to place, a significant
strain on our management and our operating and financial systems. Our headcount
has grown from 57 as of December 31, 1997 to 183 as of September 30, 1999, and
several members of our senior management team have only recently joined us. We
do not believe our recent growth rate is sustainable for the long term.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
projects, clients and the increased size of our operations, we will need to
hire, train and retain appropriate personnel to manage our operations. We will
also need to improve our financial and management controls, reporting systems
and operating systems. We currently plan to redesign several internal systems,
including our recruiting and engagement management systems. We may encounter
difficulties in developing and implementing these new systems.
Historically, we have depended on third-party educational seminars to generate
a substantial majority of our client engagements, and the success of our
business will depend on our ability to develop effective sales and marketing
capabilities.
Historically, we have derived a substantial majority of our client
engagements from sales leads generated by educational seminars produced in
conjunction with CEE and Professor John J. Donovan. In the event that
10
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either CEE or Professor Donovan is no longer able to perform these services,
our revenues could be adversely affected. While these seminars will continue to
be an important source of sales leads for client engagements, we have begun to
develop our own sales and marketing capabilities as well. However, there is
intense competition for sales personnel in our business, and there can be no
assurance that we will be successful in attracting, integrating, motivating and
retaining new sales personnel. In addition, we have limited experience in
marketing our services with a direct sales force. Unlike our educational
seminars, our direct sales force may be unable to establish client contacts at
senior management levels, which may limit the effectiveness of those contacts
and limit future revenue growth.
Our future success will depend on our ability to keep pace with the Internet's
rapid technological changes, evolving industry standards and changing client
requirements.
The market for Internet professional services is relatively new and
evolving rapidly. Our future success will depend, in part, upon our ability to
provide services that are accepted by our existing and future clients as an
integral part of their business model. Demand and market acceptance for
recently introduced services are subject to a high level of uncertainty. The
level of demand for Internet professional services will depend upon a number of
factors, including the following:
. the growth in consumer access to, and acceptance of, new interactive
technologies such as the Internet;
. the adoption of Internet-based business models; and
. the development of technologies that facilitate two-way communication
between companies and targeted audiences.
Significant issues concerning the commercial use of Internet technologies,
including security, reliability, cost, ease of use and quality of service,
remain unresolved and may inhibit the growth of eBusiness solutions that
utilize these technologies. Our future success will depend, in part, on our
ability to meet these challenges, which must be met in a timely and cost-
effective manner. We cannot assure you that we will succeed in effectively
meeting these challenges, and our failure to do so could materially and
adversely affect our business.
Industry analysts and others have made many predictions concerning the
growth of the Internet as a business medium. Many of these historical
predictions have overstated the growth of the Internet. These predictions
should not be relied upon as conclusive. The market for our services may not
develop, our services may not be adopted and individual personal computer users
in business or at home may not use the Internet or other interactive media for
commerce and communication. If the market for Internet professional services
fails to develop, or develops more slowly than expected, or if our services do
not achieve market acceptance, our business would be materially and adversely
affected.
Future acquisitions or investments could disrupt our ongoing business, distract
our management and employees, increase our expenses and adversely affect our
business.
We anticipate that a portion of any future growth may be accomplished by
acquiring existing businesses. The success of any acquisitions will depend
upon, among other things, our ability to integrate acquired personnel,
operations, products and technologies into our organization effectively, to
retain and motivate key personnel of acquired businesses and to retain
customers of acquired firms. We cannot assure you that we will be able to
identify suitable acquisition opportunities, obtain any necessary financing on
acceptable terms or successfully integrate acquired personnel and operations.
In addition, as a public company, it may be more difficult to acquire
additional companies and the cost of acquiring businesses may increase relative
to the cost of similar acquisitions when we were a private company. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and materially and adversely affect our
results of operations. Any future acquisitions would involve certain other
risks, including the assumption of additional liabilities, potentially dilutive
issuances of equity securities and diversion of management's attention from
other
11
<PAGE>
business concerns. Furthermore, we may issue equity securities or incur debt
to pay for any future acquisitions. If we issue equity securities, your
percentage ownership of our company would be reduced.
Competition in the Internet professional services market is intense, and
therefore we may lose projects to our competitors or prospective clients'
internal IT departments.
While the market for Internet professional services is relatively new, it
is already highly competitive. In many cases we compete with the in-house
technical staff of our prospective clients. In addition, the market is
characterized by an increasing number of entrants that have introduced or
developed services similar to those offered by us. We believe that competition
will intensify and increase in the future. Our target market is rapidly
evolving and is subject to continuous technological change. As a result, our
competitors may be better positioned to address these developments or may
react more favorably to these changes, which could have a material adverse
effect on our business. We compete on the basis of a number of factors, many
of which are beyond our control. Existing or future competitors may develop or
offer Internet professional services that provide significant technological,
creative, performance, price or other advantages over the services we offer.
There are many competitors in the market for Internet professional services
We currently compete for client assignments and experienced personnel
principally with the following:
. Internet service firms: AGENCY.COM, iXL, Modem Media.Poppe Tyson,
Online Marketing Communications, Organic Online, Proxicom, Razorfish,
Scient, USWeb/CKS and Viant.
. Systems integrators: Andersen Consulting, Cambridge Technology
Partners, Cap Gemini, EDS, Sapient and WM-Data.
. Management consulting firms: Bain, Booz-Allen & Hamilton, Boston
Consulting Group and McKinsey.
. Computer hardware and service vendors: Compaq, DEC, Hewlett-Packard
and IBM.
. Advertising agencies: Bates, DDB Needham, Grey Advertising, McCann-
Erickson and Ogilvy & Mather.
Many of these businesses have longer operating histories and significantly
greater financial, technical, marketing and managerial resources than we do.
There are relatively low barriers to entry into our business. We have no
patented or other proprietary technology that would preclude or inhibit
competitors from entering the Internet professional services market.
Therefore, we must rely on the skill of our personnel and the quality of our
client service. The costs to develop and provide Internet professional
services are low. We expect that we will continue to face additional
competition from new entrants into the market in the future, and we are
subject to the risk that our employees may leave us and may start competing
businesses. Any one or more of these factors could hurt our business.
We may not be able to protect our intellectual property rights, which could
adversely affect our business.
Our future success will depend, in part, upon our intellectual property
rights and our ability to protect these rights. We do not have any patents or
patent applications pending. Existing trade secret and copyright laws afford
us only limited protection. Third parties may attempt to disclose, obtain or
use our solutions or technologies. This is particularly true in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. Others may independently
develop and obtain patents or copyrights for technologies that are similar or
superior to our technologies. If that happens, we may need to license these
technologies and we may not be able to obtain licenses on reasonable terms, if
at all. If we are unsuccessful in any future intellectual property litigation
we may be forced to do one or more of the following:
. cease selling or using technology or services that incorporate the
challenged intellectual property;
12
<PAGE>
. obtain a license, which may not be available on reasonable terms or at
all, to use the relevant technology;
. configure services to avoid infringement; and
. refund license fees or other payments that we have previously
received.
Generally, we develop software applications for specific client
engagements. Issues relating to ownership of and rights to use software
applications and frameworks can be complicated. We may become involved in
disputes that affect our ability to resell or reuse these applications and
frameworks. Also, we may have to pay economic damages in these disputes which
could adversely affect our results of operations and financial condition.
Difficulties in transitioning to new software systems may negatively affect our
business.
We currently use PC and network-based software for our management systems.
Our current financial software is designed for small to medium-sized companies.
Our human resources, recruiting and resource management systems are mainly
database and spreadsheet driven. We have purchased and are currently planning
to implement Oracle's integrated financial, human resources and project
software. We are also evaluating our recruiting and customer relationship
management systems. However, these new systems are expensive, and we may
encounter difficulties in transitioning to them. Difficulties encountered with
developing, implementing or operating such systems could materially and
adversely affect our business.
Our failure to meet client expectations or deliver error-free services could
result in losses and negative publicity.
Our client engagements involve the creation, implementation and maintenance
of eBusiness solutions that are often critical to our clients' businesses. Any
defects or errors in these applications or a failure to meet client
expectations could result in:
. delayed or lost revenues due to adverse client reaction;
. the provision of additional services to a client at no charge;
. negative publicity regarding us and our services, which could
adversely affect our ability to attract or retain clients; and
. claims for substantial damages against us, regardless of our
responsibility for any damages.
Our contracts generally contain provisions intended to limit our liability
for damages that may arise from negligent acts, errors, mistakes or omissions
in rendering services to our clients. However, we cannot assure you that these
contractual provisions will protect us from liability for damages. Furthermore,
our general liability insurance coverage may not continue to be available on
reasonable terms or be sufficient to cover large claims. In addition, the
insurer may disclaim coverage as to any future claim. The successful assertion
of any large claim against us could materially and adversely affect our
financial condition.
Problems relating to the "Year 2000 Issue" could adversely affect our business.
Year 2000 issues may adversely affect our business and our clients'
businesses. Many currently installed computer systems and software products are
coded to accept only two-digit year entries in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish 21st century dates from
20th century dates. As a result, computer systems and software used by many
companies, including us, our clients and our prospective clients, may need to
be upgraded to comply with such "Year 2000" requirements. Any failure on the
part of our principal internal systems, the systems that we create for our
prospective clients and other existing systems of our clients, could seriously
harm our business, financial condition and operating results. For a more
detailed description of our Year 2000 assessment, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Impact of Year
2000."
13
<PAGE>
To remain competitive, we may need additional financing, which may not be
available on terms acceptable to us, if at all.
We expect the net proceeds from this offering, together with current cash
and available borrowings under our credit facilities, will be sufficient for us
to meet our working capital and capital expenditure requirements for at least
the next 12 months. However, we may need additional financing sooner if we:
. decide to expand faster than planned;
. develop new or enhanced services or products ahead of schedule;
. need to respond to competitive pressures; or
. decide to acquire complementary products, businesses or technologies.
If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of our common stock. We may have to issue
securities that have rights, preferences and privileges senior to our common
stock. We cannot assure you that we will be able to raise additional funds on
terms acceptable to us, if at all. If future financing is not available or is
not available on terms acceptable to us, we may not be able to fund our
business plan which would have a material adverse effect on our financial
condition.
Our international expansion plans may not succeed.
A key element of our strategy is to expand our operations into
international markets. We currently have professionals operating in London,
England and Sydney, Australia. We have limited experience in marketing, selling
and delivering our services internationally, and we may have difficulty in
managing our international operations because of distance, as well as language
and cultural differences. We cannot assure you that we will be able to market
and deliver our services successfully in foreign markets.
Other risks related to our international operations include:
. fluctuations in currency exchange rates and the conversion to the euro
by all members of the European Union by year-end 2003;
. difficulties arising from staffing and managing foreign operations;
. longer payment cycles;
. restrictions and the reduced protection of intellectual property;
. restrictions on the import and export of sensitive U.S. technologies,
such as data security and encryption technologies that we may wish to
use in solutions we develop for customers;
. legal and regulatory requirements of different countries, such as
differing tax or labor laws; and
. potential political and economic instability.
If any of these risks materialize, we may have difficulty in managing our
international operations and expansion.
Risks Related to the Internet Professional Services Industry
Our future success will depend on the continued growth and development of the
Internet and its infrastructure.
Our future success will depend on the continued growth and use of the
Internet. We cannot assure you that this growth will continue or that a
sufficient number of consumers will adopt and continue to use the Internet.
Internet usage may be inhibited for a number of reasons, including:
. inadequate Internet infrastructure;
14
<PAGE>
. security concerns;
. inconsistent quality of service; or
. unavailability of cost-effective, high-speed access services.
We cannot assure you that the Internet infrastructure will be able to
support expected growth or that the performance and reliability of the Internet
will not decline as a result of this growth. Recently, many web sites,
including those of our clients, have experienced a variety of interruptions in
their service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays frequently occur in
the future, web usage could grow more slowly than anticipated or decline.
Our future success will depend on the development of the eBusiness market,
which remains uncertain.
Our future success will depend upon the widespread acceptance and use of
the Internet as an effective medium of commerce by businesses and consumers.
Rapid growth in the use of the Internet and commercial online services is a
recent phenomenon. Demand for recently introduced services and products over
the Internet and online services is subject to a high level of uncertainty. The
continued development of the Internet and eBusiness as a viable commercial
marketplace is subject to a number of factors, including the following:
. the willingness of buyers to shift their purchasing habits from
traditional vendors to eBusiness vendors;
. insufficient availability of telecommunications services providing
sufficiently fast response times; and
. adverse publicity and consumer concern about the security of eBusiness
transactions.
Breaches of security and computer viruses on the Internet may adversely affect
our business by slowing the growth of eBusiness.
The need to securely transmit confidential information, such as credit card
and other personal information, over the Internet has been a significant
barrier to eBusiness and Internet communications. Any well-publicized
compromise of security could deter consumers and businesses from using the
Internet to conduct transactions that involve transmitting confidential
information, such as purchases of goods or services. Furthermore, computer
viruses that spread over the Internet could disable or damage the systems we
develop for our clients. Decreased Internet traffic or eBusiness sales as a
result of general security concerns or viruses could cause companies to reduce
their amount of technology spending, which could hurt our results of
operations.
We face risks associated with government regulation of, and legal uncertainties
surrounding, the Internet.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could increase our cost of doing business or
otherwise have a material adverse effect on our business, results of operations
and financial condition. Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws governing intellectual property, copyright, privacy,
obscenity, libel and taxation apply to the Internet. In addition, the growth
and development of eBusiness may prompt calls for more stringent consumer
protection laws, both in the United States and abroad.
15
<PAGE>
Risks Associated With This Offering
The future sale of substantial amounts of our common stock may negatively
affect our stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. In addition, we have
a significant number of shares that are subject to outstanding options and
warrants. The exercise of these options and warrants and the subsequent sale of
the underlying common stock could cause a further decline in our stock price.
These sales also might make it difficult for us to sell equity securities in
the future at a time and at a price that we deem appropriate. For a more
detailed description of the number of shares that may be sold following this
offering, see "Shares Eligible for Future Sale" on page 60.
The future issuance of preferred stock may dilute the rights of our common
stockholders.
Following this offering, our board of directors will have the authority to
issue up to 5,000,000 shares of preferred stock and to determine the price,
privileges and other terms of the shares. The board of directors may exercise
this authority without any further approval of the stockholders. The rights of
the holders of common stock may be adversely affected by the rights of the
holders of any preferred stock that may be issued in the future.
We have various mechanisms in place to discourage takeover attempts.
Certain provisions of our certificate of incorporation and bylaws, as well
as Section 203 of the Delaware General Corporation Law, may discourage, delay
or prevent a change in control of our company that you as a stockholder may
consider favorable. These provisions include:
. authorizing the issuance of "blank check" preferred stock that could
be issued by our board of directors to increase the number of
outstanding shares and thwart a hostile takeover attempt;
. prohibiting cumulative voting in the election of directors, which will
allow a majority of stockholders to control the election of all
directors;
. requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. limitations on who may call special meetings of stockholders;
. prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
. establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that
can be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plans may discourage, delay or prevent a change in control of
our company.
We expect the market price of our common stock to be volatile, and it may drop
unexpectedly.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that
may not be indicative of future market performance. The initial public offering
price may bear no relationship to the price at which the common stock will
trade upon completion of this offering. An active public market for our common
stock may not develop or be sustained after this offering, and the market price
could fall below the initial public offering price.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business and the market price of our common stock.
16
<PAGE>
Our directors, executive officers and principal stockholders will have
substantial control over our affairs.
Our directors and executive officers will beneficially own approximately
20.9% of our common stock following this offering. In addition, our three
largest stockholders will own approximately 48.9% of our outstanding common
stock. These stockholders acting together will have the ability to exert
substantial influence over all matters requiring approval by our stockholders.
These matters include the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they may dictate the management of our business and affairs. This concentration
of ownership could have the effect of delaying, deferring or preventing a
change in control or impeding a merger or consolidation, takeover or other
business combination which you, as a stockholder, would otherwise view
favorably.
We do not have a plan for the use of the net proceeds of this offering and will
therefore have discretion as to the use of these proceeds, which we may not use
effectively.
We have no plan with respect to the use of the net proceeds of this
offering and have not committed these proceeds to any particular purpose apart
from expenses of the business and general working capital. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering and may use the proceeds in ways with which stockholders
disagree. We may not be able to invest these funds effectively.
You will suffer substantial dilution in the net tangible book value of the
common stock you purchase.
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. Based on an assumed
initial public offering price of $9.00 per share, if you purchase shares of
common stock in this offering, you will suffer immediate and substantial
dilution of $6.90 per share in the net tangible book value of the common stock.
17
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" as well as in the
prospectus generally. We generally use words such as "believes," "intends,"
"expects," "anticipates," "plans," and similar expressions to identify forward-
looking statements. This prospectus also contains third-party estimates
regarding the size and growth of the Internet professional services market and
Internet usage in general. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described above and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements.
This prospectus contains data related to the eCommerce market and the
Internet professional services industry. These market data have been included
in studies published by the market research firm of International Data
Corporation. These data include projections that are based on a number of
assumptions, including increasing worldwide business use of the Internet, the
growth in the number of web access devices per user, the absence of any failure
of the Internet and the continued improvement of security on the Internet. If
any of these assumptions is incorrect, actual results may differ from the
projections based on those assumptions and these markets may not grow at the
rates projected by these data, or at all. The failure of these markets to grow
at these projected rates may have a material adverse effect on our business and
the market price of our common stock.
18
<PAGE>
USE OF PROCEEDS
The net proceeds we expect to receive from the sale of 4,000,000 shares of
common stock offered by us are estimated to be $32.5 million, assuming an
initial public offering price of $9.00 per share, after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us. If
the underwriters' over-allotment option is exercised in full, we estimate that
the net proceeds will be $37.5 million. We intend to use the net proceeds from
this offering for general corporate and working capital purposes, including
possible acquisitions. As of the date of this prospectus, we have not
identified any specific expenditure plans with respect to the proceeds of this
offering. Accordingly, our management will have broad discretion and
significant flexibility in applying the net proceeds of this offering. We
intend to invest the net proceeds from this offering in short-term, investment
grade, interest-bearing instruments until they are used.
The principal purposes of this offering are:
. to increase our equity capital;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace where
several of our current and prospective competitors are, or may in the
future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We intend to continue to consider, from time to time, acquisitions that
could provide additional new product or service offerings, additional industry
expertise, a broader client base or an expanded geographic presence, and a
portion of the net proceeds from this offering may be used for such
acquisitions. From time to time, we have engaged in discussions with third
parties concerning potential acquisitions of product lines, technologies and
businesses. There are no pending negotiations or arrangements relating to any
acquisitions. However, there are currently no commitments or agreements with
respect to any acquisition.
DIVIDEND POLICY
We have never paid dividends on our common stock. We currently intend to
retain earnings, if any, to fund the development and growth of our business and
do not anticipate paying cash dividends for the foreseeable future. Payment of
future dividends, if any, will be at the discretion of our board of directors
after taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
The terms of our existing credit agreement also prevent us from paying any
dividend or making any other distribution or payment with respect to our
capital stock.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1999, our
capitalization on an actual basis, on a pro forma basis to give effect to our
sale of 1,645,555 shares of series A convertible preferred stock in October
1999 for net proceeds of $9.9 million and the conversion of all of our
outstanding preferred stock into common stock that will occur upon the
completion of this offering, and on a pro forma as adjusted basis to give
effect to the sale by us of 4,000,000 shares of common stock offered at an
assumed initial public offering price of $9.00 per share, after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us. This information should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Line of credit.................................. $ 1,449 $ 189 $ 189
Current portion of capital lease obligation..... 191 191 191
------- ------- -------
Total short-term debt......................... 1,640 380 380
------- ------- -------
Capital lease obligation, less current portion.. 126 126 126
Stockholders' deficit/equity:
Preferred Stock, $0.01 par value, 5,000,000
shares authorized,
actual, pro forma and pro forma as adjusted;
none issued and
outstanding, actual, pro forma and pro forma
as adjusted................................ -- -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 12,167,687 issued and
11,657,687 outstanding, actual; 50,000,000
authorized, 13,813,242 issued and
13,303,242 outstanding, pro forma;
50,000,000 authorized, 17,813,242 issued
and 17,303,242 outstanding, pro forma as
adjusted.................................... 122 138 178
Additional paid-in capital...................... 14,275 24,067 56,507
Notes receivable for issuance of common stock... (84) (84) (84)
Deferred compensation........................... (6,524) (6,524) (6,524)
Accumulated deficit............................. (8,307) (8,307) (8,307)
Treasury stock, at cost--510,000 shares......... (153) (153) (153)
------- ------- -------
Total stockholders' (deficit) equity.......... (671) 9,137 41,617
------- ------- -------
Total capitalization....................... $ (545) $ 9,263 $41,743
======= ======= =======
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999, which gives
effect to our sale of series A convertible preferred stock in October 1999 for
net proceeds of $9.9 million and the conversion of all of our outstanding
preferred stock into 1,645,555 shares of common stock that will occur upon the
completion of this offering, and options to purchase 3,138,668 shares of common
stock held by officers and directors, was $10.5 million, or $0.64 per share of
common stock. Pro forma net tangible book value per share is determined by
dividing our pro forma tangible net worth by the number of shares of common
stock outstanding assuming conversion of all outstanding shares of preferred
stock into 1,645,555 shares of common stock upon the completion of this
offering and the exercise of all options held by officers and directors.
Assuming the sale by us of 4,000,000 shares of common stock, and after
deducting underwriting discounts and commissions and the estimated offering
expenses payable by us, our pro forma net tangible book value as of September
30, 1999 would have been $43.0 million, or $2.10 per share. This represents an
immediate increase in pro forma net tangible book value of $1.46 per share to
existing stockholders and an immediate dilution of $6.90 per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share as of September 30,
1999.............................................................. $0.64
Increase per share attributable to this offering.................. 1.46
-----
Pro forma net tangible book value per share after this offering.... 2.10
-----
Dilution per share to new investors................................ $6.90
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the number of shares of common stock purchased from us, the total cash
consideration paid and the average price paid per share by the existing
stockholders and by new investors purchasing shares in this offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 16,441,910 80.4% $13,601,943 27.4% $0.83
New investors............. 4,000,000 19.6 36,000,000 72.6 9.00
---------- ----- ----------- -----
Total................... 20,441,910 100.0% $49,601,943 100.0%
========== ===== =========== =====
</TABLE>
The tables and calculations above include options to purchase 3,138,668
shares of common stock held by officers and directors and excludes 3,606,394
shares of common stock issuable pursuant to options outstanding as of September
30, 1999. Of the excluded stock options, options to purchase approximately
893,739 shares were exercisable as of September 30, 1999, at a weighted average
exercise price of $0.66 per share. In addition, as of September 30, 1999, there
were warrants outstanding to purchase a total of 784,504 shares of common stock
with a weighted average exercise price of $0.38 per share. To the extent that
the excluded options and warrants are exercised, there will be further dilution
to new investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of December 31, 1996, 1997,
1998 and September 30, 1999 and for the period from inception (October 31,
1996) to December 31, 1996, for each of the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999 are derived from our
consolidated financial statements which have been audited by Arthur Andersen
LLP, our independent public accountants, and are included elsewhere in this
prospectus. The selected consolidated financial data for the nine months ended
September 30, 1998 are derived from unaudited consolidated financial statements
included elsewhere in this prospectus. In the opinion of our management, the
unaudited financial data include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the data for such period.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
Period from
inception
(October 31,
1996) Year Ended Nine Months Ended
through December 31, September 30,
December 31, ---------------- ------------------
1996 1997 1998 1998 1999
------------ ------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues:
Professional services...... $ -- $ 3,169 $ 5,047 $ 3,208 $ 11,342
Educational services....... -- -- -- -- 2,496
------- ------- ------- -------- --------
Total net revenues........ -- 3,169 5,047 3,208 13,838
Costs and expenses:
Direct costs of
professional
services(1).............. 50 2,234 4,974 3,528 6,457
Direct costs of educational
services(1).............. -- -- -- -- 1,142
Selling and marketing(1)... 3 328 1,530 1,224 1,884
General and
administrative(1)........ 140 1,797 2,109 1,655 4,721
Compensation expense
related to stock options
and warrants............. -- 28 74 57 2,752
------- ------- ------- -------- --------
Total operating expenses.. 193 4,387 8,687 6,464 16,956
------- ------- ------- -------- --------
Loss from operations........ (193) (1,218) (3,640) (3,256) (3,118)
Interest and other income
(expense), net............ -- 3 (229) (165) 187
------- ------- ------- -------- --------
Net loss.................... $ (193) $(1,215) $(3,869) $ (3,421) $ (2,931)
======= ======= ======= ======== ========
Basic and diluted net loss
per share................. $(0.02) $ (0.12) $ (0.39) $ (0.35) $ (0.27)
======= ======= ======= ======== ========
Basic and diluted weighted
average shares
outstanding............... 10,000 10,000 9,992 9,912 10,713
======= ======= ======= ======== ========
</TABLE>
(1) Exclusive of noncash compensation expense related to stock options and
warrants presented separately.
<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1996 1997 1998 1999
-------- ------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital deficit............... $ (192) $ (128) $(3,187) $(1,811)
Total assets.......................... -- 1,797 1,932 5,858
Line of credit........................ -- -- 2,616 1,449
Capital lease obligations............. -- -- 294 317
Total stockholders' deficit........... (192) (1,375) (2,821) (671)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
Overview
We are a full service provider of Internet-based solutions designed to help
companies conduct eBusiness. From our incorporation in October 1996 through
December 31, 1996, our operating activities consisted primarily of recruiting
key technical and management personnel, establishing a business and operations
plan and establishing relationships with prospective clients. In 1997, we
retained our first clients, hired consultants, technical personnel and core
services staff to execute client engagements and began building the sales and
marketing and operational infrastructures to support the projected growth of
our business.
Our revenues are derived primarily from providing Internet professional
services. We expect that our revenues will be driven primarily by the number
and scope of our client engagements and by our professional services headcount.
In 1998, three clients accounted for approximately 51% of our total net
revenues, of which 25% were from Chevron, 16% were from Johnstone Supply and
10% were from Toyota. Revenues from any given client will vary from period to
period; however, we expect that significant customer concentration will
continue for the foreseeable future. To the extent that any significant client
uses less of our services or terminates its relationship with us, our revenues
could decline substantially. As a result, the loss of any significant client
could materially and adversely affect our business and results of operations.
We also generate revenues from providing educational services. In May 1999,
we entered into an outsourcing agreement with our primary sales lead source,
CEE, to provide the operational aspects of their executive education seminars.
Under this contract, we generate revenues of approximately $1.4 million a
quarter. Further discussion of our relationship with CEE can be found in
footnote 10 to our audited consolidated financial statements included elsewhere
in this prospectus.
We market and sell our services through the executive education seminars,
indirectly with our partners, and directly through our sales organization. The
majority of our leads, and our revenues, has come through these executive
education seminars.
Revenues generated pursuant to time and materials contracts are generally
recognized as services are provided. For 1998, approximately 91% of revenues
were derived from time and materials contracts. Revenues generated pursuant to
fixed-fee contracts are generally recognized as services are rendered using the
percentage-of-completion method of accounting. Revenues exclude reimbursable
expenses charged to clients. As we obtain greater experience in estimating the
costs of performing eBusiness services, our strategy is to enter into more
fixed-fee contracts, which we believe are potentially more profitable.
Accordingly, we anticipate that a larger percentage of revenues will be derived
from fixed-fee contracts in the future. In 1998, substantially all clients were
located within North America and all revenues were denominated in U.S. dollars.
Direct costs of professional services consist primarily of the compensation
and benefits of our employees engaged in the delivery of professional services
and non-reimbursable expenses related to client projects. Direct costs of
professional services margins reflect revenues less the professional services
expenses whether or not the employee's time is billed to a client. We expect
that our per capita professional services costs will increase over time due to
wage increases and inflation. In addition, these cash expenses may increase
after this offering because prospective employees that we target after this
offering may perceive that the stock option component of our compensation
package is not as valuable as that component was prior to this offering. Our
professional services margins are affected by trends in hiring and in
consultant utilization, and, as such, will vary in the future. Any significant
decline in consultants' time billed to clients or the loss of a significant
client
23
<PAGE>
would materially adversely affect our professional services margins. Client
engagements currently average three to six months in duration. If a client
engagement ends earlier than we expect, we must re-deploy professional services
personnel. Any resulting non-billable time will adversely affect our
professional services margins.
Direct costs of educational services consist of the salaries, benefits and
direct expenses for personnel related to our educational services. It also
includes the direct expenses of delivering our educational services. We expect
our educational services costs to increase in absolute dollars as we invest in
personnel and incur costs to grow our educational services revenues.
Selling and marketing expenses consist of salaries, commissions, benefits
and related expenses for personnel engaged in sales and marketing activities.
It also includes public relations, trade shows, promotional expenses and other
expenses directly related to sales and marketing. We expect selling and
marketing expenses to increase in absolute dollars as we expand our sales and
marketing efforts and build our brand recognition.
General and administrative expenses consist of compensation, benefits and
related expenses for personnel engaged in executive and general management,
recruiting, human resources, information technology, finance, administrative,
and developing and maintaining our service methodologies. It also includes our
expenses for recruiting, training, leasing and maintaining office space,
professional fees and all other general corporate expenses. We expect general
and administrative expenses to increase in absolute dollars as we continue to
invest in our employees, advance our knowledge management and methodologies,
grow our information technology infrastructure, open new offices, increase our
recruiting efforts and incur additional costs related to the growth of our
business and operations as a public company.
Compensation expense related to stock options and warrants consists of the
non-cash compensation expense related to the granting of stock options and
warrants. We have recorded deferred compensation expense of $8.6 million
related to certain stock option grants through September 30, 1999. This
deferred compensation expense will be recognized based on the vesting of these
stock options. Of the recorded deferred compensation expense, $2.1 million has
been expensed through September 30, 1999. Assuming this offering is completed
in 1999, the balance will be recognized based on vesting of these stock options
at $1.4 million for the quarter ended December 31, 1999, including $1.1 million
related to certain options whose vesting accelerates upon this offering, and
$512,000 per quarter thereafter.
Despite growth in our revenues, we have not been profitable and we expect
to continue to incur net losses. Our net losses may not decrease
proportionately with the increase in our revenues primarily because of
increased expenses related to the hiring of additional employees, expansion of
the number of our offices, increased investment in our knowledge management,
methodologies and operations infrastructure, and our increased marketing and
sales efforts. To the extent that future revenues do not increase significantly
in the same periods in which operating expenses increase, our operating results
would be adversely affected. See "Risk Factors--We had an accumulated deficit
of $8.3 million as of September 30, 1999, and we expect to continue to incur
losses for the foreseeable future."
Our revenues and earnings may fluctuate from quarter to quarter based on
such factors within and outside our control, including the variability in
market demand for the Internet and for Internet professional services, the
length of the sales cycle associated with our service offerings, the number and
scope of our projects, seasonal factors and the efficiency with which we
utilize our employees.
Our number of employees increased from 57 at December 31, 1997 to 183 at
September 30, 1999. We expect the total number of employees to increase further
during the remainder of 1999. Personnel compensation and facilities costs
represent a high percentage of our operating expenses and are relatively fixed
in advance of each quarter. Accordingly, if revenues do not increase at a rate
equal to expenses, our business, financial condition or results of operations
could be materially and adversely affected. In addition, our liquidity may also
be adversely affected if revenues do not increase at a rate equal to these
additional expenses, to the extent we are unable to reduce operating expenses.
24
<PAGE>
Results of Operations
The following table sets forth the percentage of total net revenues of
certain consolidated financial data for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------- --------------------
1997 1998 1998 1999
------ ------ --------- --------
<S> <C> <C> <C> <C>
Net revenues:
Professional services................ 100.0% 100.0% 100.0% 82.0%
Educational services................. -- -- -- 18.0
------ ------ --------- --------
Total net revenues.................. 100.0 100.0 100.0 100.0
Costs and expenses:
Direct costs of professional
services........................... 70.5 98.6 110.0 46.7
Direct costs of educational
services........................... -- -- -- 8.3
Selling and marketing................ 10.3 30.3 38.1 13.6
General and administrative........... 56.7 41.8 51.6 34.1
Compensation expense related to stock
options and warrants............... 1.0 1.5 1.8 19.9
------ ------ --------- --------
Total operating expenses............ 138.5 172.2 201.5 122.6
------ ------ --------- --------
Loss from operations.................. (38.5) (72.1) (101.5) (22.6)
Interest and other income (expense),
net................................. 0.1 (4.5) (5.1) 1.4
------ ------ --------- --------
Net loss.............................. (38.4)% (76.6)% (106.6)% (21.2)%
====== ====== ========= ========
</TABLE>
Comparison of Nine Months Ended September 30, 1998 and September 30, 1999
Professional services revenues. Professional services revenues increased
254% from $3.2 million for the nine months ended September 30, 1998 to $11.3
million for the nine months ended September 30, 1999. The increase reflected
growing demand for Internet professional services and increases in both the
size and number of our client engagements. For the nine months ended September
30, 1998, professional services revenues from four clients totaled 56% of total
net revenues, while professional services revenues from three clients totaled
54% of total net revenues for the nine months ended September 30, 1999,
reflecting continuing concentration of revenues from a small number of clients.
Educational services revenues. We began providing educational services in
May 1999. Educational services revenues were $2.5 million for the nine months
ended September 30, 1999. All educational services revenues were earned through
our outsourcing agreement with CEE and represented 18% of total net revenues
for the nine months ended September 30, 1999. Because we began generating
educational services revenues in May 1999, we expect educational services
revenues to increase in absolute dollars in future periods.
Direct costs of professional services. Direct costs of professional
services increased 83% from $3.5 million for the nine months ended September
30, 1998 to $6.5 million for the nine months ended September 30, 1999. The
increase was primarily due to increased hiring of senior-level consultants and
a general increase in wages for professional employees.
Direct costs of educational services. We started providing educational
services in May 1999. Direct costs of educational services were $1.1 million
for the nine months ended September 30, 1999. Because we began incurring direct
costs of educational services in May 1999, we expect direct costs of
educational services to increase in absolute dollars in future periods.
Selling and marketing expenses. Selling and marketing expenses increased
54% from $1.2 million for the nine months ended September 30, 1998 to $1.9
million for the nine months ended September 30, 1999. The increase was due
primarily to an increase in headcount and an increase in marketing
expenditures. Selling and marketing expenses represented 38% of total net
revenues for the nine months ended September 30, 1998 and 14% of total net
revenues for the nine months ended September 30, 1999.
25
<PAGE>
General and administrative expenses. General and administrative expenses
increased 185% from $1.7 million for the nine months ended September 30, 1998
to $4.7 million for the nine months ended September 30, 1999. This increase was
due primarily to an increase in recruiting costs and an increase in headcount
for the nine months ended September 30, 1999. General and administrative
expenses represented 52% of total net revenues for the nine months ended
September 30, 1998 and 34% of total net revenues for the nine months ended
September 30, 1999.
Compensation expense related to stock options and warrants. For the nine
months ended September 30, 1999, we recorded non-cash compensation expense
related to the issuance of stock options of $2.1 million. In addition, we
recorded deferred compensation expense of $6.5 million related to the issuance
of stock options which will be recognized over the vesting period of the
underlying stock options.
Interest and other income (expense), net. Net interest and other income
(expense) changed from an expense of $165,000 for the nine months ended
September 1998 to income of $187,000 for the nine months ended September 30,
1999. This change was primarily due to a one-time gain of $349,000 related to
the termination of a joint-venture agreement with a third party in May 1999.
Comparison of Period from Inception (October 31, 1996) through December 31,
1996, Fiscal Year 1997 and Fiscal Year 1998
Professional services revenues. Professional services revenues increased
59% from $3.2 million for 1997 to $5.0 million for 1998. There were no
professional services revenues for the period from inception (October 31, 1996)
to December 31, 1996. The increase in professional services revenues reflected
growing demand for Internet professional services and increases in both the
size and number of our client engagements. For 1998, three clients accounted
for approximately 51% of total net revenues, consisting of 25% of total net
revenues from Chevron, 16% of total net revenues from Johnstone, and 10% of
total net revenues from Toyota. For 1997, three clients totaled 51% of total
net revenues, consisting of 28% of total net revenues from Toyota, 12% of total
net revenues from Caterpillar and 11% of total net revenues from OnMoney.
Direct costs of professional services. Direct costs of professional
services increased 123% from $2.2 million for 1997 to $5.0 million for 1998.
Direct costs of professional services increased 4,402% from $50,000 for the
period from inception (October 31, 1996) to December 31, 1996 to $2.2 million
for 1997. These increases were primarily due to the hiring of additional
professionals and, to a lesser extent, higher wages.
Selling and marketing expenses. Selling and marketing expenses increased
367% from $328,000 for 1997 to $1.5 million for 1998. Selling and marketing
expenses increased from $3,000 for the period from inception (October 31, 1996)
to December 31, 1996 to $328,000 for 1997. As a percent of total net revenues,
selling and marketing expenses represented 10% for 1997 and 30% for 1998. This
increase was due primarily to an increase in direct sales and marketing
headcount during 1998 and our not investing in our sales and marketing
organization until the fourth quarter of 1997.
General and administrative expenses. General and administrative expenses
increased 17% from $1.8 million for 1997 to $2.1 million for 1998. General and
administrative expenses increased from $140,000 for the period from inception
(October 31, 1996) to December 31, 1996 to $1.8 million in 1997. As a percent
of total net revenues, general and administrative expenses represented 57% for
1997 and 42% for 1998. General and administrative expenses included significant
recruiting costs for both 1997 and 1998. The overall increase in general and
administrative expenses was due primarily to an increase in the number of
employees.
Interest and other income (expense), net. Net interest and other income
(expense) changed from income of $3,000 for 1997 to an expense of $229,000 for
1998. There was no interest and other income (expense), net for the period from
inception (October 31, 1996) to December 31, 1996. This increase in expense was
related to an increase in interest expense related to working capital and
equipment financing during 1998.
26
<PAGE>
Provision for income taxes. At December 31, 1997 and 1998, we had a net
operating loss carryforward of approximately $1.2 million and $2.6 million,
respectively, which we may use to offset future taxable income, if any. This
carryforward is subject to review and possible adjustment by the Internal
Revenue Service. The Internal Revenue Code contains provisions that may limit
our use of the carryforward in the event there are significant changes in our
ownership.
We have not given recognition to any of our potential tax benefits,
consisting primarily of our net operating loss carryforward, as it is more
likely than not that these benefits will not be realizable in our future years'
tax returns.
Quarterly Results of Operations
The following table sets forth certain quarterly consolidated statements of
operations data for each of the seven most recently completed quarters. In
management's opinion, this information has been prepared on the same basis as
the audited financial statements appearing elsewhere in this prospectus, and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the unaudited quarterly results when read in
conjunction with our consolidated financial statements and related notes
appearing elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of results of operations for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Professional services.. $ 880 $ 973 $1,355 $1,839 $2,441 $3,764 $ 5,137
Educational services... -- -- -- -- -- 1,029 1,467
------- ------- ------ ------ ------ ------ -------
Total net revenues.... 880 973 1,355 1,839 2,441 4,793 6,604
Costs and expenses:
Direct costs of
professional
services(1)........... 1,172 1,034 1,322 1,446 1,527 2,009 2,921
Direct costs of
educational
services(1)........... -- -- -- -- -- 569 573
Selling and
marketing(1).......... 382 625 218 305 413 619 852
General and
administrative(1)..... 969 231 454 455 685 1,583 2,453
Compensation expense
related to stock
options and warrants.. -- 50 7 17 -- 425 2,327
------- ------- ------ ------ ------ ------ -------
Total operating
expenses............. 2,523 1,940 2,001 2,223 2,625 5,205 9,126
------- ------- ------ ------ ------ ------ -------
Loss from operations.... (1,643) (967) (646) (384) (184) (412) (2,522)
Interest and other
income (expense), net.. (9) (50) (106) (64) (71) 291 (33)
------- ------- ------ ------ ------ ------ -------
Net loss................ $(1,652) $(1,017) $ (752) $ (448) $ (255) $ (121) $(2,555)
======= ======= ====== ====== ====== ====== =======
<CAPTION>
Percentage of Total Net Revenues
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Professional services.. 100.0% 100.0% 100.0% 100.0% 100.0% 78.5% 77.8%
Educational services... 0.0 0.0 0.0 0.0 0.0 21.5 22.2
------- ------- ------ ------ ------ ------ -------
Total net revenues.... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Direct costs of
professional
services(1)........... 133.2 106.3 97.6 78.6 62.6 41.9 44.2
Direct costs of
educational
services(1)........... 0.0 0.0 0.0 0.0 0.0 11.9 8.7
Selling and
marketing(1).......... 43.4 64.2 16.1 16.6 16.9 12.9 12.9
General and
administrative(1)..... 110.1 23.7 33.5 24.7 28.1 33.0 37.1
Compensation expense
related to stock
options and warrants.. 0.0 5.1 0.5 0.9 0.0 8.9 35.2
------- ------- ------ ------ ------ ------ -------
Total operating
expenses............. 286.7 199.3 147.7 120.8 107.6 108.6 138.1
------- ------- ------ ------ ------ ------ -------
Loss from operations.... (186.7) (99.4) (47.7) (20.9) (7.6) (8.6) (38.1)
Interest and other
income (expense), net.. (1.0) (5.1) (7.8) (3.5) (2.9) 6.1 (0.5)
------- ------- ------ ------ ------ ------ -------
Net loss................ (187.7)% (104.5)% (55.5)% (24.4)% (10.4)% (2.5)% (38.6)%
======= ======= ====== ====== ====== ====== =======
</TABLE>
(1) Exclusive of noncash compensation expense related to stock options and
warrants presented separately.
27
<PAGE>
We have historically experienced significant quarterly fluctuations in our
revenues and results of operations and expect these fluctuations to continue.
Factors causing these variations include the number, timing, scope and
contractual terms of client projects, delays incurred in the performance of
such projects, accuracy of estimates of resources and time required to complete
ongoing projects, and general economic conditions. In addition, our future
revenues and results of operations may fluctuate as a result of changes in
pricing in response to client demand and competitive pressures, the ratio of
fixed-price contracts versus time-and-materials contracts and the timing of
collection of accounts receivable. A high percentage of our results of
operations, particularly personnel and rent, are relatively fixed in advance of
any particular quarter. As a result, unanticipated variations in the number and
timing of our projects or in consultant utilization rates may cause significant
variations in operating results in any particular quarter, and could result in
losses. Any significant shortfall of revenues in relation to our expectations,
any material reduction in utilization rates for our consultants, an
unanticipated termination of a major project, a client's decision not to pursue
a new project or proceed to succeeding stages of a current project, or the
completion during a quarter of several major client projects could require us
to pay underutilized employees and have a material adverse effect on our
business, results of operations and financial condition.
Our quarterly results of operations are also subject to certain seasonal
fluctuations. We have in the past hired most of our new consultants in the
second and third quarters, and there has been a delay in revenues associated
with these consultants until they become fully billable. Demand for our
services may be lower in the third and fourth quarters due to reduced activity
during the vacation and holiday seasons and fewer working days for those
customers that curtail operations during these periods. These and other
seasonal factors may contribute to fluctuations in our results of operations
from quarter to quarter.
Liquidity and Capital Resources
Since inception, we have funded our operations through the sale of equity
securities, bank borrowings and lease financing arrangements.
Cash used for operating activities was $193,000 for the period from
inception (October 31, 1996) to December 31, 1996, $1.4 million for 1997, $2.7
million for 1998 and $827,000 for the nine months ended September 30, 1999. For
the period from inception (October 31, 1996) through December 31, 1996 we had
no capital expenditures. For 1997, 1998 and the nine months ended September 30,
1999 we had capital expenditures of $584,000, $191,000 and $527,000,
respectively.
We have a committed and revolving line of credit with a bank which
currently provides for borrowings of up to $3.0 million. Of this amount, $2.5
million is committed and guaranteed by our affiliates, as well as secured by
our assets. An additional $500,000 is secured by our assets and is revolving
and subject to a maximum balance of 75% of qualified accounts receivable. The
line of credit agreement also provides for the availability of an additional
revolving amount of $500,000 upon our achieving net profit in two consecutive
quarters. Borrowings under this line of credit, which expires on December 29,
1999, bear interest at the bank's prime rate plus 1.0% (9.25% at September 30,
1999). Under the same bank agreement, we also have an equipment line of credit
which provides for borrowings of up to $200,000, which bears interest at the
bank's prime rate plus 1.5% (9.75% at September 30, 1999). Under the equipment
line, amounts borrowed between January to June 1999 are paid back over a 36-
month period beginning July 5, 1999 and amounts borrowed between July to
December 1999 are paid back over a 36-month period beginning January 5, 2000.
Borrowings under the bank lines of credit may be prepaid in whole or in part
without penalty and are secured by substantially all of our assets. The line of
credit requires compliance with financial covenants including minimum revenues
per quarter and maximum loss/minimum net income per quarter. Outstanding
borrowings under the above credit facilities totaled $1.4 million as of
September 30, 1999.
Our cash and cash equivalents were $4,000 at September 30, 1999. In October
1999, we sold 1,645,555 shares of series A convertible preferred stock to five
investors in a private placement at a price of $6.00 per share. We received net
proceeds of approximately $9.9 million from the private placement, after
deducting our
28
<PAGE>
expenses. Based on our current business plan, we believe that current cash, the
proceeds from the private placement, available borrowings under our credit
facilities and the net proceeds from this offering will be sufficient for us to
meet our working capital and capital expenditure requirements at least through
the year 2000. However, there can be no assurance that we will not require
additional financings within this time frame or that such additional financing,
if needed, will be available on terms acceptable to us, if at all.
Impact of Year 2000
Many currently installed computer systems and software products worldwide
are coded to accept only two-digit entries to identify a year in the date code
field. Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between the year 1900
and the year 2000. Accordingly, many companies, including us and our clients,
potential clients, vendors and strategic partners, may need to upgrade their
systems to comply with applicable Year 2000 requirements.
Because we and our clients are dependent, to a very substantial degree,
upon the proper functioning of computer systems, a failure of these systems to
correctly recognize dates beyond January 1, 2000 would disrupt operations. We
may experience operational difficulties caused by undetected errors or defects
in our internal systems. Purchasing patterns of our clients and potential
clients may be affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000 compliance and may
therefore defer new initiatives until they do so. We may become involved in
disputes regarding Year 2000 problems occurring in solutions we have developed
or implemented or arising from the interactions of our Internet solutions with
other software applications. Year 2000 problems could require us to incur
delays in providing our services to clients and unanticipated expenses.
To address these issues, we formed a Year 2000 assessment and contingency
planning committee, called the Y2K Committee, to review both our information
technology systems and our non-information technology systems, and where
necessary, to plan for and supervise the remediation of those systems. The Y2K
Committee is headed by our Chief Technologist. We have performed an assessment
of the Year 2000 readiness of our critical hardware and software systems. The
providers of these systems have either confirmed to us that these systems are
Year 2000 compliant or provided the information necessary for us to plan and
implement upgrades to make them Year 2000 compliant.
We have also held and continue to hold discussions with our clients
regarding their Year 2000 remediation plans. Based on discussions to date, we
believe that the Year 2000 problem will not materially or adversely impact the
operations of our significant clients or their plans to purchase our services.
Based on work done to date, we believe that the cost of work and materials
to complete our Year 2000 program will be approximately $60,000, of which
approximately $45,000 has been spent to date. This includes the cost of
material upgrades, software modifications and related consulting fees.
We are developing contingency plans for critical individual information
technology systems and non-information technology systems to address Year 2000
risks not fully resolved by our Year 2000 program. These contingency plans
should be completed by the fourth quarter of 1999. To the extent that our
assessment is finalized without identifying any material noncompliant
information technology systems operated by us or by our vendors, we feel the
most reasonably likely worst case Year 2000 scenario is a temporary
telecommunications failure which would impair communications among our offices.
We currently have contingency plans in place to address such a disruption in
our telecommunications systems and believe that such a disruption would not
have a material or adverse effect on our operations. However, a prolonged
telecommunications failure beyond our control could have a material adverse
effect on our business, results of operations and financial condition.
We believe that the Year 2000 risk will not present significant operational
problems for us. However, there can be no assurance that our Year 2000 program
will prevent any material adverse effect on our operations, financial condition
or customer relations.
29
<PAGE>
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS No. 133, as amended by
SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS No. 133 is not expected to have a material impact on
our consolidated financial statements.
30
<PAGE>
BUSINESS
Overview
We are a full service provider of Internet-based solutions designed to help
companies conduct eBusiness. We add value to our clients by incorporating our
expertise in business issue diagnosis and resolution, business and technology
strategy development and the delivery of advanced Internet applications and
eBusiness solutions. Additionally, through the C-bridge Institute, we offer
clients executive education services on topics relevant to senior executives'
efforts to successfully develop and implement Internet technologies and
eBusiness strategies.
We have focused the staffing of our senior management team as well as the
appointment of our board of directors around certain core competencies that are
strategic to our eBusiness solutions. These core competencies include business
strategy development, supply chain management, service chain management,
education, creative design, branding and marketing, systems architecture design
and back-end systems integration.
We have gained considerable expertise through our strategic relationships
with major technology product and service providers, including Hewlett-Packard
and Oracle. We have also continued to increase the value of our brand and our
unique lead generation methodology by developing relationships with senior
executives of a significant number of Global 1000 companies who have attended
our executive education seminars. Through the delivery of these seminars
worldwide, we educate over 3,000 business managers and executives each year on
business strategies related to the Internet. We view this as a third sales
channel which complements our own direct sales efforts and sales resulting from
our client-partner model which we run on an account-by-account basis through
our services delivery organization.
Industry Background
Growth of the Internet and eBusiness
The Internet has grown rapidly in recent years, driven by several key
factors, including the development of easy-to-use web browsers, the large and
growing installed base of advanced personal computers, the adoption of faster
and more efficient networks, the emergence of compelling web-based content and
commerce applications, and the growing sophistication of the user base.
According to International Data Corporation, a leading technology research
firm, the number of Internet users was 98 million worldwide at the end of 1998
and is expected to grow to 320 million by the end of 2002.
The initial commercial use of the Internet was as a static informational
and advertising medium. From this origin, the Internet has evolved into a
dynamic platform for conducting business. According to a June 1999 report
published by International Data Corporation, the amount of commerce conducted
over the Internet will exceed $1.0 trillion by 2003. Faced with growing
competition, deregulation and globalization, companies are increasingly looking
to utilize Internet technologies to develop a sustainable competitive
advantage. They have begun to expand their use of efficient and low-cost
Internet technologies to replace or enhance traditional operations, such as
customer relationship management, supply and service chain management, employee
training and communication.
Companies are now moving away from implementing standard applications
toward assembled applications based on Internet standard architectures.
Configuring and customizing large applications was possible when business
strategies could be supported by the functionality of static systems.
Competitive pressures have driven companies to adopt business strategies that
require dynamic, flexible business processes and applicable technical
infrastructure. Today, many companies are using Internet standards when
designing their systems architecture and then use system components that can be
assembled into a flexible solution. With an architectural approach, companies
not only get the system flexibility they are looking for, but they are also
able to assemble the precise functionality required to create a competitive
advantage.
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Market for Full Service eBusiness Solution Providers
Given the move toward standard architecture, successful adoption of the
Internet for eBusiness poses significant architectural, creative, strategic and
technical design challenges. The successful alignment of business and Internet
strategies requires an understanding of how the Internet can transform
relationships among companies' various constituencies, including their
employees, customers and business partners. However, companies facing major
technology investment decisions often need outside technical expertise to
identify and evaluate viable Internet tools, develop feasible systems
architectures and implement strategies. Companies must also be able to
integrate new Internet applications with their existing systems. Finally, a
successful solution requires that the Internet-based solution, particularly the
user interface, must be engaging and easy to use. Few companies have the range
of skills necessary to recognize the ways in which Internet technologies can
transform their businesses and implement sophisticated eBusiness solutions.
Even if companies can obtain skills in each of these strategy, technology and
creative disciplines, they often have little experience coordinating them to
fully exploit the Internet and related technologies.
The combination of these factors has created a significant and growing
demand for third-party Internet professional service providers. International
Data Corporation has forecasted that the market for Internet professional
services worldwide will grow from $7.8 billion in 1998 to $78.5 billion by
2003.
Market Opportunities
eBusiness solutions providers can be divided into four major categories:
large systems integrators, specialty systems integrators, strategy consulting
firms and Internet professional services providers. While many competitors in
each category have specific strengths, each tends to focus on only a part of
the overall solution. Few integrate business and marketing strategy with
expertise in Internet-specific technology and architectural design services to
help businesses achieve the full potential that the Internet offers.
As the level of familiarity and sophistication with Internet technologies
continues to grow, so does the need for full eBusiness service providers that
can help formulate a focused, strategic and integrated approach to the
implementation of eBusiness solutions that add measurable value to the client.
This rapidly increasing demand for eBusiness solutions, combined with the
inability of many current eBusiness solution providers to deliver all of the
strategic, creative and technical skills required by clients, has created
significant market opportunities which remain largely unaddressed.
Our Solution
We design and implement sophisticated eBusiness solutions to help our
clients make intelligent business decisions, drive incremental sales volume,
reduce costs and accelerate business transactions both internally with
employees and externally with vendors, suppliers and customers. At the C-bridge
Institute, we educate senior-level executives from Global 1000 companies about
the Internet, diagnose new eBusiness strategies and systems architecture
shortcomings and then deliver strategic eBusiness solutions that are designed
to enhance our clients' core business, operations and communications. Our
solution has five essential elements:
Provide integrated Internet strategy, technology and systems architecture
design services. We provide a comprehensive set of integrated services designed
to implement sophisticated eBusiness solutions. These services include
strategic consulting, design of systems architectures and end-user interfaces,
and creation and customization of software. We work with our clients to analyze
their business issues, design an appropriate technology and systems
architecture and implement an effective eBusiness solution. Our services assist
our clients to evaluate their strategies and transform their businesses to take
advantage of the Internet.
Offer high value-added eBusiness solutions which can be quickly developed
and deployed. Our goal is to enable our clients to improve their overall
business practices by providing robust eBusiness solutions that can increase
sales, improve operational efficiencies and create or enhance business
identities. We provide application assembly and development and systems
integration services by employing the latest in Internet technologies. Our
clients benefit not only from time and cost savings, but also from robust and
scalable
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solutions that can be implemented quickly and seamlessly. This approach also
reduces miscommunications and delays that can occur when the design,
customization and implementation are handled by multiple service providers.
Offer eBusiness education to senior-level Global 1000 executives around the
world. We have a unique channel opportunity structured around the delivery of
executive education. Through an outsourcing agreement, we have partnered with
CEE to deliver content, lectures, and demonstrations for our executive
education programs. These seminars help executives understand how Internet
technologies can benefit their business. Our relationship with CEE gives us
direct high-level access to the corporate executives who attend. CEE's current
major sponsors, Hewlett-Packard and Oracle, are also our alliance partners. At
the seminars, we work with our alliance partners to help business executives
begin to understand their business problems and identify possible eBusiness
solutions. To date, these seminars have been our most significant source of
lead generation.
Combine strategic industry and business domain expertise to create
iSolutions. To date, we have focused the delivery of our services on four
industry groups: retail and distribution; banking, finance and insurance;
manufacturing; and utilities and telecommunications. We have developed valuable
intellectual capital and expertise in these areas. We complement our industry
focus with expertise in cross-industry functional solution areas. This enables
us to understand our clients' particular business processes and competitive
positions and to create what we call iSolutions that are best suited to their
needs. An iSolution is a combination of a business strategy, a workflow
template and a technical architecture. Since each of these continues to move in
time, an iSolution by definition is an environment rather than a traditional
application. As competition dictates moves in strategy, as new ideas emerge
around best in class workflows and as new products and technologies are
introduced, the iSolution needs to be flexible in order to achieve a
competitive advantage. The industry experts in our iSolutions group develop and
deliver the industry vertical solutions for our clients. These iSolutions can
then be used as benchmarks during both diagnosis and delivery, improving both
the speed of delivery and quality of our solutions.
Leverage our intellectual capital to benefit clients. We utilize technology
to accumulate and disseminate information and to ensure the growth and
development of our intellectual capital. This information is tracked and stored
in our corporate intranet, which acts as a centralized intellectual capital
repository. Our intranet is both a solutions library that facilitates the
dissemination of intellectual capital across our business and an internal
project management system that captures detailed information on the resources
required to achieve specific tasks on a project. Our ability to reuse
intellectual capital allows us to predict project completion requirements more
accurately and provide fixed-cost contracts, further reducing risk for our
clients.
Our Strategy
Our goal is to become the leading provider of eBusiness services to Global
1000 companies. To achieve this objective, we are pursuing the following
strategies:
. Continue to enhance our eBusiness framework and design patterns. We
have developed significant technological capabilities and expertise in
systems architecture and design patterns, which we use to deliver
sophisticated eBusiness solutions. We intend to continue to develop
and invest in our framework and design patterns, which form the
foundation of our client engagements. In particular, we intend to
continuously adapt our framework and design patterns to evolving and
emerging Internet technologies in order to meet the needs of a
worldwide client base.
. Develop and expand client relationships. We establish strong ties with
our clients' senior management by assisting them in addressing their
strategic business issues. We leverage these relationships through the
C-bridge Institute to expand the scope and length of current projects
and to enter into additional projects. Our strategy is to leverage our
industry expertise, technology skills, and scale by expanding the
scope of client relationships into broader engagements, including
additional Internet strategy consulting, design, systems engineering
and application development services.
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. Capture and disseminate reusable knowledge and best practices. Our
employees have developed a broad base of knowledge and best practices.
Our strategy is to continue to capture this knowledge and these best
practices for dissemination throughout our business, and to expand
these capabilities where appropriate through acquisitions and external
hiring. We have established a library of reusable software objects,
templates and horizontal business solutions from our client
engagements which continue to grow as projects are completed. The
current set of horizontal business solutions were created as a best
practice within one industry sector but are leverageable across
multiple sectors. We intend to leverage this library to deliver
solutions rapidly and cost-effectively in multiple industries. We
believe this will provide us with a significant competitive advantage,
particularly when providing services under fixed-price contracts.
. Leverage and expand our industry-specific expertise. We have assembled
industry centers of expertise within our practice groups, including
professionals with expertise in the business practices and processes
of several specific industries. We believe that combining industry-
specific knowledge with our best practices and design patterns enables
us to provide effective Internet strategy consulting and services
tailored to the specific needs of our clients. In addition, our
industry expertise reduces the learning curve on new engagements,
improving efficiency of implementation and reducing project delivery
times. Our strategy is to augment our regional industry capability by
recruiting senior professionals from major consulting firms and
companies in relevant industries.
. Expand geographic presence. We have already established a presence in
Australia and England and, in order to obtain broad geographic
coverage, we intend to establish additional offices across the United
States, as well as in Europe and the Pacific Rim. This will allow us
to serve more clients on a local basis, helping to forge strong, long-
term client relationships and to serve the needs of our clients and
their customers and vendors.
Our Methodology and Services
We have developed a fully integrated services methodology, Profit Life
Cycle Management, to assist companies in the ongoing process of expanding and
improving business through technology. This methodology enables businesses to
produce cycles of value from one development phase to another, assisting the
company in becoming a leader in its business and creating a workable business
design that enhances its bottom line. The Profit Life Cycle Management
methodology provides companies with eBusiness solutions and services that
enable the parts of an organization to synchronize around achieving the
greatest benefit for the organization as a whole, to focus on global rather
than local performance, to understand the patterns and frameworks that help
managers succeed and to achieve the goals of the company with the Internet as
the enabler.
The Profit Life Cycle Management methodology is based on a number of
underlying principles:
. Value driven. We focus on providing measurable value to our clients.
For example, for each engagement we define a deliverable in terms of a
demonstrable improvement in a specific strategic or operational
measure such as market share, revenues, cost, customer service and
cycle time.
. Iterative development and change management. We believe that early
feedback from end-users is integral to the design and implementation
of a successful eBusiness solution. Our engagements are staffed with a
team consisting of our consultants and representatives from our
clients' various businesses or technical functions.
. Design patterns and reusable software. We leverage our growing library
of design patterns and reusable software components to increase our
diagnosis and delivery capabilities. These patterns and components can
be quickly assembled into a preliminary model of an application's core
functions and services.
. Proactive risk management. Risk assessment and control practices are
built into our methodology from the planning stage through the
execution and completion of development projects. We assemble and test
the proposed system architecture early to mitigate potential technical
risks in areas such as connectivity, security and performance.
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The following chart illustrates the services and core competencies within
the Profit Life Cycle Management methodology:
[CHART APPEARS HERE]
The graphic is a series of rectangular boxes that, collectively, are presented
in a circular fashion along the outside with smaller boxes and circles in the
inside. The boxes are connected by lines that have an arrow on each end. The
first box, located at the top center, contains the text "Program Management."
Proceeding counter-clockwise, the next box is located to the lower left and
contains the text "Business Innovation." The next box is located directly
below and contains the text "Diagnosis." Directly below this box, prior to the
arrow, and as part of the diagnostic area are three smaller boxes with one
rectangular box underneath. The three boxes, left to right, contain the text
"Internet Strategy Analysis," "Business Value Analysis" and "Internet
Readiness Assessment." Before the arrow, the rectangular box underneath the
three smaller boxes contains the text "Internet Vision Session." The next box
is located directly below and contains the text "Health Checks." The next box
is located at the bottom in the center of the chart and contains the text
"Systems Management." Beginning again at the top of the graphic but now
proceeding clockwise, after the rectangular box containing "Program
Management," the next box is located to the lower right and contains the text
"Education & Customer Mentoring." The next box is located directly below and
contains the text "Delivery." Directly below this box, prior to the arrows,
and as part of the delivery area are four smaller boxes with one larger
rectangular box underneath. The four boxes, left to right, contain the text,
"Define," "Design," "Develop" and "Deploy." The rectangular box underneath the
smaller boxes contains the text, "Internet Systems Integration." The next box
is located directly below and contains the text, "Technology Transfer." From
here the arrow goes to the left, middle and bottom of the graphic, returning
to the box containing the text "Systems Management." In the center of this
circular presentation are four stacked boxes containing the text "iSolution,"
"Profit Patterns," "Process Patterns" and "Design Patterns." At each corner of
the stacked boxes is a circle with an arrow pointing to the center of the
stacked boxes. Proceeding counterclockwise, the circle at the top left
contains the text "Strategic Business Consulting." The circle at the bottom
left contains the text "Web Application Development." The circle at the bottom
right contains the text "Back-end Systems Integration." The circle at the top
right contains the text "Creative Design & Branding."
Program Management
Our Program Management services include a set of planned activities and
associated deliverables that are conducted over the duration of our
engagement. The primary focus of Program Management is on the successful
implementation of the business change resulting in the realization of business
value. Throughout the program we work with a team of key representatives from
the client as well as our alliance partners to ensure a smooth implementation
process. A client engagement team determines the benefits, assesses the
project risks, determines communication and training needs and develops a
rollout approach for the iSolution. These activities are accomplished using a
set of customizable tools tailored to the client's specific situation. Working
with the business organization, we synthesize all of this information into an
integrated Program Management plan. This plan is used throughout the diagnosis
and delivery phases and provides a comprehensive approach toward attaining
business benefits.
Business Innovation
We work with our clients to better understand their core businesses and
operations in order to focus on an innovative, rather than an incremental,
approach toward designing eBusiness solutions tailored to their needs. We
believe that a truly successful eBusiness solution can only be achieved
through an interactive process where new opportunities are generated by
evolving existing ideas. For example, the banking industry is moving steadily
to the world of eCommerce. However, simply migrating traditional banking
services such as cash management to the Internet will not be enough to
maintain market share in this new competitive environment. Banks, like most
other industries, will need to innovate their existing business to succeed in
this new electronic marketplace.
Education and Customer Mentoring
Through our C-Bridge Institute, we offer executive education classes and
workshops to executives, managers and staff of our clients and continue
throughout the life cycle of a client relationship. From executive education
addressing business strategy and technology through management education on
business processes, best practices, technology transfer and employee re-
skilling around the Internet, we offer a broad educational
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suite. We are rapidly expanding the course syllabus across all of these areas
and will continue to keep pace with business and technological advancement.
Through these educational services, we empower our client base to drive the
organizational, business process and technological changes required to compete
in a highly competitive marketplace.
Diagnosis
Our diagnosis services are structured to improve the clients' understanding
of the power and potential of eBusiness solutions. Clients can choose their
preferred combination of services based on their particular needs.
Internet strategy analysis. Internet strategy analysis is a two-to-four
week engagement in which we work with our clients to incorporate Internet
technologies into their business strategies. Within Internet strategy analysis
we have four paths of analysis: business to business, business to consumer,
device to device and marketing and branding. The result is a set of strategies,
high-level workflows and a series of metrics to direct the strategy and keep
subsequent application development plans consistent with appropriate goals and
objectives.
Business value analysis. Business value analysis is a two-to-four week
engagement where we help clients identify and quantify prominent business
opportunities where the Internet can be leveraged to gain a competitive
advantage and realize business value. We employ a series of financial models
that are used to convert the current corporate financial structures into a more
workflow-oriented financial analysis. We then compare the client's financial
performance against that of other companies in the sector and in other
industries, and link financial performance to changes in business process
workflows. As a baseline for the business process analysis, our library of
dominant workflows and best practices is directly connected to enabling
business objects that can be assembled into an iSolution.
Internet readiness assessment. The Internet readiness assessment helps our
clients evaluate their current Internet capabilities in a three-to-five week
engagement. Recent developments in technology platforms, new techniques such as
distributed object computing, and end-user demands for features such as multi-
media interfaces, require a robust Internet architecture to enable the
solutions of the future. Business processes, the technology environment and
support systems are first reviewed and catalogued through a series of
interactive workshops. We then perform rapid pattern recognition against a
knowledge base of best practice systems designs that help determine whether the
client's information technology architecture meets the demands of next-
generation applications.
Internet visioning session. Throughout the diagnosis phase, we work with
clients to explore and create a vision of how a chosen Internet strategy will
result in measurable business value. By using Internet-standard prototyping
tools and methods, we can quickly assemble an Internet vision application
suitable for executive presentation. The Internet vision application serves as
a shared vision of what a client can achieve using Internet technologies and
increases the client's confidence in moving forward.
Delivery
Our delivery services use a proven methodology, standard design patterns
and reusable software components to assemble our solutions, increase
reliability and product quality, reduce costs and keep project teams focused on
delivering business functionality. We deliver processes that support a rigorous
systems integration standard. In most cases, a strategic Internet solution must
be integrated with existing legacy systems. These systems may include a number
of components which are not based on Internet standards. Therefore, a solid
integration approach around applications, data, and messaging and existing
systems is critical. Application development efforts are based on well-defined
specifications and release schedules are aligned with business priorities.
The define phase. The define phase establishes the business case and lays
out the business requirements and processes that are to be supported by the new
application. During this stage, we utilize object-oriented analysis techniques
and intensive workshop sessions to help gather input and ensure effective
interaction with
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project stakeholders. Incremental culture, organization and business process
changes are accomplished through multiple workshop sessions. Collectively, the
define phase deliverable consists of the initial specification and scope of
work to follow.
The design phase. The goal of the design phase is to lay out the technical
blueprint for the new application in order to avoid costly defects during
programming. The main deliverables from this phase are object models, technical
design specifications, a detailed user interface design, working components
that demonstrate the viability of the new systems infrastructure, a systems
test plan and a refined project plan. Our philosophy is to leverage legacy
systems and commercial off-the-shelf software within a robust application
framework that responds easily to changing business and technological
requirements and enables quick delivery of new applications.
The development phase. The development phase consists principally of the
coding, assembly and testing necessary to create a production-caliber
application. We use established software engineering techniques, team-based
development tools, frequent checkpoints and traditional code reviews to ensure
tight collaboration and high quality. Since the scope and design of the
application were validated and approved in previous phases, the team is well
positioned to deliver a fast, on-target release. Short, incremental code,
assembly and test cycles are used to allow project teams to constantly monitor
the quality of the application.
The deployment phase. After development, we assist in the deployment of the
application in areas such as education, documentation, release management and
systems administration. Planning for deployment frequently begins before
application development even starts. The goal is to provide whatever support is
necessary to allow clients to start realizing tangible business benefit from
the new application quickly and efficiently.
Subsequent releases and enhancements. Project plans are often based on
incremental application releases to allow early return on investment and ease
the burden of change management in our clients' environments. The project team
simply loops through multiple delivery cycles until the overall scope of the
application is achieved.
Health Checks
The objective of a health check is to provide an independent view of a
project's actual progress in terms of schedule, staffing and deliverables, and
to identify those constraints, issues or risks which could threaten a project's
success. Recommendations for issue resolution or risk mitigation are also
documented. Additionally, project health checks provide an opportunity to
channel input, or escalate issues, to several of our work groups, such as
senior management, development and account management.
Technology Transfer
Our technology transfer services focus on transferring the requisite
Internet know-how to the client. It typically takes up to one year to educate a
client's internal staff of IT professionals in the latest Internet
technologies, standards, platforms and methods. By combining an actual project
with this service, we typically are able to complete a technology transfer to
the in-house IT organization within six months. As part of this service we
license to the client the applicable design patterns and frameworks.
Systems Management
Once an iSolution has been deployed, in many cases we provide the client
with additional support in managing the new environment as they complete the
technology transfer program. In some instances, the client elects to have us
manage the entire system in order to focus on their core competencies.
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Sales
We market our solutions and services through our headquarters in Cambridge,
Massachusetts, with sales professionals also located domestically in Atlanta,
Dallas/Ft. Worth, Detroit, New York, Orange County and San Francisco, and
internationally in London, England and Sydney, Australia. We believe that a
regional sales focus, combined with our local solutions services approach,
allows us to develop a strong market presence and enhanced customer loyalty.
Our sales professionals operate through a coordinated and structured process to
evaluate prospective clients, target qualified prospects and secure new client
engagements.
Our solutions and services are marketed principally to Global 1000
companies, with emphasis on retail and distribution, banking, finance and
insurance, manufacturing, and utilities and telecommunications. In addition, we
focus on two horizontal markets: service chain and supply chain management.
Finally, we have initiated a marketing strategy focusing on mid-tier value-
added resellers of Oracle applications and Hewlett-Packard business solutions.
We create demand for our solutions and services through four sales
channels:
. direct territory development through our domestic and international
sales force;
. through relationships developed at our C-bridge Institute;
. working with mid-tier value-added resellers; and
. through relationships with strategic applications vendors.
Marketing
Our sales efforts are supplemented by marketing and communications
activities which we pursue to further build brand name and recognition in the
marketplace. Our goals include the following:
. to plan and build an integrated program addressing both internal and
external audiences;
. to design and implement media and tactical programs that communicate
most effectively with our target audiences;
. to position us as the standard in providing results-driven eBusiness
solutions; and
. to clearly and consistently communicate our positioning in all
marketing programs.
From a public relations standpoint, we are targeting specific media. For
example, computer and Internet trade media, business and majority media
(newspapers, broadcast and wire services) and industry analyst communities. We
plan to conduct media/analyst tours twice per year in major cities (such as
Boston, New York, San Francisco and Washington, D.C.). Also, we are planning
editors and analysts days where we will host target editors and analysts for
half-day one-on-one sessions and customer demonstrations.
Clients
Our clients include the following companies:
. Retail and Distribution: Aviall, Cardinal Health Care, Fabri-Centers
of America, Johnstone Supply, Liz Claiborne, Polo Ralph Lauren and
Trane;
. Banking, Finance and Insurance: Aegon, Allmerica, Central Carolina
Bank and OnMoney (Ameritrade);
. Manufacturing: Buell (Harley Davidson), Caterpillar, Chevron,
Firmenich, General Motors, Quantum, SteelCase and Toyota; and
. Utilities and Telecommunications: UNIFI and US West.
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Client Case Studies
Chevron Case Study
Business Opportunity. Chevron has a network of over 8,000 gas stations and
convenience stores, of which over 7,000 are owned and operated by independent
franchisees. Chevron identified an opportunity to assist these stations and
stores in their transformation from traditional gas stations into larger retail
outlets. The goal of the project was to create an alliance program to leverage
the combined buying power of 8,000 stations and stores backward through the
supply chain and forward through coordinated targeted marketing programs.
iSolution. The Chevron/C-bridge project team identified an Internet-based
solution as a critical component in establishing a successful alliance program.
Critical pieces of the alliance program engagement included:
. design of an automated franchise service support structure that
reduced administration costs and enabled personalized sales and
administrative support for franchisees;
. consolidation of purchasing orders to allow for a streamlined supply-
chain solution and leveraged buying power to achieve greater cost
savings and increased margins for both Chevron and its franchisees;
. deployment of an Internet-enabled, electronic commerce system to
support the efficient flow of information among each retail location,
Chevron and its suppliers;
. enhancement of the Chevron brand to differentiate its stores and
stations from the competition, furthering Chevron's recruiting efforts
to sign new franchisees.
Business Value. The increase in business accomplished through the alliance
program will lead to additional revenues and profits for Chevron and its
franchisees. Through increased market and franchisee awareness, Chevron and its
franchisees are now better positioned to offer the mix of products and services
that maximizes return on the limited amount of shelf space and inventory per
store.
Aviall Case Study
Business Opportunity. Aviall, Inc., the world's largest independent
distributor of new aviation parts, identified the need to quickly enhance its
presence in the wholesale and retail channels for aircraft parts and to provide
better communications with its suppliers and internal sales force. The original
"aviall.com" application was developed several years ago and, until recently,
had served most of the on-line ordering needs of Aviall's commercial
distribution network. However, Aviall recognized the need to re-architect its
on-line capabilities to remain competitive and increase sales.
iSolution. We redesigned an Internet-based parts ordering system to improve
speed and functionality as well as to provide additional electronic commerce
features. The project commenced with a three-week Internet vision and business
value assessment. This helped Aviall create a shared vision of a new
Aviall.com, understand the critical business issues and priorities, define
project expectations and deliverables, document the value impact of creating
the vision, and create the scope of what was to be included in the first
release of the application. Once the key issues were understood and key
decisions were made (such as target audience functionality, prioritized
opportunities and catalog formats) we created a project work plan to define the
applications, including project benefit and risk assessment.
The new iSolution which we created has the following features:
. the ability to create price and quantity quotes in real time;
. the ability to process multi-line orders, search for parts and track
shipments electronically;
. the ability to download, print or view material safety data sheets
online; and
. a new feature called "Supplier Services," a value-added resource that
gives users the ability to create customized sales reports, check
stock status, measure geographic sales penetration and improve
forecasting on a real-time basis.
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Business Value. Aviall achieved business value with our iSolution through
increasing sales from new sales channels and increasing revenues from existing
channels. In addition, Aviall was able to reduce the product sales cycle time
through automated sales processes and benefit from efficiencies through direct
links between customers and suppliers. Finally, Aviall was able to decrease
costs of servicing sales and provide additional value-added services to
customers and suppliers.
Aquent Partners Case Study
Business Opportunity. Aquent Partners, formerly MacTemps Inc., is the
world's largest placement agency. With 50 offices in 10 countries, Aquent has
identified the need to use the Internet to match qualified professionals with
appropriate job openings in order to remain competitive.
iSolution. We partnered with Aquent to develop an iSolution that addressed
the rapidly changing temporary placement market and to extend Aquent's
traditional placement capabilities to the Internet. In three months, we
developed AquentDirect found at www.aquentdirect.com, a service specifically
targeted at the accounting field. Job seekers post their profiles on
AquentDirect; employers search the profiles online, choose the candidates whose
resumes and credentials interest them, and then contact the candidates
directly. Unlike other self-service offerings, AquentDirect offers the added
value provided by full-service temp agencies. Aquent screens the candidates
through interviews, tests and reference checks and keeps a record of employer
feedback so companies can be sure they are choosing a candidate that best suits
their needs.
Business Value. The business value created for Aquent Partners from this
application includes minimizing dependency on particular application vendors,
leveraging existing infrastructure to establish the first online matching
service and unifying all Aquent web sites.
Central Carolina Bank Case Study
Business Opportunity. CCB Financial Corporation is a bank holding company
whose principal subsidiaries are Central Carolina Bank and Trust Company of
Durham, North Carolina and American Federal Bank, FSB of Greenville, South
Carolina. CCB is one of the Southeast's largest and fastest-growing financial
institutions.
The anticipated melding of insurance, brokerage and banking has created
greater competition for customers in the financial services marketplace. CCB
recognized the need to develop a strategy to retain current customers and gain
new customers by leveraging the potential of consumer banking over the
Internet.
iSolution. We began this project by conducting a five-week assessment of
CCB's strategy, business value and organizational and technical readiness. The
main focus of this process was to refine CCB's existing eBusiness strategy to
specific revenue-driven customer-centric responses to banking patterns in the
industry. These responses were then prioritized based on potential value.
Once the diagnostic process was completed, we designed and deployed an
Internet financial services portal targeted at retaining and gaining customers.
Through targeted data-gathering and one-to-one marketing techniques, CCB is now
able to cross-sell a multitude of products to its customers.
Business Value. Our iSolution has allowed CCB to offer new value-added
products and services, enter new markets, acquire and retain customers and
increase cross-selling of financial products to online customers.
Strategic Alliances
Our strategic alliances focus on large companies with proven success in our
principal line of focus. These organizations typically have large field
operations and are in a position to recommend and/or sub-contract our education
and consulting services. Our current alliances include:
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Oracle
We have developed a strategic relationship with Oracle at multiple levels
throughout its organization including the eBusiness Group, U.S. Sales, and
Consulting Services. We and Oracle have entered into an agreement to deliver
joint business solutions based on our Profit Life Cycle Management methodology.
The foundation of the alliance is based on leveraging our unique abilities in
executive education, Internet visioning and rapid application development with
Oracle's consulting expertise and vast resources.
We and Oracle jointly engage in co-marketing and branding activities to
support the business development efforts in this partnership. Included in this
effort is the development of a custom lead tracking/sales force automation
application designed to track leads generated through the executive seminars.
Business development activities initially focused on generating business
through the seminar series but has expanded beyond the seminars and into our
respective field operations. We and Oracle often work together on same
engagement teams but under separate contracts with the client.
Mr. Raymond J. Lane, the president and chief operating officer of Oracle,
joined our board of directors in October 1999.
Hewlett-Packard
We have developed a working relationship with Hewlett-Packard at multiple
levels within our respective organizations, including the personal systems
group, local products organization and the professional services organization.
Our marketing alliances include the retail marketing group, Internet imaging
marketing and other groups. We and Hewlett-Packard regularly engage in co-
marketing and branding activities to support our respective business
development efforts.
Cambridge Executive Enterprises
We have entered into a five-year outsourcing agreement pursuant to which we
and Cambridge Executive Enterprises jointly provide executive education
programs, delivered under the sponsorship of major technology product and
service providers such as Hewlett-Packard, Informix and Oracle. In 1998, there
were 42 such programs. Typically, the programs annually draw more than 3,000
participants throughout the world, including many senior executives and
managers from Global 1000 companies, who seek to learn how to merge their IT
strategies with their continually evolving business objectives.
Recruiting and Career Development
To succeed, we must continue to identify, recruit, hire, professionally
develop and retain outstanding professionals. We believe that our success in
recruiting and retaining such individuals will depend significantly on our
ability to provide continued professional development and competitive benefits,
as well as financial rewards and incentives through compensation and equity
incentives.
We dedicate significant resources to our recruiting efforts and manage it
similarly to a sales function. As of September 30, 1999, we employed five
professionals who focused full-time on recruiting. Our recruiting efforts are
targeted at three levels: college recruiting, technical and management. In
addition to the efforts of our in-house recruiting group, we seek to meet our
hiring needs through referrals and through technical and executive search
firms. While recruiting personnel are responsible for screening candidates,
business, functional or administrative managers make hiring decisions for their
own groups in order to help ensure high-quality hires.
We believe that our continuous focus on career development will help us
retain our highly skilled personnel. Upon joining our company, each new
employee participates in a multi-day training program that covers a broad range
of topics, including technology, consulting and our proprietary methodology.
During their first year with us, recent college graduates receive approximately
three to four weeks of training and experienced hires receive approximately two
weeks of training. We have also created a sponsorship program
41
<PAGE>
where experienced employees provide ongoing career development, mentorship and
training to less-experienced employees. Our existing employees attend
professional development and training programs and keep apprised of
technological advances and developments through on-the-job exposure to
relevant technology.
Competition
While the market for Internet professional services is relatively new, it
is already highly competitive. In many cases we compete with the in-house
technical staff of our prospective clients. In addition, the market is
characterized by an increasing number of entrants that have introduced or
developed products and services similar to those offered by us. We believe
that competition will intensify and increase in the future. Our target market
is rapidly evolving and is subject to continuous technological change. As a
result, our competitors may be better positioned to address these developments
or may react more favorably to these changes, which could have a material
adverse effect on our business, results of operations and financial condition.
We compete on the basis of a number of factors, including the following:
. integrated strategy, technology and architectural design services;
. architectural design and systems engineering expertise;
. technological innovation;
. quality, pricing and speed of service delivery;
. understanding clients' strategies and needs;
. client references; and
. vertical industry knowledge.
Many of these factors are beyond our control. Existing or future
competitors may develop or offer strategic Internet services that provide
significant technological, creative, performance, price or other advantages
over the services offered by us.
We currently compete for client assignments and experienced personnel
principally with the following:
. Internet service firms: AGENCY.COM, iXL, Modem Media.Poppe Tyson,
Online Marketing Communications, Organic Online, Proxicom, Razorfish,
Scient, USWeb/CKS and Viant.
. Systems integrators: Andersen Consulting, Cambridge Technology
Partners, Cap Gemini, EDS, Sapient and WM-Data.
. Management consulting firms: Bain, Booz-Allen & Hamilton, Boston
Consulting Group and McKinsey.
. Computer hardware and service vendors: Compaq, DEC, Hewlett-Packard
and IBM.
. Advertising agencies: Bates, DDB Needham, Grey Advertising, McCann-
Erickson and Ogilvy & Mather.
Many of these businesses have longer operating histories and significantly
greater financial, technical, marketing and managerial resources than we have.
Many of these businesses also generate significantly higher revenues, are
better known than we are and offer a greater breadth of management consulting
services. There are relatively low barriers to entry into our business. We
have no patented or other proprietary technology that would preclude or
inhibit competitors from entering the Internet professional services market.
Therefore, we must rely on the skill of our personnel and the quality of our
client service. The costs to develop and provide Internet services are low.
Therefore, we expect that we will continually face additional competition from
new entrants into the market in the future, and we are subject to the risk
that our employees may leave us and start competing businesses. Any one of the
foregoing factors could have a material and adverse effect on our business.
Proprietary and Intellectual Property Rights
We have developed detailed tools, processes and methodologies underlying
the software code, scripts, libraries and other technology used internally and
in our client engagements. We regard our copyrights, trade secrets and other
intellectual property as critical to our success. Unauthorized use of our
intellectual property by
42
<PAGE>
third parties may damage our brand and our reputation. We rely on trademark and
copyright law, trade secret protection and confidentiality, non-disclosure,
license and other agreements with our employees, customers, partners and others
to protect our intellectual property rights. Despite our precautions, it may be
possible for third parties to obtain and use our intellectual property without
our authorization. Furthermore, the validity, enforceability and scope of
protection of intellectual property in Internet-related industries is uncertain
and still evolving. The laws of some foreign countries do not protect
intellectual property to the same extent as do the laws of the United States.
We pursue the registration of our trademarks in the United States. We may
not be able to secure adequate protection of our trademarks in the United
States and other countries. We have received a trademark registration in the
United States for the C-BRIDGE mark. If we are unable to protect trademark
registrations for one or both of these trademarks, we would be unable to fully
enforce our statutory trademark rights against third parties for these
trademarks, and/or we may decide to replace these trademarks with new
trademarks. This could have a material adverse effect on our business,
financial condition and results of operations. Effective trademark protection
may not be available in all the countries in which we conduct business.
Policing unauthorized use of our trademarks is also difficult and expensive. In
addition, it is possible that our competitors have adopted or will adopt
product or service names similar to ours, thereby impeding our ability to build
brand identity and possibly leading to customer confusion.
We cannot be certain that our services and the finished products that we
deliver do not or will not infringe valid patents, copyrights, trademarks or
other intellectual property rights held by third parties. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. We may incur
substantial expenses in defending against these third-party infringement
claims, regardless of their merit. Successful infringement claims against us
may result in substantial monetary liability or may materially disrupt the
conduct of our business. We cannot assure you that the steps we have taken to
protect our proprietary rights will be adequate to deter misappropriation of
our intellectual property, and we may not be able to detect unauthorized use
and take appropriate steps to enforce our intellectual property rights.
Employees
At September 30, 1999, we had a total of 183 employees, of which 114 were
assigned to professional services, 15 were assigned to executive education
services, 16 were assigned to sales and marketing and 38 were assigned to
general and administration. None of our employees are represented by a labor
union. We have never experienced any work stoppages and consider our relations
with our employees to be good.
Facilities
We currently lease approximately 28,000 square feet of space at our
headquarters in Cambridge, Massachusetts under a lease that expires on May 1,
2004. We also maintain offices in Detroit, New York and San Francisco. We
believe we will be able to obtain additional space on an as-needed basis at
commercially reasonable rates.
Legal Proceedings
From time to time, we are involved in litigation incidental to the conduct
of our business. We are not a party to any lawsuit or proceeding that, in the
opinion of our management, is likely to have a material adverse effect on our
business.
43
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees, and their respective
ages as of September 30, 1999, are as follows:
<TABLE>
<CAPTION>
Age Position(s)
Executive Officers and Directors: --- -----------
<S> <C> <C>
Joseph M. Bellini......... 39 President and Chief Executive Officer and
Director
Richard C. Putz........... 50 Executive Vice President, Worldwide Industries
and Chief Strategy Officer
R. Jeffrey Spurrier....... 43 Executive Vice President, Worldwide Operations
Mark A. Cosway............ 41 Executive Vice President, Sales and Marketing
Donald W. Amaya........... 53 Executive Vice President, Human Resources
Richard O. Wester......... 41 Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Other Directors:
Joseph L. Badaracco, Jr... 51 Director
Paul R. Charron........... 57 Director
Raymond J. Lane........... 52 Director
Ramanan Raghavendran...... 31 Director
Gerard F. King, II........ 42 Vice President, Consulting Services and Director
Key Employees:
Kerry L. Bush............. 41 Managing Director, Network Computing
Anthony W. Elkins......... 42 Managing Director, Central Operations
David G. Panitz........... 31 Managing Director, Eastern Operations
James M. D'Augustine...... 38 Managing Director, Architecture
Clifford B. Thompson...... 38 Managing Director, Compliance
Ronald J. Bodkin.......... 29 Chief Technologist
Andrew J. MacDonald....... 38 Managing Director, Western Operations
Satish S. Bhat............ 33 Managing Director, Industries
</TABLE>
Joseph M. Bellini joined C-bridge in February 1999 as President and Chief
Operating Officer and was named Chief Executive Officer in May 1999. Mr.
Bellini has also served as a director of C-bridge since September 1998. Prior
to joining C-bridge, Mr. Bellini served in various capacities at i2
Technologies, Inc. from June 1995 to February 1999, most recently as Executive
Vice President, Worldwide Automotive and Industrial Business Unit. From April
1993 to June 1995, Mr. Bellini served as Senior Practice Director at Oracle
Corporation. Mr. Bellini received a B.S. in both Mechanical Engineering and
Applied Mathematics and Statistics from the University of Massachusetts at
Amherst and is an alumnus of Harvard Business School.
Richard C. Putz joined C-bridge in July 1999 as Executive Vice President,
Worldwide Industries and Chief Strategy Officer and Executive Vice President of
Industries and Diagnostics. Prior to joining C-bridge, Mr. Putz served as
Senior Director, and then Regional Vice President, of the Industrial Practice
at Oracle Corporation from August 1998 to July 1999. From October 1995 to July
1998, Mr. Putz was the President and Chief Executive Officer of Security
Federal Bank. From July 1994 to October 1995, Mr. Putz was a Senior Practice
Director for Oracle Corporation. Mr. Putz received a B.A. from St. Meinrad
College and is a Masters candidate at the St. Meinrad School of Theology at the
University of Notre Dame.
R. Jeffrey Spurrier joined C-bridge in October 1998 as Executive Vice
President, Worldwide Operations. Prior to joining C-bridge, Mr. Spurrier served
as Senior Director, Oracle Services at Oracle Corporation where he was employed
since July 1993. Mr. Spurrier received a B.S. in Mathematics and Physics from
University of Florida, a M.S. in Electrical Engineering from Rice University
and a M.B.A. from Stanford University.
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<PAGE>
Mark A. Cosway joined C-bridge in April 1999 as Executive Vice President,
Sales and Marketing. Prior to joining C-bridge, Mr. Cosway was Director, Global
Accounts for i2 Technologies, Inc. from July 1994 to April 1999. From January
1989 to April 1994, Mr. Cosway served as Regional Sales Manager at Enterprise
Planning Systems. Mr. Cosway received an Honors Bachelor of Commerce in
Marketing and Information Systems from Carleton University, Ottawa, Canada.
Donald W. Amaya joined C-bridge in November 1999 as Executive Vice
President, Human Resources. Prior to joining C-bridge, Mr. Amaya was Vice
President, Staffing and Education, for EMC Corporation from September 1997
through October 1999. From January 1996 to September 1997, Mr. Amaya was a
consultant providing human resources services to a number of mid-size IT
professional services and software companies. From May 1984 through December
1995, Mr. Amaya was the Vice President, Human Resources at Keane, Inc. Mr.
Amaya received a B.A. from Wheaton College, Wheaton, Illinois.
Richard O. Wester joined C-bridge in July 1998 as Vice President, Finance
and Administration, Chief Financial Officer and Treasurer. Prior to joining C-
bridge, Mr. Wester consulted as a chief financial officer to several start-up
entities from October 1997 to August 1998. From September 1995 to October 1997,
Mr. Wester served in various capacities at Integrated Computer Engines, Inc.,
most recently as Vice President, Finance and Administration, Chief Financial
Officer and Treasurer. Mr. Wester also was a co-founder of ICE and served as a
director of ICE from September 1994 until June 1998. From September 1994 to
September 1995, Mr. Wester served as the Director of Finance and
Administration, Chief Financial Officer and Treasurer at International
Integration Incorporated Inc., known as i-Cube. Mr. Wester received a BSBA in
Accounting from Salem State College. Mr. Wester is also a Certified Public
Accountant.
Joseph L. Badaracco, Jr. joined C-bridge as a director on October 1, 1999.
Professor Badaracco is currently the John Shad Professor of Business Ethics at
Harvard Business School, where he has taught since February 1981. He is a
graduate of St. Louis University, Oxford University, where he was a Rhodes
Scholar, and Harvard Business School.
Paul R. Charron joined C-bridge as a director on October 1, 1999. Mr.
Charron has been with Liz Claiborne Inc. since May 1994 and is currently
Chairman of the Board and Chief Executive Officer. Mr. Charron received a B.A.
from Notre Dame University and has a MBA from Harvard Business School.
Raymond J. Lane joined C-bridge as a director on October 1, 1999. Mr. Lane
has been President and Chief Operating Officer of Oracle Corporation since
January 1997. Since June 1992, Mr. Lane has served in various capacities at
Oracle Corporation, including executive vice president and president of
worldwide operations. Before joining Oracle, Mr. Lane was a senior vice
president of Booz-Allen & Hamilton, where he led their worldwide consulting
practice targeted to information technology investments from July 1986 to May
1992. Mr. Lane also serves on the board of directors of Oracle Corporation and
Marimba Inc. and is a member of the board of trustees of Carnegie Mellon
University. Mr. Lane received a B.S. in Mathematics from West Virginia
University.
Ramanan Raghavendran joined C-bridge as a Director in October, 1999. Mr.
Raghavendran has been a general partner of InSight Capital Partners and its
affiliated entities since January 1997. From August 1992 to December 1996, Mr.
Raghavendran was a senior associate with General Atlantic Partners, a private
equity investment firm. Mr. Raghavendran also serves on the board of directors
of Exchange Applications Inc. and several privately held companies. Mr.
Raghavendran received a B.S. from the University of Pennsylvania.
Gerard F. King, II joined C-bridge in July 1997 as Vice President,
Consulting Services and has served as a director since May 1998. Prior to
joining C-bridge, Mr. King was a Director of Professional Services at Sybase,
Inc. from April 1994 to June 1997. Mr. King received a B.A. in History and
German from Tufts University and a M.S. in Computer Information Systems from
Bentley College.
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<PAGE>
Kerry L. Bush joined C-bridge in May 1999 as Managing Director, Network
Computing. Prior to joining C-bridge, Mr. Bush was employed by Oracle
Corporation for a period of over 15 years where he held positions in sales,
support, education and consulting. Mr. Bush most recently served as Senior
Practice Director for the Oracle Performance Architecture Group. Mr. Bush
received a B.S. in Computer and Communications Sciences from the University of
Michigan, Ann Arbor.
Anthony W. Elkins joined C-bridge in March 1999 as Managing Director,
Central Operations. From April 1996 to March 1999, Mr. Elkins served as Senior
Strategy Manager with Andersen Consulting's Information and Technology Strategy
practice. From September 1988 to April 1996, Mr. Elkins served as Senior
Account Manager at Electronic Data Systems. Mr. Elkins received a B.S. in
Mathematics from the University of Kentucky, a M.S. in Operations Research and
a M.B.A. from the University of Dayton.
David G. Panitz joined C-bridge in February 1999 as Managing Director,
Eastern Operations. Prior to joining C-bridge, Mr. Panitz worked for Polo Ralph
Lauren Corporation from May 1994 to February 1999, where he served in various
capacities, including most recently as Director of Retail Analysis and
Planning. Mr. Panitz received a B.S. from Cornell University and a M.B.A. from
New York University.
James M. D'Augustine joined C-bridge in October 1997 as a principal
consultant. In January 1998, he was promoted to Managing Director,
Architecture. Prior to joining C-bridge, Mr. D'Augustine was a system architect
at Cambridge Technology Partners from July 1993 to October 1997. Mr.
D'Augustine received a B.S. in Computer Science from Boston University.
Clifford B. Thompson joined C-bridge in May 1999 as Managing Director,
Compliance. Prior to joining C-bridge, Mr. Thompson served as a Senior
Technology Negotiator at BankBoston from October 1998 to May 1999. From May
1996 to July 1998, Mr. Thompson served as Director of Licensing at Avicenna
Systems, Corp. From August 1993 to May 1996, Mr. Thompson served as Manager of
Information Content Supplies at Individual, Inc. Mr. Thompson received a B.A.
in Psychology from the University of Massachusetts at Amherst and a J.D. from
the University of Houston Law School.
Ronald J. Bodkin joined C-bridge in September 1996 and has served as Chief
Technologist since that time. Prior to joining C-bridge, Mr. Bodkin was a
researcher at the Massachusetts Institute of Technology Laboratory for Computer
Science from September 1995 to August 1996. From October 1994 to September
1995, Mr. Bodkin served as Vice President, Technology at Exsellarated Software.
Mr. Bodkin received a B.S. in Mathematics and Computer Science from McGill
University and a M.S. in Computer Science from Massachusetts Institute of
Technology.
Andrew J. MacDonald joined C-bridge in May 1999 as Managing Director,
Western Operations. Prior to joining C-bridge, Mr. MacDonald served in various
capacities at Oracle Corporation from September 1993 to May 1999, including
most recently as Program Director, Applications Global Service Line. Mr.
MacDonald graduated with a degree in Mathematics from the University of
Waterloo and earned a M.B.A. from Queen's University.
Satish S. Bhat joined C-bridge in April 1999 as Managing Director,
Industries. Prior to joining C-bridge, Mr. Bhat served as Director of Business
Solutions in the Automotive Industry Business Unit at i2 Technologies from
March 1997 to April 1999. From August 1996 to January 1997, Mr. Bhat worked as
a management consultant at Bain & Company. From September 1994 to July 1996,
Mr. Bhat pursued his Masters degree. From May 1991 to August 1994, Mr. Bhat
worked as a senior consultant at SABRE Design Technologies. Mr. Bhat received a
B.S. in Mechanical Engineering from Anna University in Madras, India, a M.S. in
Industrial Engineering from Louisiana State University, and a M.B.A. in Finance
and Marketing from the University of Chicago.
Pursuant to a stockholders voting agreement that we entered into in
connection with our sale of our series A convertible preferred stock in October
1999, Ramanan Raghavendran was elected to our board of directors. This
agreement will terminate by its terms upon completion of this offering.
46
<PAGE>
Committees of the Board of Directors
The board of directors has a compensation committee composed of Messrs.
Charron, Lane and Raghavendran, which makes recommendations concerning salaries
and incentive compensation for our employees and administers and grants stock
options under our stock option plans. The board of directors also has an audit
committee composed of Messrs. Badaracco, Charron and Raghavendran, which
reviews the results and scope of the audit and other services provided by our
independent public auditors.
Director Compensation
All of the directors are reimbursed for expenses incurred to attend board
of directors and committee meetings.
Executive Compensation
The following table sets forth the total compensation paid or accrued for
the fiscal year ended December 31, 1998 for each person who was serving as an
executive officer of C-bridge on December 31, 1998 except as otherwise
indicated below:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
-------------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Sundar Subramaniam(1)........................ -- -- --
President and Chief Executive Officer
R. Jeffrey Spurrier(2)....................... $ 31,250 $ 28,125 419,727
Executive Vice President, Worldwide
Operations
Marco M. Farsheed(3)......................... 58,333 25,727 300,000
Executive Vice President, Sales and
Marketing
Gerard F. King, II(4)........................ 150,000 25,000 577,850
Executive Vice President, Consulting
Services
Richard O. Wester(5)......................... 44,410 -- 300,000
Chief Financial Officer and Treasurer
</TABLE>
- --------
(1) Mr. Subramaniam served without compensation in 1998. He resigned as
President in February 1999 and Chief Executive Officer in May 1999.
(2) Mr. Spurrier joined C-bridge in October 1998. His current salary is
$150,000 per year.
(3) Mr. Farsheed joined C-bridge in June 1998. His current salary is $100,000
per year.
(4) Mr. King joined C-bridge in July 1997. His current salary is $150,000 per
year.
(5) Mr. Wester joined C-bridge in July 1998. His current salary is $110,000 per
year.
Joseph M. Bellini, who joined us in February 1999 as our president and
chief operating officer, has a current salary of $250,000 per year. Mr. Bellini
was named chief executive officer in May 1999. Mark A. Cosway, who joined us in
April 1999 as our executive vice president of sales and marketing, has a
current salary of $125,000 per year.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1998 to each of our most highly compensated executive officers
whose salary and bonus for such fiscal year exceeded $100,000. We have never
granted any stock appreciation rights. The potential realizable value is
calculated based on the term of the option at its time of grant. It is
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises are dependent on the future performance of the common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved. The percentage of total options granted to
employees in the last fiscal year is based on options to purchase an aggregate
of 3,108,128 shares of common stock granted under our option plans. There was
no public market for our common stock as of December 31, 1998. Accordingly, the
fair market value on December 31, 1998 is based on an assumed initial public
offering price of $9.00 per share.
<TABLE>
<CAPTION>
Individual Grants (1)
-----------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Number of Percent of Stock Price Appreciation
Securities Total Options for
Underlying Granted to Exercise Option Term
Options Employees in Price Per Expiration ---------------------------
Name Granted 1998 Share Date 5% 10%
---- ---------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sundar Subramaniam...... -- -- -- -- -- --
R. Jeffrey Spurrier..... 279,818 9.0% $0.30 10/31/08 $ 1,530,992 $ 3,879,833
139,909(2) 4.5 0.30 10/31/08 765,496 1,939,917
Marco M. Farsheed....... 300,000(2) 9.7 0.30 05/20/08 1,641,415 4,159,668
Gerard F. King, II...... 100,000 3.2 0.30 02/06/08 547,138 1,386,556
27,850 0.9 0.30 03/25/08 152,378 386,156
200,000(2) 6.4 0.30 09/30/08 1,094,277 2,773,112
Richard O. Wester....... 300,000 9.7 0.30 09/30/08 1,641,415 4,159,668
</TABLE>
- --------
(1) Each option represents the right to purchase one share of common stock. The
options shown in this column were all granted pursuant to our 1997 Stock
Incentive Plan. The options shown in this table, except as otherwise
indicated below, become exercisable at a rate of 25% annually over four
years from the date of grant.
(2) Option contains accelerated vesting based upon our obtaining certain
revenue goals.
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<PAGE>
Aggregate Stock Option Exercises in Fiscal 1998 and
Fiscal Year-End Option Values
The following table sets forth certain information concerning the number
and value of unexercised options held by each of our executive officers on
December 31, 1998. None of our executive officers exercised stock options in
the fiscal year ended December 31, 1998. There was no public market for our
common stock as of December 31, 1998. Accordingly, the fair market value on
December 31, 1998 is based on an assumed initial public offering price of $9.00
per share.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998 December 31, 1998
------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Sundar Subramaniam.. -- -- -- --
R. Jeffrey
Spurrier.......... 34,977 384,750 $ 304,300 $3,347,325
Marco M. Farsheed... 43,750 256,250 380,625 2,229,375
Gerald F. King, II.. 164,595 413,255 1,431,977 3,595,319
Richard O. Wester... -- 300,000 -- 2,610,000
</TABLE>
Stock Plans
1997 Stock Incentive Plan
Our 1997 Stock Incentive Plan was adopted by our board of directors and
approved by our stockholders in April 1997. In March 1998, the board of
directors increased the number of authorized shares under the plan to 4,000,000
shares of common stock. As of September 30, 1999, an aggregate of 2,528,562
shares of common stock at a weighted average exercise price of $0.29 per share
were outstanding under the 1997 plan, an aggregate of 164,265 shares of common
stock were reserved for issuance for future option grants and an aggregate of
1,307,173 shares were issued upon exercise of options previously granted under
the 1997 plan.
The 1997 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, non-statutory stock
options, restricted stock awards and other stock-based awards.
All officers, employees, directors, consultants and advisors of C-bridge
and our subsidiaries are eligible to receive awards under the 1997 plan. Under
present law, however, incentive stock options may only be granted to employees.
No participant may receive an award for more than 500,000 shares in any
calendar year.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of the voting power of our company. The 1997 plan permits the board of
directors to determine how optionees may pay the exercise price of their
options, including by cash, check or in connection with a "cashless exercise"
through a broker, by surrender of shares of common stock, by delivery to us of
a promissory note, or by any combination of the permitted forms of payment.
Our board of directors administers the 1997 plan. The board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the plan to one or more committees of the board
of directors and, subject to certain limitations, to one or more of our
executive officers. The board of directors has authorized the compensation
committee to administer the 1997 plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the 1997
plan, the board of directors, the compensation
49
<PAGE>
committee or any other committee or executive officer to whom the board of
directors delegates authority, as the case may be, selects the recipients of
awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror and to accelerate
the vesting schedule of awards.
No award may be granted under the 1997 plan after April 3, 2007, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The board of directors may at any time amend, suspend or terminate the
1997 plan, except that no award granted after an amendment of the 1997 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by the
board of directors shall become exercisable, realizable or vested, to the
extent the amendment was required to grant the award, unless and until the
amendment is approved by our stockholders.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan was adopted by our board of directors in
January 1999. Subject to the approval of our stockholders, the 1999 plan
authorizes the issuance of an aggregate of 6,000,000 shares of common stock.
The number of shares authorized for issuance shall automatically increase by
500,000 shares effective on the first day of every calendar year for the next
ten years. As of September 30, 1999, an aggregate of 4,216,500 shares of common
stock at a weighted average exercise price of $1.75 per share were outstanding
under the 1999 Plan, an aggregate of 1,783,250 shares of common stock were
reserved for issuance for future option grants and an aggregate of 250 shares
were issued upon exercise of options previously granted under the 1999 plan.
The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, non-statutory stock
options, restricted stock awards and other stock-based awards.
All of our officers, employees, directors, consultants and advisors and our
subsidiaries are eligible to receive awards under the 1999 plan. Under present
law, however, incentive stock options may only be granted to employees.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of the voting power of our company. The 1999 plan permits the board of
directors to determine how optionees may pay the exercise price of their
options, including by cash, check or in connection with a "cashless exercise"
through a broker, by surrender of shares of common stock, by delivery to us of
a promissory note, or by any combination of the permitted forms of payment.
Our board of directors administers the 1999 plan. The board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the plan to one or more committees of the board
of directors and, subject to certain limitations, to one or more of our
executive officers. The board of directors has authorized the
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compensation committee to administer the 1999 plan, including the granting of
options to executive officers. Subject to any applicable limitations contained
in the 1999 plan, the board of directors, the compensation committee or any
other committee or executive officer to whom the board of directors delegates
authority, as the case may be, selects the recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror and to accelerate
the vesting schedule of awards.
No award may be granted under the 1999 plan after January 29, 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The board of directors may at any time amend, suspend or terminate the
1999 plan, except that no award granted after an amendment of the 1999 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by the
board of directors shall become exercisable, realizable or vested, to the
extent the amendment was required to grant the award, unless and until the
amendment is approved by our stockholders.
1999 Director Stock Option Plan
Our 1999 Director Stock Option Plan was adopted by our board of directors
on November 9, 1999, subject to the approval of our stockholders. Under the
director stock option plan, directors who are not our employees will be
eligible to receive non-statutory options to purchase shares of our common
stock. A total of 200,000 shares of our common stock may be issued upon the
exercise of options granted under the director stock option plan.
Under the terms of the director stock option plan, each person who becomes
a non-employee director after the closing of this offering will be granted an
option to purchase 30,000 shares of our common stock on the date of his or her
initial election to the board of directors. These options vest in three equal
annual installments beginning on the first anniversary of the option grant
date. In addition, each non-employee director will receive an option to
purchase 15,000 shares of our common stock on the date of each annual meeting
of our stockholders commencing with the 2000 annual meeting of stockholders,
other than a director who was initially elected to the board of directors at
any such annual meeting or, if previously, at any time after the prior year's
annual meeting. These options vest immediately in full upon the option grant
date. The exercise price per share of all options will equal the fair market
value per share of our common stock on the option grant date. Each grant under
the director stock option plan will have a maximum term of ten years, subject
to earlier termination following the optionee's cessation of service.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
on November 9, 1999, subject to the approval of our stockholders. The purchase
plan will become effective upon the completion of this offering and authorizes
the issuance of up to a total of 750,000 shares of our common stock to
participating employees.
All of our employees, including our directors who are employees and all
employees of any participating subsidiaries, whose customary employment is more
than 20 hours per week for more than five months in any
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calendar year, are eligible to participate in the purchase plan. Employees who
would immediately after an option grant own 5% or more of the total combined
voting power or value of our stock or any subsidiary are not eligible to
participate in the purchase plan.
We will make one or more offerings to our employees to purchase stock under
the purchase plan. Offerings will begin on dates established by our board of
directors, provided that our first offering commencement date will be the date
on which trading of our common stock commences on the Nasdaq National Market in
connection with this offering. Each offering commencement date will begin a
six-month period during which payroll deductions will be made and held for the
purchase of our common stock at the end of the purchase plan period.
On the first day of a designated payroll deduction period, or offering
period, we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize between 1% to 10% of his or her base pay to
be deducted by us during the offering period. On the last day of the offering
period, the employee is deemed to have exercised the option, at the option
exercise price, to the extent of accumulated payroll deductions. Under the
terms of the purchase plan, the option price is an amount equal to 85% of the
closing price (as defined) per share of our common stock on either the first
day or the last day of the offering period, whichever is lower. In no event may
an employee purchase in any one offering period a number of shares which
exceeds the number of shares determined by dividing (a) the product of $2,083
and the number or fraction of months in the offering period by (b) the closing
price of a share of our common stock on the commencement date of the offering
period. Our board of directors may, in its discretion, choose an offering
period of 12 months or less for each offering and may choose a different
offering period for each offering.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason, except that upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated
payroll deductions in the employee's account would purchase at the date of
death.
Because participation in the purchase plan is voluntary, we cannot now
determine the number of shares of our common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
401(k) Plan
We have a 401(k) plan covering all of our employees who meet certain
defined requirements. Under the terms of the 401(k) plan, the employees may
elect to make tax-deferred contributions, and we may match 25% of the first 6%
of employee contributions as determined by the board of directors and may make
other discretionary contributions to the 401(k) plan. During 1998 and the nine
months ended September 30, 1999, we contributed approximately $46,400 and
$56,900, respectively, to the 401(k) plan. We made no contributions during 1996
or 1997.
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CERTAIN TRANSACTIONS
Sale of Series A Convertible Preferred Stock.
In October 1999, we sold 1,645,555 shares of series A convertible preferred
stock to five accredited investors for $6.00 per share, for an aggregate
purchase price of approximately $9.9 million. InSight Capital Partners III,
L.P. purchased 954,129 shares, InSight Capital Partners (Cayman) III, L.P.
purchased 236,355 shares, InSight Capital Partners III-Co-Investors, L.P.
purchased 142,849 shares, Oracle Corporation purchased 305,555 shares and H&D
Investments 97 purchased 6,667 shares. Mr. Raymond J. Lane, a member of our
board of directors, is President and Chief Operating Officer of Oracle
Corporation. H&D Investments 97 is an investment fund of our counsel, Hale and
Dorr LLP. Upon completion of this offering, each share of series A convertible
preferred stock will automatically convert into one share of common stock.
Concurrent with our offering of series A convertible preferred stock, the
Willingdon Trust, one of our significant stockholders, sold 719,445 shares of
our common stock to four of the series A investors for $6.00 per share, for an
aggregate purchase price of approximately $4.3 million. InSight Capital
Partners III, L.P. purchased 477,065 shares, InSight Capital Partners (Cayman)
III, L.P. purchased 118,177 shares, InSight Capital Partners III-Co-Investors,
L.P. purchased 71,425 shares and Oracle Corporation purchased 52,778 shares.
Also concurrent with our offering of series A convertible preferred stock, one
of our stockholders sold 100,000 shares of our common stock to Oracle
Corporation for $6.00 per share, for an aggregate purchase price of $600,000.
See "Principal Stockholders."
Sale of Common Stock to Mr. Raymond J. Lane.
In June 1999, we sold 333,333 shares of our common stock to Mr. Raymond J.
Lane, the President and Chief Operating Officer of Oracle Corporation, for an
aggregate purchase price of $2.0 million, or $6.00 per share. On October 1,
1999, Mr. Lane became a member of our board of directors. See "Management."
We have developed a strategic relationship with Oracle as further described in
"Business--Strategic Alliances."
Lease Agreement with Property Management Partners.
On May 1, 1999, we entered into a five-year operating lease agreement for
28,000 square feet in Cambridge, Massachusetts, which encompasses our executive
offices, from Property Management Partners, a corporation controlled by a
former employee of Cambridge Technology Group, Steven Jaworski. In addition to
a monthly rent of $47,000, subject to set annual increases, and a monthly
property management fee of $23,000, we are obligated to make a one-time capital
improvements payment of approximately $1.4 million on January 3, 2000. We
believe that the terms of this lease in the aggregate are at least as favorable
as those we would have obtained from a non-related party in an arms-length
transaction.
Agreements with CEE, Inc. and Cambridge Executive Enterprises.
On April 30, 1999, we entered into a five-year contract with CEE, Inc.,
pursuant to which CEE outsourced the management and performance of executive
education seminars to us in return for a monthly fee of approximately $479,000
per month. An affiliate of CEE, Cambridge Executive Enterprises, Inc., had
previously provided these services. The sole stockholder of CEE and Cambridge
Executive Enterprises is James Nondorf. Simultaneously with the execution of
this outsourcing agreement with CEE, we hired substantially all of the
employees of Cambridge Executive Enterprises and acquired substantially all of
its tangible assets in exchange for a promissory note in the amount of
$234,000. We repaid this note in full on October 27, 1999. In connection with
the outsourcing agreement, we have agreed to issue options to purchase 190,000
shares of our common stock to designees of CEE and have committed to issue
options to purchase an additional 50,000 shares of our common stock to CEE's
designees for each year that the outsourcing agreement remains in place. Eighty
persons have received options from this pool and the largest single grant was
for 35,000 shares. A majority of the grants were to our current employees. The
additional options will be granted to individuals who have not yet been
identified.
Non-Competition Agreement with Professor Donovan.
On September 27, 1999, Cambridge Executive Enterprises and CEE entered into
a non-competition agreement with Professor John J. Donovan, which provides that
Professor Donovan shall not compete with
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Cambridge Executive Enterprises in developing and performing executive
education seminars before September 27, 2000. We are named as a third-party
beneficiary in the agreement, and the provisions of the agreement may not be
waived or amended without our written consent.
Historical Relationship with Cambridge Technology Group.
We, CEE and Cambridge Executive Enterprises have an historical relationship
with Cambridge Technology Group. For more than ten years prior to September
1998, Cambridge Technology Group conducted an executive education seminar
business. Professor John J. Donovan, the former sole stockholder, director and
executive officer of Cambridge Technology Group, is currently an employee of
CEE. Affiliates of Professor Donovan are beneficiaries of a trust and a holding
company which have invested in our company and are significant stockholders as
a result. See "Principal Stockholders."
Advances from Affiliates.
During 1997 and 1998, we were financed primarily by advances from Cambridge
Technology Group, the Willingdon Trust, the Winsor Trust and Harrington Trust
Limited, as Trustee of the Appleby Trust, the beneficiaries of which include
various relatives of Professor Donovan. The Willingdon Trust and the Winsor
Trust are two of our significant stockholders. Amounts advanced by Cambridge
Technology Group, which consisted primarily of working capital advances,
general and administrative allocations and operating expenses, were
approximately $1.0 million in 1997 and $1.1 million in 1998. Amounts advanced
by each of the Willingdon Trust and the Winsor Trust were approximately
$325,000 in 1997. Amounts advanced by the third trust were approximately
$450,000 in 1997. During March and May of 1998, we entered into agreements with
these affiliated parties to forgive $2.3 million of the amounts due. We
recorded the forgiveness as a capital contribution, and the remaining
indebtedness of approximately $988,000 was repaid in 1998.
Line of Credit Guarantee.
During 1998, we entered into a revolving line of credit with a bank secured
by substantially all of our assets and guaranteed in part by Mr. Subramaniam,
our former chief executive officer and a beneficiary of the Willingdon Trust,
and a trust, the beneficiaries of which include an affiliate of Professor
Donovan. Under the line of credit, $1.0 million is collateralized by our assets
and $2.5 million is subject to this guarantee. On April 7, 1999, we entered
into a loan modification of our line of credit in order to draw upon a
committed equipment line of credit of up to $200,000. The modification of the
line of credit is subject to the same guarantee. Upon completion of this
offering, we expect the guarantee to be released.
1998 Bridge Financing.
In May 1998, in connection with a bridge financing, a limited liability
company, in which Mr. Subramaniam is an investor, loaned us approximately
$148,000 in return for a promissory note and warrants to purchase 200,000
shares of common stock at an exercise price of $0.30 per share. The note was
due in 90 days and bore interest at the prime rate, which was 7.75% at December
31, 1998, plus 1%. In August 1998, in connection with the extension of the
note, we issued the limited liability company warrants to purchase 66,666
shares of common stock at an exercise price of $0.30 per share. Each share of
common stock purchased upon exercise of the warrants may be exchanged for
approximately .25 of a share of our series A convertible preferred stock. In
September 1998, we repaid $87,000 of the amount due to the limited liability
company, and the balance of $61,000 and the accrued interest was converted into
202,000 shares of common stock at a price of $0.30 per share.
Prior Lease Agreements with Cambridge Technology Group.
During 1997 and 1998, we leased certain office space and equipment from
Cambridge Technology Group under month-to-month operating lease agreements.
Pursuant to these agreements, we incurred rental expenses
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of $93,000 and $251,000 for 1997 and 1998, respectively. We believe that the
terms of these lease agreements were in the aggregate at least as favorable as
those we would have obtained from a non-related party in an arms-length
transaction.
Agreement with Invenio Technologies Corporation.
During 1998, we performed professional consulting and technical development
services for an unrelated company in which Mr. Subramaniam holds a minority
equity interest. Transactions with Invenio were treated as arms-length
transactions. The total amount of the services was $64,000, of which $48,000
remained unpaid as of September 30, 1999. Invenio makes payments from time to
time, and we expect that the amount will be paid in full in the foreseeable
future.
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PRINCIPAL STOCKHOLDERS
Principal Stockholders
The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of October 30, 1999 and as
adjusted to reflect the sale of the shares of our common stock in this offering
for:
. each of our executive officers named in the Summary Compensation
Table;
. each of our directors;
. each person known by us to beneficially own more than 5% of our common
stock; and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The information is not necessarily
indicative of beneficial ownership for any other purpose. Except as indicated
by the footnotes below, none of these persons or entities has a relationship
with us or, to our knowledge, any of the underwriters or their respective
affiliates. Unless otherwise indicated, each person or entity named in the
table below has sole voting and investment power (or shares such power with his
or her spouse) with respect to all shares of common stock shown as beneficially
owned by them, subject to applicable community property laws. Percentage of
beneficial ownership is based on 13,429,907 shares of common stock outstanding
as of October 30, 1999, which assumes the conversion of the outstanding shares
of series A convertible preferred stock as of October 30, 1999 into shares of
common stock. In computing the number of shares of common stock beneficially
owned by a person and the percentage ownership of that person, shares of common
stock subject to options held by that person that are currently exercisable or
exercisable within 60 days of October 30, 1999 are deemed outstanding. These
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o C-bridge Internet
Solutions, Inc., 219 Vassar Street, Cambridge, Massachusetts 02139. The number
of shares of common stock deemed outstanding after this offering includes the
4,000,000 shares of common stock being offered for sale in this offering but
assumes no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially Owned
----------------------
Shares Beneficially Prior to After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------------- --------- ---------
<S> <C> <C> <C>
Joseph M. Bellini............... 782,500 5.5% 4.3%
R. Jeffrey Spurrier............. 209,863 1.6 1.2
Richard O. Wester............... 75,000 * *
Sundar Subramaniam(1)........... 4,049,055 30.1 23.2
Marco M. Farsheed............... 300,000 2.1 1.7
Joseph L. Badaracco, Jr.(2)..... 125 * *
Paul R. Charron(3).............. -- * *
Gerald F. King, II.............. 275,725 2.0 1.6
Raymond J. Lane(4).............. 791,666 5.9 4.4
Ramanan Raghavendran(5)......... 2,000,000 14.9 11.5
Entities affiliated with InSight
Capital Partners(6)........... 2,000,000 14.9 11.5
Hamilton Trust Company Limited,
as Trustee of the Willingdon
Trust(7)...................... 4,049,055 30.1 23.2
Butterfield Trust (Bermuda)
Limited, as Trustee of the
Winsor Trust(8)............... 2,290,750 17.1 13.1
Internet Business Capital
Corporation Limited(9)........ 2,290,750 17.1 13.1
Oracle Corporation(10).......... 458,333 3.4 2.6
All directors and executive
officers as a group
(10 persons).................. 3,918,550 26.6 20.9
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of our common stock.
(footnotes follow on next page)
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--------
(1) Consists of 4,049,055 shares owned by the Willingdon Trust, of which Mr.
Subramaniam, his sister, Subitha Subramaniam, and their respective issue
are the sole beneficiaries. Mr. Subramaniam disclaims beneficial
ownership of the shares held by the Willingdon Trust except as to the
extent of his pecuniary interest, and neither he nor his sister exercise
sole or shared investment power with respect to the shares listed. The
address of the Willingdon Trust is Hamilton Trust Company Limited, as
Trustee of the Willingdon Trust, Vallis Building, P.O. Box HM247,
Hamilton HM AX, Bermuda.
(2) The address of Professor Badaracco is c/o Harvard Business School,
Soldier's Field Road, Morgan 475, Boston, Massachusetts 02163.
(3) The address of Mr. Charron is c/o Liz Claiborne, Inc., 1441 Broadway, New
York, New York 10018.
(4) Includes 305,555 shares of series A convertible preferred stock and
152,778 shares of common stock held by Oracle Corporation. Mr. Lane is
President and Chief Operating Officer of Oracle Corporation. Mr. Lane
disclaims beneficial ownership of the shares held by Oracle Corporation
except as to the extent of his pecuniary interest, if any. The address of
Mr. Lane is c/o Oracle Corporation, 500 Oracle Parkway, Redwood Shores,
California 94065.
(5) The address of Mr. Raghavendran is c/o InSight Capital Partners, 527
Madison Avenue, 10th Floor, New York, New York 10022. Mr. Raghavendran is
a partner of InSight Capital Partners, and Mr. Raghavendran disclaims
beneficial ownership of the shares held by InSight Capital Partners
except as to the extent of his pecuniary interest.
(6) Consists of 954,129 shares of series A convertible preferred stock and
477,065 shares of common stock held by InSight Capital Partners III,
L.P., 236,355 shares of series A convertible preferred stock and 118,177
shares of common stock held by InSight Capital Partners (Cayman) III,
L.P., and 142,849 shares of series A convertible preferred stock and
71,425 shares of common stock held by InSight Capital Partners III-Co-
Investors, L.P. The address of InSight Capital Partners III, L.P. and
InSight Capital Partners III-Co-Investors, L.P. is 527 Madison Avenue,
10th Floor, New York, New York 10022. The address of InSight Capital
Partners (Cayman) III, L.P. is c/o W.S. Walker & Company, Walker House,
P.O. Box 265GT, Mary Street, George Town, Grand Cayman, Cayman Islands.
(7) Consists of 4,049,055 shares held by the Willingdon Trust, the
beneficiaries of which are Sundar Subramaniam, his sister, Subitha
Subramaniam, and their respective issue. The address of the Willingdon
Trust is Hamilton Trust Company Limited, as Trustee of the Willingdon
Trust, Vallis Building, P.O. Box HM247, Hamilton HM AX, Bermuda.
(8) Consists of 2,290,750 shares held by the Winsor Trust, the beneficiaries
of which include a child of Professor John J. Donovan, and his respective
issue. The address of the Winsor Trust is Butterfield Trust (Bermuda)
Limited, 65 Front Street, Hamilton HM AX, Bermuda.
(9) Consists of 2,290,750 shares held by Internet Business Capital
Corporation Limited, the stockholders of which include trusts for the
benefit of the children of Professor John J. Donovan, and their
respective issue. The address of Internet Business Capital Corporation
Limited is c/o ASK Services Ltd., Cedar House, 41 Cedar Avenue, Hamilton
HM EX, Bermuda.
(10) Consists of 305,555 shares of series A convertible preferred stock and
152,778 shares of common stock. The address of Oracle Corporation is 500
Oracle Parkway, Redwood Shores, California 94065.
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DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
50,000,000 shares of common stock, $0.01 par value per share, and 5,000,000
shares of preferred stock, $0.01 par value per share. As of September 30, 1999,
there were outstanding 11,657,687 shares of common stock held by 83
stockholders of record. In addition, there were outstanding options to purchase
an aggregate of 6,745,062 shares of common stock.
Common Stock
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are,
and the shares offered by us in this offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of our common stock are subject to the rights of the holders of shares
of any series of preferred stock which we may designate and issue in the
future. Some holders of common stock have the right to require us to register
their shares of common stock under the Securities Act in specified
circumstances.
Preferred Stock
Under the terms of the charter, our board of directors will be authorized
to issue such shares of preferred stock in one or more series without
stockholder approval. The board has discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences of
each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock.
Warrants
At September 30, 1999 we had warrants outstanding to purchase an aggregate
of 784,504 shares of our common stock at a weighted average exercise price of
$0.38 per share. Certain holders of warrants are entitled to registration
rights with respect to the shares of common stock issuable upon exercise of the
warrants. See "Shares Eligible for Future Sale--Registration Rights."
Delaware Law and Our Charter and By-law Provisions; Anti-Takeover Effects
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the person becomes an interested
stockholder, unless the business combination is approved in a prescribed
manner. A business combination includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock.
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Under the by-laws, any vacancy on our board of directors, including a
vacancy resulting from an enlargement of our board of directors, may only be
filled by vote of a majority of the directors then in office, making it more
difficult for a third party to acquire, or discourage a third party from
acquiring, control of our company.
Our by-laws also provide that after this offering, stockholders can only
take action at an annual meeting or special meeting, and not by written action
in lieu of a meeting. Our by-laws further provide that only our chairman of the
board, our president, our board of directors or, on or before October 7, 2000,
stockholders holding a majority of our capital stock issued and outstanding and
entitled to vote, may call a special meeting of stockholders.
Our stockholders must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought" before
a meeting. Stockholders must deliver written notice to us between 60 and 90
days prior to the meeting. If we give less than 70 days' notice or prior public
disclosure of the meeting date, stockholders must deliver written notice to us
within ten days following the date upon which the notice of the meeting was
mailed or such public disclosure was made, whichever occurs first. If the
matter relates to the election of directors, the notice must set forth specific
information regarding each nominee and the nominating stockholder. For any
other matter, the notice must set forth a brief description of the proposed
matter and certain information regarding the proponent stockholder. These
provisions could delay until the next stockholders' meeting proposed actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions could also discourage a third party from making a
tender offer for our common stock, because even if it acquired a majority of
the outstanding voting securities, the third party would be able to take action
as a stockholder only at a duly called stockholders' meeting, and not by
written consent.
The Delaware General Corporation Law statute provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our by-laws require the affirmative vote of
holders of at least 75% of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted
under the Delaware General Corporation Law statute relating to the limitation
of liability of directors. These provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the certificate of incorporation contains
provisions to indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law statute. We believe that
these provisions will assist us in attracting and retaining qualified
individuals to serve as our directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Equiserve.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After completion of this offering there will be 18,246,864 shares of common
stock outstanding. Of these shares, the 4,000,000 shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933, except that any shares purchased by our "affiliates,"
as that term is defined in Rule 144 under the Securities Act, may generally
only be sold in compliance with the limitations of Rule 144 described below.
Sales of Restricted Shares
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining 14,246,864 shares of common stock that will be
outstanding after this offering will be considered "restricted securities"
under Rule 144 of the Securities Act. Generally, restricted securities that
have been owned for a period of at least two years may be sold immediately
after the completion of this offering, and restricted securities that have been
owned for at least one year may be sold 90 days after the completion of this
offering. Certain of the restricted securities are subject to lock-up
agreements with the underwriters. Persons subject to lock-up agreements have
agreed not to sell shares of our common stock without the prior permission of
BancBoston Robertson Stephens Inc. for a period of 180 days after the
completion of this offering. The table below sets forth information regarding
potential sales of restricted securities.
. 338,479 shares which are not subject to the 180-day lock-up period may
be sold beginning 90 days after completion of this offering;
. 5,277,830 additional shares may be sold at various times following
expiration of the 180-day lock-up period;
. 4,315,278 additional shares may be sold upon expiration of the one-
year lock-up period described in "Underwriting" for three of our
principal stockholders;
. 2,157,639 additional shares may be sold upon expiration of the two-
year lock-up period described in "Underwriting" for three of our
principal stockholders; and
. 2,157,638 additional shares may be sold upon expiration of the three-
year lock-up period described in "Underwriting" for three of our
principal stockholders.
Options
Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, we intend to register an aggregate of
approximately 11,000,000 shares of common stock, which may be issued under our
1997 Stock Incentive Plan, 1999 Stock Incentive Plan, 1999 Director Stock
Option Plan and 1999 Employee Stock Purchase Plan. Shares issued upon the
exercise of stock options after the effective date of the registration
statements on Form S-8 will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to affiliates and the
lock-up agreements noted above, if applicable. Upon the expiration of the lock-
up agreements, an additional 2,603,272 shares may be sold as a result of the
exercise of options.
Registration Rights
Upon completion of this offering, holders of approximately 8,700,000 shares
of our common stock and warrants to acquire an aggregate of 784,504 shares of
our common stock have the right to demand that we include the shares of common
stock they hold or acquire upon the exercise of the warrants in any
registration statements we file with the Securities and Exchange Commission,
other than registration statements filed with respect to employee benefit plans
or in connection with an acquisition.
Effect of Sales of Shares
Prior to this offering, there has been no public market for our common
stock, and we cannot advise you as to the effect, if any, that sales in the
public market of shares of our common stock, or the availability of shares for
sale, will have on the market price of our common stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of our common stock
in the public market could adversely affect the market price of our common
stock and could impair our ability to raise capital.
60
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., SG Cowen Securities Corporation and
SoundView Technology Group, Inc., have severally agreed with us, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ............................
SG Cowen Securities Corporation................................
SoundView Technology Group, Inc. ..............................
Total........................................................ 4,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
our common stock to the public at the public offering price located on the
cover page of this prospectus and to dealers at that price less a concession of
not in excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 600,000 additional shares of common stock to cover over-
allotments, if any, at the same price per share as we will receive for the
4,000,000 shares that the underwriters have agreed to purchase. To the extent
that the underwriters exercise this option, each of the underwriters will have
a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of common stock to be purchased by
it shown in the above table represents as a percentage of the 4,000,000 shares
offered by this prospectus. If purchased, the additional shares will be sold by
the underwriters on the same terms as those on which the 4,000,000 shares are
being sold. We will be obligated, under this option, to sell shares to the
extent the option is exercised. The underwriters may exercise the option only
to cover over-allotments made in connection with the sale of the 4,000,000
shares of our common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
Without With
Over-allotment Over-allotment
Per Share Option Option
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price...... $ $ $
Underwriting discounts and
commissions......................
Proceeds, before expenses, to us...
</TABLE>
61
<PAGE>
The expenses of the offering, other than underwriting discounts and
commissions, payable by us are estimated at $1,000,000. BancBoston Robertson
Stephens Inc. expects to deliver the shares of common stock to purchasers on
December , 1999.
Directed Share Program. The underwriters have reserved approximately
225,000 shares of the common stock to be issued by us and offered for sale in
this offering, at the initial public offering price, to directors, officers,
employees, business associates and persons otherwise connected to C-bridge. The
number of shares of common stock available for sale to the general public will
be reduced to the extent these individuals purchase reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered in this
offering.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Agreements Not to Sell Shares. Three of our principal stockholders, which
hold, in the aggregate, 8,630,555 shares of common stock, have agreed, subject
to limited exceptions, not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares
of common stock or any options or warrants to purchase any shares of common
stock, or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or later acquired directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of BancBoston Robertson Stephens Inc., for a
period of one year from the date of this prospectus with respect to 100% of
their shares of common stock, for a period of two years from the date of this
prospectus with respect to 50% of their shares of common stock, and for a
period of three years from the date of this prospectus with respect to 25% of
their shares of common stock. The holders of a total of 13,908,385 shares of
common stock, including our executive officers and directors, the principal
stockholders described above and other stockholders, have agreed, during the
period ending 180 days after the date of this prospectus, subject to limited
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
or any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or later acquired directly by such holders or
with respect to which they have the power of disposition, without the prior
written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of securities subject to these agreements
not to sell shares. There are no existing agreements between the
representatives of the underwriters and any of our stockholders providing
consent to the sale of shares prior to the expiration of the respective
periods.
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of BancBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by stockholders subject to
agreements not to sell shares prior to the expiration of the respective periods
or (b) issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance of
common stock upon the exercise of outstanding options, and the issuance of
options under existing stock option and incentive plans, provided such options
do not vest prior to the expiration of the 180-day period. See "Shares Eligible
for Future Sale."
Internet Distribution. E*TRADE will make the preliminary prospectus
available on its web site when it becomes available. E*TRADE will not solicit
conditional offers until two business days before the expected effective date
of an offering. If the effective date of the offering is delayed beyond two
business days, E*TRADE would allow, consistent with the Wit Capital no-action
letter, that any conditional offer received from a customer remain valid for
five business days from the date it was submitted.
62
<PAGE>
E*TRADE will provide customers a period after effectiveness and pricing
during which they will continue to have the right to cancel their conditional
offers. This period will be until 8 p.m. e.s.t. (but in no event less than two
hours after E*TRADE notifies its customers of effectiveness and pricing) in the
usual situation where the offering becomes effective and prices after the close
of trading. If the offering becomes effective and prices prior to or during the
trading day, the period will be one hour after E*TRADE notifies its customers
of effectiveness and pricing.
If an offering prices outside the expected price range indicated in the
preliminary prospectus or the price range for an offering changes, E*TRADE will
either (i) cancel its existing book of conditional offers and re-solicit new
conditional offers or (ii) require customers to reconfirm their existing
conditional offers as a condition to participating in the offering.
Listing. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "CBIS."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation M
under the Securities and Exchange Act of 1934, some participants in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by the
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. An investment fund for
the benefit of partners at Hale and Dorr holds in the aggregate 6,667 shares of
series A convertible preferred stock, which will automatically convert into
6,667 shares of common stock upon the completion of this offering. Legal
matters in connection with this offering will be passed upon for the
underwriters by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements and schedules included in
this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
63
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 (including its exhibits
and schedules) with the Securities and Exchange Commission under the Securities
Act with respect to our common stock to be sold in this offering. This
prospectus, which is a part of the registration statement, contains all of the
material information relating to this offering. With respect to references made
in this prospectus to any contract, agreement or other document of C-bridge,
such references are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. You may review a copy of the
registration statement, including exhibits, at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 or at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call 1-800-SEC-0330 for further information about the operation of the
public reference rooms. The registration statement and our other Securities and
Exchange Commission filings can also be reviewed by accessing the Securities
and Exchange Commission's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission.
After we have filed this registration statement, we will file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
64
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1996, 1997, 1998 and
September 30, 1999...................................................... F-3
Consolidated Statements of Operations for the Period from Inception
(October 31, 1996) to December 31, 1996, for the Years Ended December
31, 1997 and 1998 and for the Nine Months Ended September 30, 1998 and
1999.................................................................... F-4
Consolidated Statements of Stockholders' Deficit for the Period from
Inception (October 31, 1996) through September 30, 1999................. F-5
Consolidated Statements of Cash Flows for the Period from Inception
(October 31, 1996) to December 31, 1996, for the Years Ended December
31, 1997 and 1998 and for the Nine Months Ended September 30, 1998 and
1999.................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C-bridge Internet Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of C-bridge
Internet Solutions, Inc. (a Delaware corporation) and subsidiary as of December
31, 1997 and 1998 and September 30, 1999, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the period
from inception (October 31, 1996) to December 31, 1996, for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of C-bridge Internet Solutions, Inc. and subsidiary as of December 31, 1997 and
1998 and September 30, 1999, and the results of its operations and its cash
flows for the period from inception (October 31, 1996) to December 31, 1996,
for the years ended December 31, 1997 and 1998 and for the nine months ended
September 30, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
-------------------------------------
Boston, Massachusetts
October 28, 1999 (except for the matters discussed in Note 13, as to which the
date is November 9, 1999)
F-2
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 30,699 $ 190,409 $ 3,892
Accounts receivable, net of allowance
of $16,726, $30,502 and $63,844 at
December 31, 1997 and 1998 and
September 30, 1999, respectively... 871,832 732,765 2,842,402
Unbilled receivables................. 217,509 451,586 1,674,587
Other current assets................. 168,235 13,733 70,831
----------- ----------- -----------
Total current assets................... 1,288,275 1,388,493 4,591,712
----------- ----------- -----------
Property and equipment, at cost:
Computer equipment................... 578,491 714,463 1,262,489
Furniture and fixtures............... 5,644 14,044 200,034
Computer software.................... -- 40,779 126,378
Leasehold improvements............... -- -- 40,182
----------- ----------- -----------
584,135 769,286 1,629,083
Less--Accumulated depreciation....... 75,871 226,018 507,586
----------- ----------- -----------
508,264 543,268 1,121,497
----------- ----------- -----------
Deferred financing costs............... -- -- 145,000
----------- ----------- -----------
Total assets........................... $ 1,796,539 $ 1,931,761 $ 5,858,209
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Lines of credit...................... $ -- $ 2,615,539 $ 1,448,889
Current portion of capital lease
obligations........................ -- 117,716 191,485
Accounts payable..................... 467,270 365,473 546,807
Accrued liabilities.................. 306,039 979,337 2,382,520
Deferred revenue..................... 192,959 377,107 1,600,031
Current portion of due to
affiliates......................... 450,000 120,610 233,397
----------- ----------- -----------
Total current liabilities.............. 1,416,268 4,575,782 6,403,129
----------- ----------- -----------
Long-term liabilities:
Capital lease obligations, less
current portion.................... -- 176,575 125,816
Due to affiliates, less current
portion............................ 1,755,390 -- --
----------- ----------- -----------
Total liabilities...................... 3,171,658 4,752,357 6,528,945
----------- ----------- -----------
Commitments and contingencies (Note 5)
Stockholders' deficit:
Preferred stock, $0.01 par value--
Authorized--5,000,000 shares
Issued and outstanding--None........ -- -- --
Common stock, $0.01 par value--
Authorized--30,000,000 shares
Issued--10,000,000, 10,719,969 and
12,167,687 shares at December 31,
1997 and 1998 and September 30,
1999, respectively.................. 100,000 107,200 121,677
Additional paid-in capital........... 32,054 2,685,333 14,274,967
Notes receivable for issuance of
common stock....................... -- (84,000) (84,000)
Deferred compensation................ -- -- (6,523,543)
Accumulated deficit.................. (1,507,173) (5,376,129) (8,306,837)
Treasury stock, at cost--510,000
shares............................. -- (153,000) (153,000)
----------- ----------- -----------
Total stockholders' deficit............ (1,375,119) (2,820,596) (670,736)
----------- ----------- -----------
$ 1,796,539 $ 1,931,761 $ 5,858,209
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception For the Nine Months
(October 31, For the Years Ended Ended
1996) to December 31, September 30,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Professional
services............ $ -- $ 3,169,183 $ 5,047,474 $ 3,208,416 $11,342,538
Educational
services............ -- -- -- -- 2,495,627
---------- ----------- ----------- ----------- -----------
Total net
revenues......... -- 3,169,183 5,047,474 3,208,416 13,838,165
---------- ----------- ----------- ----------- -----------
Costs and expenses:
Direct costs of
professional
services (exclusive
of noncash
compensation
expense presented
below).............. 49,641 2,234,598 4,974,586 3,528,074 6,456,562
Direct costs of
educational
services (exclusive
of noncash
compensation
expense presented
below).............. -- -- -- -- 1,142,283
Selling and marketing
(exclusive of
noncash
compensation
expense presented
below).............. 3,414 327,553 1,530,140 1,224,854 1,884,550
General and
administrative
(exclusive of
noncash
compensation
expense presented
below).............. 140,439 1,797,185 2,108,663 1,654,625 4,720,717
Compensation expense
related to stock
options and
warrants............ -- 27,984 74,068 57,014 2,752,079
---------- ----------- ----------- ----------- -----------
Total operating
expenses......... 193,494 4,387,320 8,687,457 6,464,567 16,956,191
---------- ----------- ----------- ----------- -----------
Loss from
operations....... (193,494) (1,218,137) (3,639,983) (3,256,151) (3,118,026)
Interest expense........ -- (5,440) (244,370) (171,635) (165,367)
Interest income......... -- 8,221 2,433 2,433 --
Other income (expense).. -- 677 12,964 4,027 352,685
---------- ----------- ----------- ----------- -----------
Net loss................ $ (193,494) $(1,214,679) $(3,868,956) $(3,421,326) $(2,930,708)
========== =========== =========== =========== ===========
Basic and diluted net
loss per share (Note
2(g))................. $ (0.02) $ (0.12) $ (0.39) $ (0.35) $ (0.27)
========== =========== =========== =========== ===========
Basic and diluted
weighted average
shares outstanding.... 10,000,000 10,000,000 9,991,529 9,911,660 10,713,089
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Notes
Common Stock Receivable Treasury Stock
------------------- Additional for Issuance ------------------- Total
Number of $.01 Par Paid-in of Common Deferred Accumulated Number Stockholders'
Shares Value Capital Stock Compensation Deficit of Shares Amount Deficit
---------- -------- ----------- ------------ ------------ ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance
of common
stock........... 10,000,000 $100,000 $ -- $ -- $ -- $ (99,000) -- $ -- $ 1,000
Net loss........ -- -- -- -- -- (193,494) -- -- (193,494)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance, December
31, 1996........ 10,000,000 100,000 -- -- -- (292,494) -- -- (192,494)
Issuance of
warrants for
financing...... -- -- 4,070 -- -- -- -- -- 4,070
Issuance of
stock options
to
nonemployees... -- -- 27,984 -- -- -- -- -- 27,984
Net loss........ -- -- -- -- -- (1,214,679) -- -- (1,214,679)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance, December
31, 1997........ 10,000,000 100,000 32,054 -- -- (1,507,173) -- -- (1,375,119)
Issuance of
common stock
for notes
receivable..... 280,000 2,800 81,200 (84,000) -- -- -- -- --
Compensation
expense
associated with
issuance of
common stock
for notes
receivable..... -- -- 43,098 -- -- -- -- -- 43,098
Issuance of
common stock
for services
rendered....... 45,000 450 13,050 -- -- -- -- -- 13,500
Exercise of
stock options.. 193,038 1,931 6,814 -- -- -- -- -- 8,745
Purchase of
treasury
stock.......... -- -- -- -- -- -- 510,000 (153,000) (153,000)
Issuance of
common stock on
conversion of
bridge
financing...... 201,931 2,019 58,560 -- -- -- -- -- 60,579
Issuance of
warrants for
financing...... -- -- 99,018 -- -- -- -- -- 99,018
Issuance of a
warrant in
connection with
joint venture.. -- -- 22,703 -- -- -- -- -- 22,703
Issuance of
stock options
to
nonemployees... -- -- 17,470 -- -- -- -- -- 17,470
Forgiveness of
debt to
affiliates..... -- -- 2,311,366 -- -- -- -- -- 2,311,366
Net loss........ -- -- -- -- -- (3,868,956) -- -- (3,868,956)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance, December
31, 1998........ 10,719,969 107,200 2,685,333 (84,000) -- (5,376,129) 510,000 (153,000) (2,820,596)
Sale of common
stock ......... 333,333 3,333 1,996,667 -- -- -- -- -- 2,000,000
Exercise of
stock options
............... 1,114,385 11,144 317,345 -- -- -- -- -- 328,489
Compensation
expense
associated with
warrants....... -- -- 660,000 -- -- -- -- -- 660,000
Deferred
compensation
related to the
issuance
of stock
options to
employees and
nonemployees... -- -- 8,615,622 -- (8,615,622) -- -- -- --
Amortization of
deferred
compensation... -- -- -- -- 2,092,079 -- -- -- 2,092,079
Net loss ....... -- -- -- -- -- (2,930,708) -- -- (2,930,708)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance,
September 30,
1999 ........... 12,167,687 $121,677 $14,274,967 $(84,000) $(6,523,543) $(8,306,837) 510,000 $(153,000) $ (670,736)
========== ======== =========== ======== =========== =========== ======= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
(October 31, For the Years Ended For the Nine Months Ended
1996) to December 31, September 30,
December 31, ------------------------ --------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss............. $(193,494) $(1,214,679) $(3,868,956) $ (3,421,326) $ (2,930,708)
Adjustments to
reconcile net loss
to net cash used in
operating
activities--
Depreciation and
amortization...... -- 75,871 249,738 65,832 281,568
Noncash stock based
compensation...... -- 27,984 74,068 57,014 2,752,079
Noncash interest
expense related to
warrants.......... -- 4,070 121,721 121,721 --
Repayment of debt by
third party....... -- -- -- (348,000)
Changes in current
assets and
liabilities--
Accounts
receivable....... -- (871,832) 139,067 (247,784) (2,109,637)
Unbilled
receivables...... -- (217,509) (234,077) (264,995) (1,223,001)
Other current
assets........... -- (168,235) 154,502 (26,915) (57,098)
Accounts payable... -- 467,270 (101,797) 125,498 181,334
Accrued
liabilities...... -- 306,039 598,649 579,948 1,403,183
Deferred revenue... -- 192,959 184,148 249,262 1,222,924
--------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities..... (193,494) (1,398,062) (2,682,937) (2,761,745) (827,356)
--------- ----------- ----------- ------------ ------------
Cash flows from
investing
activities:
Purchases of property
and equipment...... -- (584,135) (191,400) (160,383) (526,951)
--------- ----------- ----------- ------------ ------------
Cash flows from
financing
activities:
Net proceeds
(repayments) on
line of credit
loans.............. -- -- 2,615,539 2,398,539 (927,650)
Proceeds from
issuance of bridge
loans.............. -- -- 248,600 248,600 --
Payments on bridge
loans.............. -- -- (193,750) (162,500) --
Loans from
affiliates......... 192,494 2,012,896 1,214,586 1,160,507 --
Repayment of loans
from affiliates.... -- -- (988,000) (988,000) (11,610)
Proceeds from sale
lease back
transaction........ -- -- 337,036 337,036 --
Payments on capital
lease obligation... -- -- (55,709) (33,124) (76,439)
Loan to employee..... -- -- (153,000) -- --
Proceeds from
issuance of common
stock.............. 1,000 -- -- -- 2,000,000
Proceeds from
exercise of stock
options............ -- -- 8,745 2,876 328,489
Deferred financing
costs.............. -- -- -- -- (145,000)
--------- ----------- ----------- ------------ ------------
Net cash provided
by financing
activities..... 193,494 2,012,896 3,034,047 2,963,934 1,167,790
--------- ----------- ----------- ------------ ------------
Net increase
(decrease) in cash.. -- 30,699 159,710 41,806 (186,517)
Cash, beginning of
period.............. -- -- 30,699 30,699 190,409
--------- ----------- ----------- ------------ ------------
Cash, end of period... $ -- $ 30,699 $ 190,409 $ 72,505 $ 3,892
========= =========== =========== ============ ============
Supplemental
disclosure of
noncash financing
activities:
Issuance of common
stock for notes
receivable......... $ -- $ -- $ 84,000 $ 84,000 $ --
========= =========== =========== ============ ============
Assets acquired under
capital lease...... $ -- $ -- $ -- $ -- $ 99,449
========= =========== =========== ============ ============
Assets acquired in
connection with
outsourcing
agreement.......... $ -- $ -- $ -- $ -- $ 233,397
========= =========== =========== ============ ============
Purchase of treasury
stock by forgiving
loan to employee... $ -- $ -- $ 153,000 $ 153,000 $ --
========= =========== =========== ============
Conversion of bridge
financing and
related interest to
common stock....... $ -- $ -- $ 60,579 $ 60,579 $ --
========= =========== =========== ============ ============
Forgiveness of debt
due to affiliates.. $ -- $ -- $ 2,311,366 $ 2,311,366 $ --
========= =========== =========== ============ ============
Supplemental
disclosure of cash
flow information:
Cash paid during the
period for
interest........... $ -- $ -- $ 93,095 $ 58,846 $ 145,169
========= =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(including data applicable to unaudited period)
(1) Operations
C-bridge Internet Solutions, Inc. and Subsidiary (the Company) is a full
service provider of eBusiness solutions that help companies create strategic
business solutions through the use of Internet technologies. In May 1999, the
Company began offering eBusiness educational services. The Company was
incorporated in Delaware on October 31, 1996.
The Company is subject to risks common to rapidly growing technology-based
companies, including a limited operating history, dependence on key personnel,
the need to raise capital, rapid technological change, competition from larger
service providers, and the need for successful development and marketing of
services.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies, as discussed below and
elsewhere in the notes to the consolidated financial statements.
(a) Management's 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.
(b) Principles of Consolidation
In August 1998, the Company formed a wholly owned subsidiary, C-bridge
Packaged Solutions, Inc. (the Subsidiary). These consolidated financial
statements include the accounts of the Company and the subsidiary. All
significant intercompany transactions have been eliminated in consolidation.
(c) Revenue Recognition
The Company generates revenue from eBusiness consulting and education
services. Revenues from consulting contracts are recognized on a time and
material or percentage-of-completion basis depending upon the contract with the
customer. Revenues related to time and material consulting contracts are
recognized when the services are performed. Revenues related to fixed price
consulting contracts are recognized based on the percent of the cost incurred
compared to the total estimated cost to complete the project. The cumulative
impact of any revisions in estimates are reflected in the period in which they
become known. If a consulting contract is estimated to result in a loss, the
loss is recorded immediately. Net revenues exclude reimbursable expenses
charged to customers.
Revenues from educational services are recognized based upon the management
and performance of educational services. The Company recognizes revenue based
upon the performance of services under a five-year outsourcing agreement with a
third party. In accordance with the outsourcing agreement, the Company manages
and performs executive education in exchange for a monthly fee of approximately
$479,000 per month. The Company records such fee as revenue ratably over the
contract term. Costs incurred in performing such services are expensed as
incurred. See Note 10 for further discussion of the outsourcing agreement.
Unbilled receivables represents services that have been performed but have
not yet been billed. Unbilled receivables also includes reimbursable expenses.
Deferred revenues represent amounts billed or paid in advance of revenues
recognized.
F-7
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(d) Depreciation and Amortization
The Company provides for depreciation and amortization using the straight-
line method, by charges to operations in amounts estimated to allocate the cost
of property and equipment over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
- -------------------- -------------
<S> <C>
Computer equipment............................................... 3 years
Furniture and fixtures........................................... 3 years
Computer software................................................ 3 years
Leasehold improvements........................................... Life of lease
</TABLE>
The Company has assets under capital leases of $350,000 and $421,626 as of
December 31, 1998 and September 30, 1999, respectively. There were no assets
under capital leases as of December 31, 1997. Accumulated depreciation related
to these assets is $48,611 and $136,111 as of December 31, 1998 and September
30, 1999, respectively.
(e) Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk consist of
cash and accounts receivable. The Company maintains the majority of its cash
balances with financial institutions. Concentrations of credit risk with
respect to accounts receivable is limited to certain customers to whom the
Company makes substantial sales. To reduce risk, the Company routinely assesses
the financial strength of its customers and, as a consequence, believes that
its accounts receivable credit risk exposure is limited. The Company operates
in two industry segments and derives substantially all of its revenues from
U.S. customers.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenues and accounts receivable for the
periods presented:
<TABLE>
<CAPTION>
Years Ended
December Nine Months
31, Ended
------------- September 30,
1997 1998 1999
----- ----- -------------
<S> <C> <C> <C>
Revenue--
Customer A..................................... 28% 10% *
Customer B..................................... 12% * *
Customer C..................................... 11% * *
Customer D..................................... * 25% 24%
Customer E..................................... * 16% *
Customer F..................................... * * 18%
Customer G..................................... * * 12%
Customer I..................................... * * 18%
</TABLE>
F-8
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
<TABLE>
<CAPTION>
December
31,
---------- September 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Accounts Receivable--
Customer A........................................... 32% * *
Customer D........................................... * * 18%
Customer E........................................... * 29% *
Customer F........................................... * 16% 19%
Customer H........................................... * 33% *
Customer I........................................... 19% * *
Customer J........................................... 10% * *
</TABLE>
- --------
* Less than 10%
(f) Interim Financial Statements
The accompanying consolidated statements of operations and cash flows for
the nine months ended September 30, 1998 are unaudited, but, in the opinion of
management, include all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of results for this interim
period.
(g) Net Loss Per Share
Basic net loss per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted net
loss per common share is the same as basic net loss per common share, since the
effects of the Company's potentially dilutive securities are antidilutive. In
accordance with Staff Accounting Bulletin No. 98, the Company has determined
that there was no nominal issuance of common stock or potential common stock in
the period prior to the Company's planned IPO. Antidilutive securities, which
consist of options and warrants to purchase common stock that are not included
in diluted net loss per share, were 1,653,010, 8,308,138, 7,831,192 and
7,529,566 as of December 31, 1997 and 1998 and September 30, 1998 and 1999,
respectively. There were no antidilutive securities as of December 31, 1996.
(h) Stock-Based Compensation for Employees
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 defines a fair-
value-based method of accounting for employee stock options and other stock-
based compensation. Compensation expense related to employee stock based
compensation arising from this method of accounting can be reflected in the
financial statements or, alternatively, the pro forma net loss and loss per
share effect of the fair-value-based accounting can be disclosed in the
financial footnotes. The Company has adopted the disclosure-only alternative
(see Note 7(e)).
(i) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income, which is effective for the Company's
fiscal year ended December 31, 1998. Under SFAS No. 130, companies are required
to report comprehensive income as a measure of overall performance.
Comprehensive income includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. For the
periods ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, the Company's comprehensive loss is the same as
its reported net loss.
F-9
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(j) Fair Value of Financial Instruments
Financial instruments consist principally of cash, accounts receivable,
accounts payable and debt. The estimated fair value of these instruments
approximates their carrying value.
(k) New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to
have a material impact on the Company's consolidated financial statements.
(3) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Accrued payroll and other related employee
benefits.................................... $145,968 $204,416 $1,281,121
Other accrued liabilities..................... 160,071 774,921 1,101,399
-------- -------- ----------
$306,039 $979,337 $2,382,520
======== ======== ==========
</TABLE>
(4) Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with the provisions of SFAS No. 109, Accounting for Income Taxes,
whereby a deferred tax asset or liability is measured by enacted tax rates that
will be in effect when any differences between the financial statement and tax
bases of assets and liabilities reverse.
The approximate tax effect of each type of temporary difference and
carryforward as of December 31, 1997 and 1998 and September 30, 1999,
respectively, is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
--------- ----------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards.......... $ 486,019 $ 1,036,697 $ 1,059,372
Depreciation.............................. (16,363) (6,119) 46,389
Other..................................... 62,805 59,080 56,617
--------- ----------- -----------
532,461 1,089,658 1,162,378
Less--Valuation allowance................. (532,461) (1,089,658) (1,162,378)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
The Company has not given recognition to any of its potential tax benefits,
consisting primarily of its net operating loss carryforward, in the
accompanying consolidated financial statements as it is more likely than not
that these benefits will not be realizable in future years' tax returns.
F-10
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
At December 31, 1997 and 1998, and September 30, 1999, the Company had
available a net operating loss carryforward of approximately $1,207,000,
$2,574,000 and $2,631,000, respectively, which expires through 2019. This
carryforward is subject to review and possible adjustment by the Internal
Revenue Service. The Internal Revenue Code (IRC) contains provisions that may
limit the Company's use of the carryforward in the event there are significant
changes in the ownership, as defined in Section 382 of the IRC.
(5) Commitments and Contingencies
(a) Capital Leases
In July 1998, the Company entered into a sale/leaseback transaction,
whereby the Company sold existing fixed assets (primarily computer equipment)
with a net book value of approximately $250,000 to a leasing company for
$350,000. The Company then leased the fixed assets from the leasing company
under a three-year capital lease arrangement. The gain of approximately
$100,000 was deferred and is being amortized to income over the term of the
lease.
As of September 30, 1999, payments due pursuant to capital lease
obligations are approximately as follows:
<TABLE>
<CAPTION>
Amount
--------
Year Ending December 31,
- ------------------------
<S> <C>
1999 (October 1, 1999-December 31, 1999 only)....................... $ 42,562
2000................................................................ 170,246
2001................................................................ 151,108
--------
363,916
Less--Amount representing interest.................................... 46,615
--------
Present value of net minimum lease payments........................ 317,301
Less--Current portion................................................. 191,485
--------
Long-term portion.................................................. $125,816
========
</TABLE>
(b) Operating Leases
From October 1996 to April 1999, the Company leased certain office space
and equipment from a related party, Cambridge Technology Group, under month-to-
month operating lease agreements. Included in the accompanying consolidated
statements of operations for the years ended December 31, 1997 and 1998 and for
the nine months ended September 30, 1998 and 1999 is rent expense of
approximately $93,000, $251,000, $187,000 and $156,000, respectively, related
to this lease. There was no rent expense for the period from inception (October
31, 1996) to December 31, 1996.
On May 1, 1999, the Company entered into a five-year operating lease
agreement for its principal office space from Property Management Partners,
Inc. (PMP), a corporation controlled by a former employee of Cambridge
Technology Group. Aside from the monthly base rent, a one-time sum of
$1,375,000 is to be paid to the lessor on January 3, 2000. This amount is to be
used for certain capital improvements or material repairs as needed. The
Company is amortizing this one-time charge to operations over the term.
Concurrent with the operating lease, the Company entered into a five-year
facilities management agreement with PMP. Monthly payments of $23,333 are to be
paid for the management, operations and maintenance of the leased facilities.
The Company believes these transactions are at arms-length.
F-11
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
The approximate future minimum annual rent and management fees due under
the operating lease agreement as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Total
- ------------------------ ----------
<S> <C>
1999 (October 1, 1999-December 31, 1999 only)..................... $ 248,000
2000.............................................................. 898,000
2001.............................................................. 878,000
2002.............................................................. 888,000
2003.............................................................. 895,000
Thereafter........................................................ 300,000
----------
$4,107,000
==========
</TABLE>
(c) Litigation
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all claims
and, in its opinion, all litigation currently pending or threatening will not
have a material adverse effect on the Company's consolidated financial position
or consolidated results of operations.
(6) Debt Obligations
(a) Due to Affiliates
During 1997 and 1998, the Company was financed by advances from parties
affiliated with the Company. These affiliates consist of Cambridge Technology
Group and trusts which are significant stockholders of the Company. Amounts due
to these affiliates, which consisted primarily of working capital advances,
general and administrative allocations, and operating expenses, were
approximately $2,205,000 in 1997 and $1,094,000 in 1998. During March and May
of 1998, the Company entered into agreements with the affiliated parties to
formally forgive $2,311,366 of the amounts due. The Company recorded the
forgiveness as a capital contribution, as reflected in the accompanying
consolidated financial statements. The remaining $988,000 was repaid in 1998.
The amount due to affiliate as of September 30, 1999 relates to the
outsourcing agreement described in Note 10.
(b) Line of Credit
During 1998, the Company entered into a $1,500,000 revolving line of credit
with a bank secured by substantially all business assets and guaranteed by
major stockholders of the Company. Interest was at the bank's prime rate (8.25%
at September 30, 1999) plus 1%. In July 1998, the Company extended the existing
line of credit from $1,500,000 to $2,000,000, also guaranteed by the same major
stockholders of the Company. In September 1998, the Company secured a line of
credit with a different bank, paying down and terminating the original bank
debt.
Under the new line of credit, the Company may draw up to $3,500,000 based
on certain terms and conditions. Of the total amount available under the line
of credit, $1,000,000 is collateralized by assets of the Company and $2,500,000
is guaranteed by a major stockholder of the Company and a trust for the benefit
of a major stockholder of the Company. A warrant to purchase 65,000 shares of
common stock was issued to the bank in connection with the new line of credit
(see Note 7(f)). Borrowings under the line of credit bear interest
F-12
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
at prime (8.25% at September 30, 1999) plus 1%. At December 31, 1998 and
September 30, 1999, loans of $2,200,000 and $1,260,000, respectively, were
outstanding under the line and $300,000 and $1,240,000, respectively, was
available under the line based on the terms and conditions of the borrowing
base. The line expires in December 1999. The Company and the guarantors are
subject to certain restrictive covenants in connection with the line of credit.
The Company and the guarantors were in compliance with these covenants at
December 31, 1998 and September 30, 1999.
On April 7, 1999, the Company entered into a loan modification of its
$3,500,000 line of credit in order that the Company would be able to draw upon
a committed equipment line of credit (Equipment Line) up to $200,000. The
Equipment Line is to be used to purchase or refinance certain operating
equipment, as defined. The Equipment Line bears interest at the bank's prime
rate (8.25% at September 30, 1999) plus 1.5% and is secured by the same
guarantees as the original line of credit. Under the Equipment Line, amounts
borrowed between January and June 1999 are to be paid back over a 36-month
period beginning July 5, 1999 and amounts borrowed between July and December
1999 are to be paid back over a 36-month period beginning January 5, 2000.
Borrowings under the Equipment Line need to be in compliance with certain
financial covenants. At September 30, 1999, $188,889 was outstanding under the
Equipment Line.
In September 1998, the Subsidiary obtained a $2,000,000 line of credit with
a bank collateralized by a letter of credit issued by a third-party joint
venture partner (see Note 8). A warrant, recorded at fair value, was issued to
this third party in connection with the letter of credit (see Note 7(f)).
Borrowings under this line of credit bear interest at prime (8.25% at September
30, 1999). At December 31, 1998, and September 30, 1999, $415,539 and $0,
respectively, was outstanding under this line. As discussed in Note 8, the
joint venture was dissolved, the Subsidiary's line of credit was paid down and
the line of credit and warrant were terminated.
(c) Bridge Loans Payable
In May 1998, the Company entered into short-term financing agreements with
three investors totaling approximately $248,000. Interest on the notes was at
prime (7.75% at December 31, 1998) plus 1%. The terms were for 90 days and
included issuance of warrants, which were recorded at fair value (see Note
7(f)). One party, representing approximately $148,000 of this amount, is a
related party. On August 3, 1998, the due date of the bridge loans was extended
from July 29, 1998 to September 21, 1998. Additional warrants were issued in
connection with the extension (see Note 7 (f)). In late September 1998,
approximately $194,000 of the total amount was paid in full and the remaining
amount due, $54,000 along with related accrued interest, was converted into
approximately 202,000 shares of common stock at $.30 per share.
(7) Stockholders' Deficit
(a) Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock with a $.01
par value. No shares have been issued as of December 31, 1998 or September 30,
1999, and no terms for voting, conversion, dividends, liquidation preference or
redemption have been set by the Board of Directors.
(b) Reserved Common Stock
The Company has reserved 8,308,138 and 7,529,566 shares of common stock to
be issued upon exercise of stock options and warrants as of December 31, 1998
and September 30, 1999, respectively.
(c) Stock Split
On April 3, 1997, the Company's Board of Directors approved a ten thousand-
for-one stock split of its common stock. All share and per share amounts of
common stock for all periods presented reflect the stock split.
F-13
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(d) Notes Receivable for Issuance of Common Stock
In May 1998, in connection with the employment of an employee, the Company
issued 280,000 shares of common stock to a party related to the employee in
exchange for a note receivable in the amount of $84,000. The Company accounted
for this transaction as a variable stock award and recorded a compensation
charge of $43,098 in the accompanying consolidated statement of operations for
the year ended December 31, 1998. On January 1, 1999, the Company received full
recourse rights for this note receivable thereby fixing the measurement date.
No additional compensation was required to be recorded. This note is due on May
20, 2002 and bears interest at 5.7%. In addition to full recourse rights, the
loan is collateralized by the 280,000 shares of common stock.
(e) Stock Option Plans
1997 Stock Incentive Plan
In 1997, the Company implemented a Stock Incentive Plan (the 1997 Plan),
pursuant to which 4,000,000 shares of common stock have been reserved for stock
options, stock grants and other stock-based awards. Issuances under the 1997
Plan generally expire ten years from issue date. Under the 1997 Plan, the
Company may grant both incentive stock options and nonstatutory options, as
well as award or sell shares of common stock to employees, directors or
consultants of the Company. All option grants, prices and vesting periods are
determined by the Board of Directors. All options issued prior to March 1998
generally vest monthly. All options issued after March 1998 generally vest
semiannually. However, certain option grants contain provisions to accelerate
vesting upon defined events. Full vesting of all options occurs four years
after date of issuance. As of September 30, 1999, there are 164,265 shares
available for future grants under the 1997 plan.
1999 Stock Incentive Plan
In February 1999, the Board of Directors approved the 1999 Stock Incentive
Plan (the 1999 Plan), pursuant to which 6,000,000 shares of common stock have
been reserved for stock options, stock grants and other stock-based awards. The
number of shares of common stock made available and reserved shall
automatically increase by 500,000 shares effective on the first day of every
calendar year for the next 10 years. Issuances under the 1999 Plan generally
expire ten years from issue date. Under the 1999 Plan, the Company may grant
both incentive stock options and nonstatutory options, as well as award or sell
shares of common stock to employees, directors or consultants of the Company.
All option grants, prices and vesting are determined by the Board of Directors.
All options generally vest semiannually from date of grant. However, certain
option grants contain provisions to accelerate vesting upon defined events.
Full vesting of all options occurs four years after date of issuance. As of
September 30, 1999, there are 1,783,250 shares available for future grants
under the 1999 Plan.
F-14
<PAGE>
C--BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
Stock option activity under both the 1997 and 1999 plans is summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Number Price Exercise Price
of Shares per Share per Share
---------- ----------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1996.......... -- $ -- $ --
Granted............................... 1,611,000 0.01--0.30 0.20
Canceled.............................. (2,990) 0.25--0.30 0.29
----------
Outstanding, December 31, 1997.......... 1,608,010 0.01--0.30 0.20
Granted............................... 3,212,128 0.30 0.30
Exercised............................. (193,038) 0.01--0.30 0.05
Canceled.............................. (1,101,739) 0.01--0.30 0.27
----------
Outstanding, December 31, 1998.......... 3,525,361 0.01--0.30 0.28
Granted............................... 4,558,850 0.30--6.00 1.64
Exercised............................. (1,114,385) 0.01--1.00 0.28
Canceled.............................. (224,764) 0.01--0.30 0.26
---------- ----------- -----
Outstanding, September 30, 1999......... 6,745,062 $0.01--6.00 $1.20
========== =========== =====
Exercisable, September 30, 1999......... 1,330,407 $0.01--1.00 $0.54
========== =========== =====
Exercisable, December 31, 1998.......... 671,842 $0.01--0.30 $0.25
========== =========== =====
Exercisable, December 31, 1997.......... 262,771 $0.01--0.30 $0.06
========== =========== =====
</TABLE>
The following table summarizes information relating to currently
outstanding and exercisable options as of September 30, 1999.
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------- -----------
Weighted
Average
Remaining
Exercise Number of Contractual Number of
Prices Shares Life (Years) Shares
-------- --------- ------------ -----------
<S> <C> <C> <C>
$.01 87,462 7.54 37,630
.25 424,297 7.91 173,087
.30 3,841,803 9.14 646,915
1.00 1,501,250 9.64 472,775
6.00 890,250 9.92 --
--------- ---------
6,745,062 1,330,407
========= =========
</TABLE>
During 1997 and 1998 and the first nine months of 1999, the Company issued
options to purchase 239,000, 104,000 and 345,767 shares, respectively, of
common stock to nonemployees in exchange for services. The Company recorded
these transactions at fair value, which was $27,984, $17,470 and $704,859 for
the years ended December 31, 1997 and 1998 and the nine months ended September
30, 1999, respectively. Certain options to purchase common stock to
nonemployees have been issued with various vesting periods ranging from
immediate vesting to a four-year vesting period. The compensation expense
related to these stock options is recorded over the related vesting period.
F-15
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
During the nine months ended September 30, 1999, the Company issued options
to purchase approximately 1,577,000 shares of common stock to employees at an
exercise price deemed to be below market value. In accordance with Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25),
the Company has recorded the difference between the exercise price and fair
value as deferred compensation and is amortizing such deferred compensation to
operations over the vesting periods of the options.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted using the Black-Scholes option pricing model prescribed
by SFAS No. 123. The assumptions used and the weighted average information for
the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
----------------------- ----------------------
1997 1998 1998 1999
----------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Risk-free interest rates....... 5.83--6.57% 4.39--5.59% 5.41% 5.77%
Expected dividend yield........ -- -- -- --
Expected life.................. 5 years 5 years 5 years 5 years
Expected volatility............ 60% 60% 60% 60%
Weighted average fair value per
share of options granted..... $.05 $.07 $.14 $2.72
Weighted-average remaining
contractual life of options
outstanding.................. 9.65 years 9.39 years 7.36 years 9.26 years
</TABLE>
Had compensation expense from the Company's stock option plan been
determined consistent with SFAS No. 123, net loss and net loss per share would
have been approximately as follows:
<TABLE>
<CAPTION>
Years Ended December Nine Months
31, Ended September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net loss--
As reported.............. $(1,214,679) $(3,868,956) $(3,421,326) $(2,930,708)
Pro forma................ (1,227,071) (3,990,032) (3,505,213) (3,441,222)
Basic and diluted net loss
per share--
As reported.............. $ (0.12) $ (0.39) $ (0.35) $ (0.27)
Pro forma................ (0.12) (0.40) (0.35) (0.32)
</TABLE>
(f) Warrants
In September 1997, the Company issued a warrant to purchase common stock to
a bank in connection with borrowings of a related party, Cambridge Technology
Group, that were used to fund the Company's operations.
In connection with a bridge financing in May 1998 (see Note 6(c)), the
Company issued warrants to purchase 333,334 shares of common stock at an
exercise price of $.30 per share. Each share of common stock purchased by the
exercise of the warrants may be exchanged for a proportional amount of the
Company's preferred stock, if any is issued, based upon the number of common
stock shares multiplied by $.30 per share divided by $1.19 for each share of
preferred stock.
F-16
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
In May 1998, the Company issued a warrant to a customer to purchase 110,000
shares of common stock at an exercise price of $1.00 based upon achievement of
certain revenue related milestones by May 2000; accordingly, the accounting
measurement date was unknown. In September 1999, the Company amended the
warrant agreement to fully vest the warrant. In conjunction with the amendment,
the Company recorded the value of this warrant as a charge to operations in the
nine months ended September 30, 1999.
In June 1998, the Company issued a warrant to purchase 25,000 shares of
common stock in connection with a line of credit entered into with a bank.
In connection with entering into a capital lease in July 1998 (see Note
5(a)), the Company issued a warrant to the lessor to purchase 93,333 shares of
common stock at an exercise price of $.30 per share. The warrant expires on the
earlier of three years from an initial public offering, as defined, or five
years.
In August 1998, in connection with the guarantee of a line of credit for
the joint venture discussed in Note 8, a warrant was issued to the third-party
partner in the joint venture to purchase 4,000,000 shares of the Subsidiary's
common stock at an exercise price of $0.01 per share. The Company recorded the
issuance of this warrant at fair value, which totaled $22,703, as interest
expense. As discussed in Note 8, the joint venture was terminated and the
warrant was canceled.
In August 1998, the May 1998 bridge financing was extended and additional
warrants to purchase 111,110 shares of common stock at an exercise price of
$.30 per share were issued to the investors. Each share of common stock
purchased by the exercise of the warrants may be exchanged for a proportional
amount of the Company's preferred stock, if any is issued, based upon a similar
determination as the original warrants.
In September 1998, the Company issued a warrant to a bank in connection
with a line of credit.
The following table summarizes warrants outstanding as of September 30,
1999.
<TABLE>
<CAPTION>
Value
Ascribed to Period
Grant Date Shares Exercise Price Expiration Warrant Recorded
- -------------- ------- --------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
September 1997 46,727 $1.00 per share September 2004 $ 4,070 1997
May 1998 333,334 $.30 per share May 2003 56,684 1998
May 1998 110,000 $1.00 May 2000 660,000 1999
June 1998 25,000 $1.00 per share June 2005 2,519 1998
July 1998 93,333 $.30 per share July 2003 15,850 1998
August 1998 111,110 $.30 per share August 2003 18,806 1998
September 1998 65,000 $1.00 per share September 2003 5,159 1998
------- --------
784,504 $763,088
======= ========
</TABLE>
At September 30, 1999, all outstanding warrants are exercisable. An equal
number of shares of common stock have been reserved for the exercise of all
outstanding warrants. The Company recorded the issuance of these warrants at
fair value. The value ascribed to warrants issued in connection with debt
financing has been charged to interest expense. The value ascribed to warrants
issued in connection with services has been charged to operations.
(g) Treasury Stock
In April 1998, the Company reacquired 510,000 shares of its common stock in
satisfaction of a loan previously made to a former officer in the amount of
$153,000 in connection with his severance agreement. Severance in the amount of
approximately $56,000 was also owed to the former officer, as per the severance
agreement, and was paid in full during 1998.
F-17
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(8) Subsidiary and Joint Venture
In connection with the formation of the Subsidiary, the Company and the
Subsidiary entered into a joint venture with a third-party provider of packaged
solution software. The joint venture engaged the Subsidiary as the vehicle to
develop and implement Web-based solutions and services. Under the agreement of
the joint venture, the Subsidiary issued a warrant (see Note 7(f)) to the
third-party provider to purchase up to 40% of the Subsidiary on a fully diluted
basis in exchange for a letter of credit guarantee on the Subsidiary's line of
credit.
In May 1999, the Company, the Subsidiary and third party that formed the
joint venture terminated the arrangement and dissolved the joint venture. In
connection with the dissolution of the joint venture, the third party and the
Company paid down approximately $239,000 and $310,000, respectively, of the
outstanding line of credit and terminated the line of credit arrangement. The
warrants issued to the third party were also canceled. Additionally,
approximately $70,000 owed by the Subsidiary to the third party was forgiven.
The Company has recorded the debt forgiveness by the third party as other
income in the accompanying consolidated statement of operations during the nine
months ended September 30, 1999.
(9) Employee Benefit Plan
The Company has a 401(k) plan (the 401(k) Plan) covering all employees of
the Company who meet certain defined requirements. Under the terms of the
401(k) Plan, the employees may elect to make tax-deferred contributions and the
Company may match 25% of the first 6% of employee contributions as determined
by the Board of Directors and may make other discretionary contributions to the
401(k) Plan. During 1998 and the nine months ended September 30, 1999, the
Company contributed approximately $46,400 and $56,900, respectively to the
401(k) Plan. The Company made no contributions during 1996 or 1997.
(10) Related Party Transactions
On April 30, 1999, the Company entered into a five-year contract with a
third party, CEE, Inc. (CEE), whereby CEE outsourced the management and
performance of executive education seminars to the Company in exchange for a
monthly fee of approximately $479,000 per month. In accordance with the
outsourcing agreement, the Company agreed to issue options to purchase 190,000
shares of the Company's common stock to designees of CEE and is committed to
issue options to purchase an additional 50,000 shares of the Company's common
stock to CEE's designees each year that the outsourcing agreement is in place.
A sister company of CEE named Cambridge Executive Enterprises, Inc.
(Enterprises) previously provided these services. Simultaneous with signing the
outsourcing arrangement, the Company hired substantially all of Enterprises'
employees, assumed Enterprises' real estate lease and acquired all of
Enterprises' tangible assets (primarily furniture, computers and leasehold
improvements), in exchange for a note payable to Enterprises for approximately
$234,000. The amount due to Enterprises is included in the accompanying
consolidated balance sheet as amount due to affiliate at September 30, 1999.
On May 1, 1999, the Company granted to designees of CEE, options to
purchase 189,500 shares of common stock at an exercise price of $1.00 per
share, 71,500 of which were granted to employees of CEE that remained in the
employ of CEE. In accordance with SFAS No. 123 and Emerging Issues Task Force
Issue 96-18, the Company recorded a charge to operations of $199,000 related to
this grant. As a result of the outsourcing agreement, certain employees of CEE
became employees of C-bridge on May 1, 1999. These employees represent the
remaining CEE designees. The Company granted these employees options to
purchase 118,000 shares of common stock at an exercise price of $1.00 per
share, which was deemed to be less than fair market value on the date of grant.
In accordance with APB 25, the Company recorded deferred compensation of
$590,000 which is being amortized to operations over the vesting period of the
employees' options.
F-18
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
The Company, CEE and Enterprises have a historical business relationship
through Cambridge Technology Group (CTG). For more than 10 years prior to
September 1998, CTG conducted an executive seminar business. In September 1998,
CTG made an assignment for the benefit of creditors. The sole stockholder,
director and officer of CTG is an employee of CEE, and members of his family
are beneficiaries of a trust and a holding company which are significant
stockholders of the Company.
Certain lease, debt and equity transactions involving related parties have
been discussed in Notes 5, 6 and 7.
During 1998, the Company performed professional services for a company in
which a major stockholder of the Company is also an investor. The total amount
of the services was $64,000, of which $64,000 and $48,000 is included in
accounts receivable in the accompanying consolidated balance sheets as of
December 31, 1998 and September 30, 1999. Transactions with this related
company have been treated at arm's-length, as if conducted with an unrelated
party. Revenue on these transactions has been recognized in accordance with the
Company's revenue recognition policy.
During 1998 and the nine months ended September 30, 1999, the Company
subcontracted certain consulting work to a related party in which a key
employee/stockholder of the Company is an investor. The total amount of these
services is approximately $22,000 and $50,000 for the year ended December 31,
1998 and the nine months ended September 30, 1999, respectively.
(11) Segment and Geographic Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance. The
Company's chief decision-maker, as defined under SFAS No. 131, is the Chief
Executive Officer.
The Company views its operations and manages its business as two segments,
strategic and technology consulting services and educational services. The
Company's reportable segments are strategic business units that provided
distinct services to the end customer. They are managed separately because each
business requires different marketing and management strategies. The Company's
approach is based on the way that management organizes the segments within the
Company for making operating decisions and assessing performance.
The accounting policies of the segment are the same as those described in
the summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Accordingly, the
Company's measure of performance for each reportable segment is based on total
net revenues and direct costs of services, which are reported separately in the
accompanying consolidated statements of operations. Accordingly, no additional
disclosure is required. The Company does not identify assets and liabilities by
segment. Accordingly, identifiable assets, capital expenditures and
depreciation and amortization are not reported by segment.
F-19
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(12) Series A Preferred Stock Financing
In October 1999, the Company sold 1,645,555 shares of Series A redeemable
convertible preferred stock (Series A Preferred Stock) at a purchase price of
$6.00 per share resulting in net proceeds to the Company of approximately $9.9
million. Concurrent with the sale of the Series A Preferred Stock, two
significant stockholders of the Company sold an aggregate of 819,445 shares of
common stock to certain of the Series A Preferred Stock investors at a purchase
price per share of $6.00 resulting in gross proceeds to the stockholders of
approximately $4.9 million. In conjunction with the sale of the Series A
Preferred Stock, the Company amended its Articles of Incorporation to change
the par value of the Company's common stock to $.01 per share. The Company's
par value of common stock has been retroactively adjusted for this amendment.
The rights, preferences and privileges of the Series A Preferred Stock are
listed below.
Dividends
The holders of the Series A Preferred Stock are entitled to receive
noncumulative dividends of 8% per annum, payable only when, as and if declared
by the Board of Directors. The Company shall not declare or pay any dividends
on shares of common stock until the holders of the Series A Preferred Stock
then outstanding first receive an amount equal to 8% per annum of the original
purchase price.
Conversion
Each share of Series A Preferred Stock is convertible, at the option of the
holder, at any time, into one share of common stock, adjusted for certain
dilutive events, as defined. In addition, all shares of Series A Preferred
Stock shall be automatically converted into shares of common stock upon the
closing of an underwritten public offering in which the price per share to the
public is not less than $10.00 and the aggregate gross proceeds to the Company
are not less than $15,000,000.
Voting Rights
The Series A Preferred stockholders are entitled to vote on all matters
with the common stockholders as one class of stock. The Series A Preferred
stockholders are entitled to the number of votes equal to the number of shares
of common stock into which each share of the Series A Preferred Stock is then
convertible.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the corporation including a sale or merger of the Company, as
defined, the holders of the Series A Preferred Stock then outstanding will be
entitled to be paid an amount equal to $6.00 per share, adjusted for certain
dilutive events, as defined, plus any dividends declared but unpaid on such
shares prior to any payment to common stockholders.
F-20
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
Redemption Rights
The Company will be required to redeem, subject to certain conditions, on
October 7, 2004, October 7, 2005 and October 7, 2006, each a (Mandatory
Redemption Date), the percentage of Series A Preferred Stock, as listed in the
following table at a price equal to $6.00 per share plus any dividends declared
but unpaid from the original issue date to the mandatory redemption date per
share.
<TABLE>
<CAPTION>
Portion of Shares of
Mandatory Preferred Stock to be
Redemption Date Redeemed
--------------- -------------------------
<S> <C>
October 7, 2004 33%
October 7, 2005 50%
October 7, 2006 All outstanding shares of
Series A Preferred Stock
</TABLE>
(13) Subsequent Event
On November 9, 1999, the Company's Board of Directors approved an increase
in the Company's authorized common stock to 50,000,000 shares, approved the
1999 Employee Stock Purchase Plan, pursuant to which 750,000 shares will be
authorized for issuance, and approved the 1999 Director Stock Option Plan,
pursuant to which 200,000 shares will be authorized for issuance. The increase
in authorized common stock and the approval of the 1999 Employee Stock Purchase
Plan are subject to completion of an initial public offering.
F-21
<PAGE>
<PAGE>
[C-BRIDGE LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the estimated underwriting discounts
and commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 13,900
NASD filing fee............................................... 5,500
Nasdaq National Market listing fee............................ 95,000
Blue Sky fees and expenses.................................... 10,000
Transfer Agent and Registrar fees............................. 10,000
Accounting fees and expenses.................................. 200,000
Legal fees and expenses....................................... 400,000
Printing and mailing expenses................................. 125,000
Miscellaneous................................................. 140,600
----------
Total....................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such
II-1
<PAGE>
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the
defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since October 1996. Further
included is the consideration, if any, received by the Registrant for such
shares and options and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed.
1. On October 30, 1996, the Registrant issued 10,000,000 shares of common
stock to four founders for an aggregate purchase price of $1,000
($0.0001 per share).
2. On September 9, 1997, the Registrant issued a warrant to purchase
46,727 shares of common stock at an exercise price of $1.00 per share
to SSB Investments, Inc.
3. On May 1, 1998, the Registrant issued warrants to three accredited
investors, Charles Gustin, Ronald Guerriero and Cambridge Samsung
Partners, LLC, to purchase 333,334 shares of common stock at an
exercise price of $.30 per share in connection with short-term
financing.
4. On May 20, 1998, the Registrant issued 280,000 shares of common stock
to an accredited investor, Quantum Global, Ltd., in exchange for a note
receivable in the amount of $84,000.
5. On May 22, 1998, the Registrant issued a warrant to an accredited
investor, Samsung Corporation, to purchase 110,000 shares of common
stock at an exercise price of $1.00 based upon achievement of certain
revenues-related milestones.
6. On June 1, 1998, the Registrant issued a warrant to SSB Investments,
Inc. to purchase 25,000 shares of common stock at an exercise price of
$1.00 per share in connection with a line of credit.
II-2
<PAGE>
7. On July 31, 1998, in connection with entering into a capital lease in
July 1998, the Registrant issued a warrant to the lessor to purchase
93,333 shares of common stock at an exercise price of $.30 per share.
8. On August 3, 1998, in connection with the extension of a bridge
financing, the Registrant issued warrants to purchase 111,110 shares of
common stock at an exercise price of $.30 per share to three accredited
investors.
9. On September 29, 1998, the Registrant issued a warrant to Silicon
Valley Bank to purchase 65,000 shares of common stock at an exercise
price of $1.00 per share in connection with a line of credit.
10. On October 27, 1998, the Registrant issued 201,931 shares of common
stock to one accredited investor, Cambridge Samsung Partners, LLC, upon
the conversion of short-term financing for an aggregate purchase price
of $61,000, or $0.30 per share.
11. On May 20, 1998, and September 28, 1998, the Registrant issued 5,000
and 45,000 shares respectively, of common stock in the form of stock
bonuses to employees. The Registrant received no consideration from
these employees for these issuances.
12. On June 9, 1999, the Registrant issued 333,333 shares of common stock
to one accredited investor, Raymond J. Lane, for an aggregate purchase
price of $2,000,000, or $6.00 per share.
13. In October 1999, the Registrant issued 1,645,555 shares of series A
convertible preferred stock to five accredited investors for $6.00 per
share, for an aggregate purchase price of approximately $9.9 million.
The Registrant began negotiations with potential investors in early
August 1999, and a term sheet was executed by InSight Capital Partners
and the Registrant on September 10, 1999. The investment in the
Registrant by H&D Investments 97 and entities affiliated with Insight
Capital Partners was closed on October 7, 1999, and all funds for the
investment by Oracle Corporation were received by October 14, 1999.
14. The Registrant from time to time has granted stock options to
employees, directors and consultants in reliance upon exemptions from
registration pursuant to either (i) issuances to accredited investors
in private placements pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), or (ii) issuances to
employees, directors and consultants for services pursuant to Rule 701
promulgated under the Securities Act. The following table sets forth
certain information regarding such grants:
<TABLE>
<CAPTION>
Number of Exercise
Shares Prices
--------- -----------
<S> <C> <C>
January 1, 1997 to December 31, 1997................. 1,611,000 $0.01-$0.30
January 1, 1998 to December 31, 1998................. 3,212,128 $0.30
January 1, 1999 to March 31, 1999.................... 2,000,100 $0.30
April 1, 1999 to June 30, 1999....................... 1,508,500 $0.30-$1.00
July 1, 1999 to September 30, 1999................... 1,050,250 $1.00-$6.00
October 1, 1999 to November 4, 1999.................. 547,000 $6.00-$8.50
</TABLE>
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from the Securities Act registration
requirements set forth in Sections 3(b) and 4(2) of the Securities Act, or any
regulations promulgated thereunder, relating to sales by an issuer not
involving any public offering, or (ii) in the case of certain options to
purchase shares of common stock and shares of common stock issued upon the
exercise of such options, such offers and sales were made in reliance upon an
exemption from registration under Rule 701 of the Securities Act.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Registrant, as amended.
3.2+ Second Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately prior to the closing of
this offering.
3.3+ By-Laws of the Registrant, as amended.
3.4+ Amended and Restated By-Laws of the Registrant, to be effective
immediately after the closing of this offering.
4.1+ Specimen common stock certificate.
5.1 Opinion of Hale and Dorr LLP.
10.1+ Outsourcing Agreement, dated October 8, 1999, by and among CEE
Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.2+ Non-Competition Agreement, dated September 27, 1999, by and among
CEE Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.3+ 1997 Stock Incentive Plan, as amended.
10.4+ 1999 Stock Incentive Plan.
10.5+ Employment Offer Letter, dated January 5, 1999, to Joseph M.
Bellini from the Registrant.
10.6+ Commercial Building Lease, dated May 1, 1999, by and between
Property Management Partners, Inc. and the Registrant.
10.7+ Stock Purchase Agreement, dated as of June 9, 1999, by and between
Raymond J. Lane and the Registrant.
10.8+ Series A Convertible Preferred Stock Purchase Agreement, dated as
of October 7, 1999, by and among InSight Capital Partners III,
L.P., InSight Capital Partners (Cayman) III, L.P., InSight Capital
Partners III--Co-Investors, L.P., H&D Investments 97, Oracle
Corporation and the Registrant.
10.9+ Stockholders Voting Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation, Cambridge Technology
Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as
Trustee of the Winsor Trust, Hamilton Trust Company Limited, as
Trustee of the Willingdon Trust, Joseph M. Bellini, Richard O.
Wester and the Registrant.
10.10+ Investor Rights Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation and the Registrant.
10.11+ Right of First Offer and Co-Sale Agreement, dated as of October 7,
1999, by and among Hamilton Trust Company Limited, as Trustee of
the Willingdon Trust, Cambridge Technology Enterprises, Limited,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust, InSight Capital Partners III, L.P., InSight Capital
Partners (Cayman) III, L.P., InSight Capital Partners III--Co-
Investors, L.P., H&D Investments 97, Oracle Corporation and the
Registrant.
10.12+ Registration Rights Letter, dated October 7, 1999, to Hamilton
Trust Company Limited, as Trustee of the Willingdon Trust,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust and Cambridge Technology Enterprises, Limited from the
Registrant.
10.13+ 1999 Director Stock Option Plan.
10.14+ 1999 Employee Stock Purchase Plan.
10.15+ Loan Security Agreement dated as of September 29, 1998, and as
amended by a Loan Modification Agreement dated as of January 27,
1999, a Second Loan Modification Agreement dated as of April 7,
1999 and a Third Loan Modification Agreement dated as of September
29, 1999 by and between Silicon Valley Bank and the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
24+ Power of Attorney.
27+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts Allowance for Doubtful
Accounts
<TABLE>
<CAPTION>
Additions
Balance at (Charged to
Beginning of Costs and Balance at
Year Ended Period Expenses) Deductions End of Period
- ---------- ------------ ----------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1997............. -- $18,500 1,774 $16,726
December 31, 1998............. $16,726 20,000 6,224 $30,502
September 30, 1999............ $30,502 33,342 -- $63,844
</TABLE>
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Consolidated
Financial Statements or Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Cambridge,
Massachusetts, on this 10th day of December, 1999.
C-BRIDGE INTERNET SOLUTIONS, INC.
/s/ Joseph M. Bellini
By: _________________________________
Joseph M. Bellini,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities held on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph M. Bellini* President, Chief Executive December 10, 1999
______________________________________ Officer and Director
Joseph M. Bellini (Principal Executive
Officer)
/s/ Richard O. Wester Vice President, Finance, December 10, 1999
______________________________________ Chief Financial Officer
Richard O. Wester and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Joseph L. Badaracco, Jr.* Director December 10, 1999
______________________________________
Joseph L. Badaracco, Jr.
/s/ Paul R. Charron* Director December 10, 1999
______________________________________
Paul R. Charron
/s/ Gerard F. King, II* Director December 10, 1999
______________________________________
Gerard F. King, II
/s/ Raymond J. Lane* Director December 10, 1999
______________________________________
Raymond J. Lane
/s/ Ramanan Raghavendran* Director December 10, 1999
______________________________________
Ramanan Raghavendran
</TABLE>
/s/ Joseph E. Mullaney III
*By: ____________________________
Joseph E. Mullaney III
As Attorney-In-Fact
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To C-bridge Internet Solutions, Inc:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of C-bridge Internet Solutions, Inc.
included in this registration statement and have issued our report thereon
dated October 28, 1999. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item 16(b)
is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and
is not a part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein, in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
_____________________________________
Boston, Massachusetts
October 28, 1999
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Registrant, as amended.
3.2+ Second Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately prior to the closing of
this offering.
3.3+ By-Laws of the Registrant, as amended.
3.4+ Amended and Restated By-Laws of the Registrant, to be effective
immediately after the closing of this offering.
4.1+ Specimen common stock certificate.
5.1 Opinion of Hale and Dorr LLP.
10.1+ Outsourcing Agreement, dated October 8, 1999, by and among CEE
Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.2+ Non-Competition Agreement, dated September 27, 1999, by and among
CEE Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.3+ 1997 Stock Incentive Plan, as amended.
10.4+ 1999 Stock Incentive Plan.
10.5+ Employment Offer Letter, dated January 5, 1999, to Joseph M.
Bellini from the Registrant.
10.6+ Commercial Building Lease, dated May 1, 1999, by and between
Property Management Partners, Inc. and the Registrant.
10.7+ Stock Purchase Agreement, dated as of June 9, 1999, by and between
Raymond J. Lane and the Registrant.
10.8+ Series A Convertible Preferred Stock Purchase Agreement, dated as
of October 7, 1999, by and among InSight Capital Partners III,
L.P., InSight Capital Partners (Cayman) III, L.P., InSight Capital
Partners III--Co-Investors, L.P., H&D Investments 97, Oracle
Corporation and the Registrant.
10.9+ Stockholders Voting Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation, Cambridge Technology
Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as
Trustee of the Winsor Trust, Hamilton Trust Company Limited, as
Trustee of the Willingdon Trust, Joseph M. Bellini, Richard O.
Wester and the Registrant.
10.10+ Investor Rights Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation and the Registrant.
10.11+ Right of First Offer and Co-Sale Agreement, dated as of October 7,
1999, by and among Hamilton Trust Company Limited, as Trustee of
the Willingdon Trust, Cambridge Technology Enterprises, Limited,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust, InSight Capital Partners III, L.P., InSight Capital
Partners (Cayman) III, L.P., InSight Capital Partners III--Co-
Investors, L.P., H&D Investments 97, Oracle Corporation and the
Registrant.
10.12+ Registration Rights Letter, dated October 7, 1999, to Hamilton
Trust Company Limited, as Trustee of the Willingdon Trust,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust and Cambridge Technology Enterprises, Limited from the
Registrant.
10.13+ 1999 Director Stock Option Plan.
10.14+ 1999 Employee Stock Purchase Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.15+ Loan Security Agreement dated as of September 29, 1998, as amended
by a Loan Modification Agreement dated as of January 27, 1999, a
Second Loan Modification Agreement dated as of April 7, 1999 and a
Third Loan Modification Agreement dated as of September 29, 1999
by and between Silicon Valley Bank and the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1).
24+ Power of Attorney.
27+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
<PAGE>
Exhibit 1.1
UNDERWRITING AGREEMENT
December __, 1999
BancBoston Robertson Stephens Inc.
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
INTRODUCTORY. C-bridge Internet Solutions, Inc. a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 4,000,000 shares (the "Firm
Shares") of its common stock, par value $0.01 per share (the "Common Shares").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 600,000 Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares." BancBoston Robertson
Stephens Inc., SG Cowen Securities Corporation and SoundView Technology Group,
Inc. have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-89069) that contains a form of prospectus to be used in connection with the
public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus". All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as follows:
<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission. Each preliminary prospectus and the Prospectus when filed complied
in all material respects with the Securities Act and was identical to the copy
thereof delivered to the Underwriters for use in connection with the offer and
sale of the Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and did not and will not contain any
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.
The Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement that have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has delivered
to the Representatives three complete conformed copies of the Registration
Statement and of each consent and certificate of experts filed as a part
thereof, and conformed copies of the Registration Statement (without exhibits)
and preliminary prospectuses and the Prospectus, each as amended or supplemented
to date, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
2
<PAGE>
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no persons
with registration or other similar rights to have any equity or debt securities
registered for sale under the Registration Statement or included in the offering
contemplated by this Agreement, except for such rights as have been duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change in the condition, financial or otherwise, or in the earnings,
business, operations or prospects, whether or not arising from transactions in
the ordinary course of business, of the Company and its subsidiary, C-bridge
Packaged Solutions, Inc. (the "Subsidiary"), considered as one entity (any such
change or effect, where the context so requires, is called a "Material Adverse
Change" or a "Material Adverse Effect"); (ii) the Company and the Subsidiary,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or the Subsidiary
on any class of capital stock or repurchase or redemption by the Company or the
Subsidiary of any class of capital stock.
(h) Independent Accountants. Arthur Andersen LLP, who have expressed their
opinion with respect to the consolidated financial statements (which term as
used in this Agreement includes the related notes thereto) and the supporting
schedule filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The consolidated financial
statements filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial position of
the Company and the Subsidiary as of and at the dates indicated and the results
of their operations and cash flows for the periods specified. The supporting
schedule included in the Registration Statement presents fairly in all material
respects the information required to be stated therein. Such consolidated
financial statements and supporting schedule have been prepared in conformity
with generally accepted accounting principles as applied in the United States,
which principles have been applied on a consistent basis throughout the periods
involved except as may be expressly stated in the notes to such financial
statements or supporting schedule. No other financial statements or supporting
schedules are required to be included in the Registration Statement. The
financial data set forth in the Prospectus under the captions "Summary--Summary
Consolidated Financial Data," "Selected Consolidated Financial Data" and
"Capitalization" fairly present in all material respects the information set
forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(j) Company's Accounting System. The Company and the Subsidiary maintain a
system of 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
3
<PAGE>
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in 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.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the Subsidiary.
(l) Incorporation and Good Standing of the Company and the Subsidiary. Each
of the Company and the Subsidiary has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction in
which it is organized with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction listed on Exhibit A hereto, and the Company's
failure to be so qualified or be in good standing in any other jurisdictions
could not reasonably be expected to have a Material Adverse Effect.
(m) Capitalization of the Subsidiary. All the outstanding shares of capital
stock of the Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiary are owned
by the Company either directly or through the Subsidiary free and clear of any
security interests, claims, liens or encumbrances.
(n) No Prohibition on Subsidiary from Paying Dividends or Making Other
Distributions. The Subsidiary is not currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on the Subsidiary's capital stock, from repaying to the Company any
loans or advances to the Subsidiary from the Company or from transferring any of
the Subsidiary's property or assets to the Company, except as described in or
contemplated by the Prospectus.
(o) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization," other than for subsequent issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon exercise
of outstanding options or warrants described in the Prospectus. The Common
Shares, including the Shares, conform in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable, and have been issued in compliance with federal
and state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company or the
Subsidiary other than those described in the Prospectus. The description of the
Company's stock option and stock purchase plans, and the options or other rights
granted thereunder, set forth in the Prospectus accurately and fairly presents
in all material respects the information required to be shown with respect to
such plans, options and rights.
(p) Stock Exchange Listing. The Shares have been approved for quotation on
the Nasdaq National Market, subject only to official notice of issuance.
4
<PAGE>
(q) No Consents, Approvals or Authorizations Required. No consent, approval,
authorization, filing with or order of any court or governmental agency or
regulatory body is required in connection with the transactions contemplated
herein, except such as have been obtained or made under the Securities Act and
such as may be required (i) under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Shares by the Underwriters
in the manner contemplated here and in the Prospectus, (ii) by the National
Association of Securities Dealers, Inc. (the "NASD") and (iii) by the federal
and provincial laws of Canada.
(r) Non-Contravention of Existing Instruments and Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or the Subsidiary
pursuant to, (i) the charter or by-laws of the Company or the Subsidiary, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or the Subsidiary is a party or bound or to
which its or their property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or the
Subsidiary of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company, the
Subsidiary or any of their respective properties, which conflict, breach or
violation could reasonably be expected to have a Material Adverse Effect.
(s) No Defaults or Violations. Neither the Company nor the Subsidiary is in
violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or the Subsidiary or any of
their respective properties, as applicable, except any such violation or default
that would not, singly or in the aggregate, have a Material Adverse Effect
except as otherwise disclosed in the Prospectus.
(t) No Actions, Suits or Proceedings. Except as otherwise disclosed in the
Prospectus, no action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company, the
Subsidiary or their respective properties is pending or, to the best knowledge
of the Company, threatened that (i) could reasonably be expected to have a
Material Adverse Effect on the performance of this Agreement or the consummation
of any of the transactions contemplated hereby or (ii) could reasonably be
expected to result in a Material Adverse Effect.
(u) All Necessary Permits, Etc. Except as otherwise disclosed in the
Prospectus, the Company and the Subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, except where the failure to secure such certificates, authorizations
or permits could not reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor the Subsidiary has received any notice of
proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit that, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
5
<PAGE>
(v) Title to Properties. Except as otherwise disclosed in the Prospectus,
each of the Company and the Subsidiary has good and marketable title to all the
properties and assets reflected as owned in the consolidated financial
statements referred to in Section 1(i) above (or elsewhere in the Prospectus),
in each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or the Subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or the Subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
the Subsidiary.
(w) Tax Law Compliance. The Company and the Subsidiary have filed all
necessary federal, state and foreign income and franchise tax returns or have
properly requested extensions thereof and have paid all taxes required to be
paid by any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them, except where such failure could not
reasonably result in a Material Adverse Change. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company or
the Subsidiary has not been finally determined. The Company is not aware of any
tax deficiency that has been or might be asserted or threatened against the
Company that could result in a Material Adverse Change.
(x) Intellectual Property Rights. Each of the Company and the Subsidiary
owns or possesses adequate rights to use all patents, patent rights or licenses,
inventions, collaborative research agreements, trade secrets, know-how,
trademarks, service marks, trade names and copyrights that are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus. The expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not reasonably be
expected to result in a Material Adverse Change that is not otherwise disclosed
in the Prospectus. The Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights that,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a Material Adverse Effect. The Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights
that, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a Material Adverse Effect. The Company and the
Subsidiary do not in the conduct of their business infringe or conflict with any
right or patent of any third party, or any discovery, invention, product or
process that is the subject of a patent application filed by any third party,
known to the Company or the Subsidiary, which infringement or conflict would
reasonably be expected to result in a Material Adverse Change.
(y) Year 2000 Preparedness. There are no issues related to the preparedness
of the Company or the Subsidiary for the Year 2000 that (i) are of a character
required to be described or referred to in the Registration Statement or
Prospectus by the Securities Act that have not been accurately described in the
Registration Statement or Prospectus or (ii) might reasonably be expected to
result in any Material Adverse Change or might materially affect their
properties, assets or rights.
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(z) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale of the Shares
of the Company.
(aa) Company Not an "Investment Company." The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of
payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(bb) Insurance. The Company and the Subsidiary are insured by insurers of
recognized financial responsibility with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for their businesses, including policies covering real and personal
property owned or leased by the Company and the Subsidiary against theft,
damage, destruction, acts of vandalism and earthquakes, general liability and
directors' and officers' liability. The Company has no reason to believe that
it or the Subsidiary will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable coverage
from similar institutions as may be necessary or appropriate to conduct its
business as now conducted and at a cost that would not result in a Material
Adverse Change.
(cc) Labor Matters. To the Company's knowledge, no labor disturbance by the
employees of the Company or the Subsidiary exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal customers that might be expected to result in
a Material Adverse Change.
(dd) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Shares to facilitate the sale or resale of the Shares.
(ee) Lock-Up Agreements. Each officer and director of the Company and each
of the other record holders of securities of the Company identified on Exhibit B
hereto has signed an agreement substantially in the form attached hereto as
Exhibit C (the "Lock-up Agreements"). The Company has provided to counsel for
the Underwriters a complete and accurate list of all securityholders of the
Company and the number and type of securities held by each securityholder. The
Company has provided to counsel for the Underwriters true, accurate and complete
copies of all of the Lock-up Agreements presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of BancBoston
Robertson Stephens Inc.
(ff) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company, the Subsidiary or any other
person required to be described in the Prospectus that have not been described
as required.
(gg) No Unlawful Contributions or Other Payments. Neither the Company nor
the Subsidiary nor, to the knowledge of the Company, any employee or agent of
the Company or the Subsidiary,
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has made any contribution or other payment to any official of, or candidate for,
any federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.
(hh) ERISA Compliance. The Company, the Subsidiary and any "employee benefit
plan" (as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, the
Subsidiary or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or the Subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or the Subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
the Subsidiary or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company, the Subsidiary or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have any
"amount of unfounded benefit liabilities" (as defined under ERISA). Neither the
Company, the Subsidiary nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any material liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "employee benefit plan"
or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit
plan" established or maintained by the Company, the Subsidiary or any of their
ERISA Affiliates that is intended to be qualified under Section 401(a) of the
Code is so qualified and nothing has occurred, whether by action or failure to
act, that would cause the loss of such qualification, except where the failure
to maintain such qualification would not have a Material Adverse Effect.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth opposite their names on Schedule A. The purchase price
per Firm Share to be paid by the several Underwriters to the Company shall be
$___ per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 9 A.M., Boston time, at the offices of Hale and Dorr llp, 60
State Street, Boston, Massachusetts (or at such other place as may be agreed
upon between the Representatives and the Company), (i) on the third full
business day following the first day that Shares are traded, (ii) if this
Agreement is executed and delivered after 4:30 P.M., Boston time, the fourth
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein
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called the "Closing Date"; provided, however, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later that two full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of 600,000 Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option
granted hereunder is for use by the Underwriters solely in covering any over-
allotments in connection with the sale and distribution of the Firm Shares. The
option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer of same-day funds to an account specified by the Company.
It is understood that the Representatives have been authorized, for their
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Shares and
any Option Shares the Underwriters have agreed to purchase. BancBoston
Robertson Stephens Inc., individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Shares to
be purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also
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deliver, or cause to be delivered a credit representing the Option Shares the
Underwriters have agreed to purchase at the First Closing Date (or the Second
Closing Date, as the case may be), to an account or accounts at The Depository
Trust Company as designated by the Representatives for the accounts of the
Representatives and the several Underwriters, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 3 P.M.,
Boston time, on the second business day following the date the Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the Representatives
and counsel for the Underwriters in endeavoring to qualify the Shares for sale
under the securities laws of such jurisdictions (both national and foreign) as
the Representatives may reasonably have designated in writing and will make such
applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any
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jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such statements,
reports and other documents, as are or may be required to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The Company
agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain directors' and officers'
liability insurance in the minimum amount of $10,000,000 that shall apply to the
offering contemplated hereby [and (ii) cause BancBoston Robertson Stephens Inc.
to be added as an additional insured to such policy in respect of the offering
contemplated hereby].
(g) Notice of Subsequent Events. If at any time during the ninety-day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the sale
of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its expense, a
registrar and transfer agent for the Common Shares.
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(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending December 31, 2000 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the Prospectus, offer, sell or
contract to sell, or otherwise dispose of or enter into any transaction that is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option or purchase plan of the Company in effect at
the date of the Prospectus and described in the Prospectus so long as none of
those shares may be transferred during the period of 180 days from the date that
the Registration Statement is declared effective (the "Lock-Up Period") and the
Company shall enter stop transfer instructions with its transfer agent and
registrar against the transfer of any such Common Shares; (ii) issue Common
Shares issuable upon the conversion of securities or the exercise of warrants
outstanding at the date of the Prospectus and described in the Prospectus; and
(iii) issue up to 2,000,000 Common Shares in connection with a merger or
acquisition transaction, provided that the recipients of such Common Shares
enter into binding agreements substantially in the form of Exhibit C attached
hereto.
(m) Future Reports to the Representatives. During the period of five years
hereafter the Company will furnish to the Representatives: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
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(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the NASD. The Registration Statement shall have become effective prior to
the execution of this Agreement, or at such later date as shall be consented to
in writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of Underwriters' Counsel;
and the NASD shall have raised no objection to the fairness and reasonableness
of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal matters
in connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery of
this Agreement and prior to the First Closing Date, or the Second Closing Date,
as the case may be, there shall not have been any change that, in your sole
judgment, is material and adverse and makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the First
Closing Date or the Second Closing Date, as the case may be, an opinion of Hale
and Dorr LLP, counsel for the Company, as to the matters identified on Exhibit D
attached hereto, dated the First Closing Date or the Second Closing Date,
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit D may rely as to
questions of law not involving the laws of the United States or the Commonwealth
of Massachusetts or the General Corporation Law of the State of Delaware upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received on the
First Closing Date or the Second Closing Date, as the case may be, an opinion of
Foley, Hoag & Eliot LLP, counsel for the Underwriters, as to the matters
identified on Exhibit E attached hereto, dated the First Closing Date or the
Second Closing Date, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters. The Company shall
have furnished to such counsel such documents as they may have requested for the
purpose of enabling them to pass upon such matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
Arthur Andersen LLP addressed to the Underwriters, dated the First Closing Date
or the Second Closing Date, confirming that they are
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independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four business days prior to
the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
that are necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not disclose
any change in the condition (financial or otherwise), earnings, operations or
business of the Company and the Subsidiary considered as one enterprise from
that set forth in the Registration Statement or Prospectus, that, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Arthur Andersen LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Securities Act and the applicable published
Rules and Regulations, (ii) set forth their opinion with respect to their
examination of the consolidated balance sheets of the Company as of December 31,
1997 and 1998 and the nine months ended September 30, 1999 and related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1997 and 1998 and the nine months ended September
30, 1999, and address other matters agreed upon by Arthur Andersen LLP and you.
In addition, you shall have received from Arthur Andersen LLP a letter addressed
to the Company and made available to you for the use of the Underwriters stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's consolidated financial statements as of September 30, 1999, did
not disclose any weaknesses in internal controls that they considered to be
material weaknesses.
(g) Officers' Certificate. You shall have received on the First Closing Date
and the Second Closing Date, as the case may be, a certificate of the Company,
dated the First Closing Date or the Second Closing Date, as the case may be,
signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that each of them severally represents, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and, to his knowledge, no proceedings for that
purpose have been instituted or are pending or threatened under the
Securities Act.
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to
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be included therein by the Securities Act and in all material respects
conformed to the requirements of the Securities Act, the Registration
Statement and the Prospectus, and any amendments or supplements thereto, did
not and does not include any 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; and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth
in an amended or supplemented Prospectus that has not been so set forth.
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
Material Adverse Change, (b) any transaction that is material to the Company
and the Subsidiary considered as one enterprise, except transactions entered
into in the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and the Subsidiary considered as
one enterprise, incurred by the Company or the Subsidiary, except obligations
incurred in the ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company or the Subsidiary, except
for the issuance of shares pursuant to the exercise of warrants and stock
options described in the Prospectus, that is material to the Company and the
Subsidiary considered as one enterprise, (e) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company or the
Subsidiary, or (f) any loss or damage (whether or not insured) to the
property of the Company or the Subsidiary that has been sustained or will
have been sustained that has a Material Adverse Effect.
(h) Lock-up Agreements from Certain Stockholders of the Company. The Company
shall have obtained and delivered to you an agreement substantially in the form
of Exhibit C attached hereto from each person and entity identified on Exhibit B
hereto has agreed to sign an agreement.
(i) Stock Exchange Listing. The Shares shall have been approved for
quotation on the Nasdaq National Market, subject only to official notice of
issuance.
(j) Compliance with Prospectus Delivery Requirements. The Company shall have
complied with the provisions of Sections 2(g) and 3(e) hereof with respect to
the furnishing of Prospectuses.
(k) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
15
<PAGE>
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
(i) all expenses incident to the issuance and delivery of the Common Shares
(including all printing and engraving costs), (ii) all fees and expenses of the
registrar and transfer agent of the Common Shares, (iii) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale of the
Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all reasonable filing fees,
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, (ix) all costs and expenses incident to the
preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to in
Item 13 of Part II of the Registration Statement. The Underwriters shall pay
their own expenses, including the fees and disbursements of their counsel,
except in each case as provided in this Section 5 or in Section 6 or 7 hereof.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, 7, 8 or 9, or if the
sale to the Underwriters of the Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Shares,
including fees and disbursements of counsel, printing expenses, travel expenses,
postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters. The Company agrees to indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or
16
<PAGE>
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law; or (v) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby, and
that is included as part of or referred to in any loss, claim, damage, liability
or action arising out of or based upon any matter covered by clause (i), (ii),
(iii) or (iv) above, provided that the Company shall not be liable under this
clause (v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling person
for any and all expenses (including the fees and disbursements of counsel chosen
by BancBoston Robertson Stephens Inc.) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact
17
<PAGE>
contained in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or arises out of or is
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 the Registration Statement, any preliminary prospectus, the Prospectus (or
any amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use therein; and to reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The indemnity agreement set forth in this
Section 7(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the second, third and last paragraphs under
the caption "Underwriting" in the Prospectus; and the Underwriters confirm that
such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability that
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of
18
<PAGE>
Section 7(b) and Section 8), representing the indemnified parties who are
parties to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding 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.
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party 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 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 that resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter 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 bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company 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 Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 7(f) were
19
<PAGE>
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to above in this Section 7(f).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 7(f) 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 (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims, damages,
liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgments of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including the
provisions of this Section 7, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Securities Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed ten percent of the aggregate
number of the Shares to be purchased on such date, the other Underwriters shall
be obligated, severally, in the proportions that the number of Firm Common
Shares set forth opposite their respective names on Schedule A bears to the
----------
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares that such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case
20
<PAGE>
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares and the aggregate number of Shares with respect to which such default
occurs exceeds ten percent of the aggregate number of Shares to be purchased on
such date, and arrangements satisfactory to the Representatives and the Company
for the purchase of such Shares are not made within 48 hours after such default,
this Agreement shall terminate without liability of any party to any other party
except that the provisions of Sections 5 and 7 shall at all times be effective
and shall survive such termination. In any such case either the Representatives
or the Company shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, but in no event for longer than seven
days in order that the required changes, if any, to the Registration Statement
and the Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to include
any person substituted for a defaulting Underwriter under this Section 8. Any
action taken under this Section 8 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective change in
United States' or international political, financial or economic conditions, as
in the judgment of the Representatives is material and adverse and makes it
impracticable or inadvisable to market the Common Shares in the manner and on
the terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the reasonable judgment of the Representatives there shall
have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 9 shall be without liability on the part of (a) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 5 and 6 hereof, (b) any Underwriter to the Company, or (c) of any party
hereto to any other party except that the provisions of Section 7 shall at all
times be effective and shall survive such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
21
<PAGE>
SECTION 11. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives: BancBoston Robertson Stephens Inc.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company: C-bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02139
Facsimile: (617) 528-1777
Attention: President and Chief Executive Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder.
The term "successors" shall not include any purchaser of the Shares as such from
any of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS. This agreement shall be governed by
and construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in such state.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement. The word
"including" as used herein shall not be construed so as to exclude any other
thing not referred to or described.
* * *
22
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
C-bridge Internet Solutions, Inc.
By:___________________________________
President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representatives as of the date first above written.
BancBoston Robertson Stephens Inc.
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
On their behalf and on behalf of each of the several
Underwriters named in Schedule A hereto.
----------
By: BancBoston Robertson Stephens Inc.
By:_________________________________
Authorized Signatory
23
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ----------
<S> <C>
BancBoston Robertson Stephens Inc. and
BancBoston Robertson Stephens International Limited..................................
SG Cowen Securities Corporation........................................................
SoundView Technology Group, Inc........................................................
---------
Total............................................................................... 4,000,000
=========
</TABLE>
<PAGE>
EXHIBIT A
LIST OF FOREIGN JURISDICTIONS
A-1
<PAGE>
EXHIBIT C
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
As Lead Representative of the Several Underwriters
555 California Street, Suite 2600
San Francisco, California 94104
Re: C-Bridge Internet Solutions, Inc. (the "Company")
-------------------------------------------------
Ladies and Gentlemen:
The undersigned owns of record or beneficially certain shares of Common Stock
of the Company ("Common Stock") or securities convertible into, or exchangeable
or exercisable for, Common Stock. The Company proposes to carry out a public
offering of Common Stock (the "Offering") for which BancBoston Robertson
Stephens Inc. will act as the lead representative of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that BancBoston Robertson
Stephens Inc. and the other underwriters are relying on the representations and
agreements of the undersigned contained in this letter in carrying out the
Offering and in entering into underwriting arrangements with the Company with
respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock, or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (a) as a bona fide
gift or gifts, provided that the donee or donees thereof agree in writing to be
bound by this restriction, (b) as a distribution to partners or shareholders of
such person, provided that the distributees thereof agree in writing to be bound
by the terms of this restriction, (c) with respect to Dispositions of Common
Stock acquired on the open market, or (d) with the prior written consent of
BancBoston Robertson Stephens Inc., for a period commencing on the date hereof
and continuing to a date 180 days after the date on which the Registration
Statement is declared effective by the Securities and Exchange Commission (the
"Lock-up Period"). The foregoing restriction has been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction that is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions include, without limitation, any short sale (whether or
not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that included, relates to or derives any significant part of its value from
Securities. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of Securities held by the undersigned except in compliance with the
foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned. This letter agreement
C-1
<PAGE>
shall terminate and be of no further force and effect upon a decision by
BancBoston Robertson Stephens Inc. or the Company not to proceed with the
Offering.
Dated: __________________, 1999
______________________________________
[Printed Name of Holder]
By:___________________________________
Printed Name of Person Signing (and indicate
capacity of person signing if signing as
custodian, trustee, or on behalf of an
entity)
C-2
<PAGE>
EXHIBIT D
Matters to be Covered in the Opinion of Company Counsel
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus.
(3) The Company is duly qualified to do business as a foreign corporation and
is in good standing in the states listed on Exhibit A to this Agreement. To
such counsel's knowledge, the Company does not own, directly or indirectly,
shares of capital stock, or other equity interests in, any corporation,
association or other entity other than the Subsidiary.
(4) The authorized, issued and (of record) outstanding capital stock of the
Company was as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein. The issued and outstanding shares of capital stock
of the Company have been duly and validly issued, are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right of stockholders which
exists with respect to any of the Shares, except for such rights as have been
duly waived.
(5) The Firm Shares or the Option Shares, as the case may be, have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and, to such counsel's knowledge, will not have been issued
in violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right of stockholders which
exists with respect to any of the Shares, except for such rights as have been
duly waived.
(6) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder.
(7) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company.
(8) The Registration Statement has become effective under the Securities
Act. To such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Securities Act.
(9) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act. The 8-A Registration
Statement has become effective under the Exchange Act. The Firm Shares or the
Option Shares, as the case may be, have been validly registered under the
Securities Act and the Exchange Act and the applicable rules and regulations of
the Commission thereunder.
(10) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements, supporting schedule,
and financial and statistical data derived therefrom, or information relating to
the Underwriters, or the method of distribution of Shares by the Underwriters
included therein, as to which such counsel need express no opinion),
D-1
<PAGE>
as of the effective date of the Registration Statement, complied as to form in
all material respects with the requirements of the Act and the applicable Rules
and Regulations.
(11) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary in all
material respects of such matters and conclusions. The form of certificates
evidencing the Common Shares and filed as an exhibit to the Registration
Statement complies with the Delaware General Corporation Law statute.
(12) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of the Delaware General Corporation Law
statute is accurate and fairly presents in all material respects the information
required to be presented by the Securities Act.
(13) To such counsel's knowledge, there are no agreements, contracts, leases
or documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement that are not described or
referred to therein or filed as required.
(14) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any agreement or instrument filed as an exhibit to the Registration Statement or
any applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree specifically naming the Company
of any court, government or governmental agency or body having jurisdiction over
the Company or the Subsidiary, or over any of their properties or operations.
(15) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company or the Subsidiary, or over any of their properties or operations, is
necessary in connection with the consummation by the Company of the transactions
herein contemplated, except (a) such as have been obtained under the Securities
Act and the Exchange Act, (b) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters, (c) such as may be required by the NASD and
(iv) such as may be required under the federal or provincial laws of Canada.
(16) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or the Subsidiary that are
required to be disclosed in the Registration Statement or the Prospectus by the
Securities Act, other than those described therein.
(17) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus, no holders of any securities of the Company have
registration rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of such shares
of Company Shares or other securities, because of the filing of the Registration
Statement by the Company, have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
D-2
<PAGE>
(18) The Company is not and, after giving effect to the offering and the sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
Such counsel's opinion shall also include a statement to the following
effect:
In connection with the preparation of the Registration Statement and the
Prospectus, such counsel has participated in conferences with officers and
representatives of the Company, counsel for the Underwriters and the independent
accountants of the Company, at which conferences such counsel has made inquiries
of such persons and others and discussed the contents of the Registration
Statement and the Prospectus. While the limitations inherent in the independent
verification of factual matters and the character of determinations involved in
the registration process are such that such counsel does not pass upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, subject to
the foregoing and based on such participation, inquiries and discussions, no
facts have come to the attention of such counsel which have caused such counsel
to believe that the Registration Statement, as of the effective date of the
Registration Statement (but after giving effect to changes incorporated pursuant
to Rule 430A under the Securities Act), 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
(except that such counsel need not express any such view with respect to the
financial statements, including the notes and schedules thereto, or any other
financial or accounting information, or information relating to the Underwriters
or the method of distribution of the Shares by the Underwriters included
therein), that the Prospectus, as of the date it was filed with the Commission
pursuant to Rule 424(b)(4) under the Securities Act, contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading (except that such counsel need not express any
such view with respect to the financial statements, including the notes and
schedules thereto, or any other financial or accounting information, or
information relating to the Underwriters or the method of distribution of the
Shares by the Underwriters included therein), or that the Registration Statement
or the Prospectus, as of the date of such opinion, contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading (except that such counsel need not express any
such view with respect to the financial statements, including the notes and
schedules thereto, or any other financial information, or information relating
to the Underwriters or the method of distribution of the Shares by the
Underwriters included therein).
D-3
<PAGE>
EXHIBIT E
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
1. The Company is validly existing as a corporation in good standing under
the General Corporation Law of the State of Delaware.
2. The execution and delivery of the Underwriting Agreement have been duly
authorized by all necessary corporate action of the Company, and the
Underwriting Agreement has been duly executed and delivered by the Company.
3. The Firm Shares or Option Shares, as the case may be, to be issued by the
Company have been duly authorized by all necessary corporate action of the
Company. When those Shares are issued and delivered in accordance with the
terms of the Underwriting Agreement, they will be validly issued, fully paid and
non-assessable.
4. To our knowledge, the Registration Statement has become effective under
the Securities Act, no order suspending the effectiveness of the Registration
Statement has been issued by the Commission and no proceeding for that purpose
has been instituted or threatened by the Commission.
5. To our knowledge, the Form 8-A Registration Statement has become
effective under the Exchange Act, no order suspending the effectiveness of the
Form 8-A Registration Statement has been issued by the Commission and no
proceeding for that purpose has been instituted or threatened by the Commission.
Such counsel shall state that such counsel has reviewed the opinion addressed
to the Representatives from Hale and Dorr LLP, dated the date hereof, and
furnished to you in accordance with the provisions of the Underwriting
Agreement. Such opinion appears on its face to be appropriately responsive to
the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Company's counsel, the Representatives and the independent certified public
accountants of the Company, at which conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus:
(a) The Registration Statement (except the financial statements and other
financial and statistical data included therein, as to which such counsel
need express no view), at the time it became effective, and the Prospectus
(except as aforesaid), as of its date, appeared on their face to be
appropriately responsive in all material respects to the requirements of the
Securities Act.
(b) No information has come to the attention of such counsel that causes
such counsel to believe that the Registration Statement (except the financial
statements and other financial and statistical data included therein, as to
which such counsel need express no view), at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
E-1
<PAGE>
(c) No information has come to the attention of such counsel that causes
such counsel to believe that the Prospectus (except the financial statements
and other financial and statistical data included therein, as to which such
counsel need express no view), as of its date or the date of such opinion,
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(d) The Form 8-A Registration Statement, at the time it became effective,
appeared on its face to be appropriately responsive in all material respects
to the requirements of the Exchange Act.
E-2
<PAGE>
Exhibit 5.1
[HALE AND DORR LLP LETTERHEAD]
December 13, 1999
C-bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02139
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-89069) (as amended, the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of 4,600,000 shares of Common Stock, $0.01 par value per share (the
"Shares"), of C-bridge Internet Solutions, Inc., a Delaware corporation (the
"Company"), including 600,000 Shares issuable upon exercise of an over-allotment
option granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and BancBoston Robertson Stephens Inc., SG Cowen Securities Corporation
and SoundView Technology Group, Inc., as representatives of the several
underwriters named in the Underwriting Agreement, the form of which has been
filed as Exhibit 1.1 to the Registration Statement.
We are acting as counsel for the Company in connection with the issue and
sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to
<PAGE>
original documents of all documents submitted to us as copies, the authenticity
of the originals of such latter documents and the legal competence of all
signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of The Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we
are opining herein, we have assumed that such laws are identical to the state
laws of The Commonwealth of Massachusetts, and we are expressing no opinion
herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
December 10, 1999
