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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1999
REGISTRATION NO. 333-87311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT
NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
HARRIS INTERACTIVE INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8532 16-1538028
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code No.)
</TABLE>
135 CORPORATE WOODS
ROCHESTER, NEW YORK 14623
(716) 272-9020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GORDON S. BLACK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
135 CORPORATE WOODS
ROCHESTER, NEW YORK 14623
(716) 272-9020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
with copies to:
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<S> <C>
THOMAS E. WILLETT, ESQ. CHARLES F. NIEMETH, ESQ.
Harris Beach & Wilcox, LLP O'Melveny & Myers LLP
130 East Main Street 153 East 53rd Street, 53rd Floor
Rochester, New York 14604 New York, New York 10022-4611
(716) 232-4440 (212) 326-2000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /____
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE(1) FEE(2)
<S> <C> <C>
Common Stock, par value $.001 per share................................................. $86,250,000 $23,978
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
(2) Registration fee previously paid by Registrant.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO 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 THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1999
PROSPECTUS
SHARES
[LOGO]
HARRIS INTERACTIVE INC.
COMMON STOCK
- ----------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering shares. No public market currently exists for our shares.
We will list our shares on the Nasdaq National Market under the symbol
"HPOL." Anticipated Price Range $ to $ per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 9.
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price................................................... $ $
Underwriting Discount................................................... $ $
Proceeds to Harris Interactive.......................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
U.S. BANCORP PIPER JAFFRAY
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
, 1999
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[INTENTIONALLY OMITTED]
<PAGE>
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 9
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......................................... 29
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PAGE
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Management....................................... 43
Certain Transactions............................. 51
Principal Stockholders........................... 53
Description of Capital Stock..................... 55
Shares Eligible for Future Sale.................. 58
Underwriting..................................... 60
Legal Matters.................................... 62
Experts.......................................... 62
Change in Principal Accountants.................. 63
Available Information............................ 63
Index to Consolidated Financial Statements....... F-1
</TABLE>
ABOUT THIS PROSPECTUS
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.
SEE THE SECTION OF THIS PROSPECTUS ENTITLED "RISK FACTORS" FOR A DISCUSSION
OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON
STOCK.
Unless otherwise specifically stated, all information contained in this
prospectus:
- reflects the conversion of all of our preferred stock into common stock
upon the closing of this offering;
- reflects the filing of an amendment to our certificate of incorporation,
upon the closing of this offering, which authorizes five million shares of
undesignated preferred stock; and
- assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to "we," "our" and "us" refer to Harris
Interactive Inc., together with its subsidiaries and predecessor corporations,
unless the context otherwise requires. References in this prospectus to our
fiscal year refer to the 12-month period ended June 30 of that year.
HARRIS POLL, HARRIS INTERACTIVE and the Harris logo design are registered
marks of Harris Interactive. This prospectus also includes other trademarks,
trade names and service marks of Harris Interactive and of other parties.
Until , 1999, all dealers selling shares of the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
3
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PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO
THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
HARRIS INTERACTIVE
OUR BUSINESS
We are the leading Internet-based market research and polling firm in the
world, with the largest online panel of approximately 4.3 million unique
cooperative respondents. Known for our HARRIS POLL, we have provided our clients
with high quality products and services for over 40 years. Our extensive
Internet panel and our proprietary technology infrastructure enable us to
provide our clients with timely and cost-efficient access to the opinions,
experiences and attitudes of people worldwide. We have rapidly grown our
Internet panel, in large part, through our relationship with Excite@Home, a
leading Internet portal. We also conduct market research and polling services
utilizing traditional polling methodologies, which include direct mail,
telephone-based surveys, mall intercepts, focus groups and in-person interviews.
We believe we are the largest full service provider of Internet-based market
research and polling services, providing such services as:
- CUSTOM RESEARCH. Market research and polling conducted on an issue
specifically identified by a client;
- MULTI-CLIENT RESEARCH. Studies developed for and sold to a large number of
clients who have a similar interest in a particular subject area;
- SERVICE BUREAU RESEARCH. Market research and polling conducted for other
market research organizations; and
- CUSTOMER RELATIONSHIP SERVICES. Outsourced customer service operations for
corporations and organizations.
We provide market research and polling products and services to a broad
range of companies, non-profit organizations and governmental agencies. Our key
clients include Eastman Kodak Company, Johnson & Johnson, United Parcel Service
and Xerox Corporation.
OUR MARKET OPPORTUNITY
Companies are operating in an increasingly complex business environment,
characterized by heightened competition, globalization of product markets,
shortened product life cycles and rapidly changing consumer preferences. This
business environment has escalated the need for accurate and timely information
about the preferences, needs, purchase behavior and brand recognition of
potential and existing customers. Companies also need continuous tracking
capabilities so that they can ascertain product performance and competitive
position, monitor consumer satisfaction, measure advertising effectiveness and
determine price sensitivity.
Historically, these information-gathering and tracking functions have been
performed using traditional market research methodologies. The ability of
traditional market research methodologies to deliver accurate and objective data
rapidly is limited by high data acquisition costs, small sample sizes and the
extensive time required to perform the research. As a result, broad-based
research projects, which require a large number of survey participants, are
prohibitively costly except for companies and organizations with significant
resources. The growth and rapid adoption of the Internet is changing the
4
<PAGE>
market research and polling industry, making it possible for the first time to
survey a very broad, diverse population at low cost and at speeds that are
unattainable through any other method.
We believe that Internet-based market research and polling offers
significant advantages over traditional methodologies, including cost
efficiency, versatility, speed and productivity.
THE HARRIS ADVANTAGE
We offer a broad suite of Internet-based market research and polling
products and services to meet our clients' needs for rapid, comprehensive and
accurate information about the views, experiences and attitudes of people
worldwide. We possess several key competitive advantages that we believe will
enable us to maintain and expand our leading market position. Our key
competitive advantages include:
- THE LARGEST INTERNET PANEL. We have developed what we believe to be the
largest Internet panel in the world. Currently, our Internet panel
consists of approximately 4.3 million unique cooperative respondents, who
are individuals that have voluntarily agreed to participate in our various
online market research and polling studies. Our large and diverse Internet
panel enables us to utilize survey sizes that range from a large
representative sample of the overall population to targeted subsets and to
develop new products and services for new markets.
- PROPRIETARY TECHNOLOGY INFRASTRUCTURE. Over the past two fiscal years, we
have expended, and will continue to expend, substantial financial and
management resources in the development of our proprietary technology
infrastructure, data analysis techniques and internal systems and
procedures to capitalize on the Internet opportunity within our industry.
Our technology infrastructure is scalable, which means it can accommodate
the expansion of our business without significant modifications to our
existing system design.
- STRONG BRAND NAME/LONG STANDING CLIENT RELATIONSHIPS. We believe the
HARRIS POLL is one of the best known polls operating in the United States
today. For over 40 years, we have been recognized as providing trusted
market research products and services to a broad range of companies,
non-profit organizations and governmental agencies.
- KEY STRATEGIC RELATIONSHIPS. We have entered into several agreements and
relationships to expand and replenish our Internet panel and to develop
and promote various market research products and services. Our key
strategic relationships include those with Excite@Home, Market Facts, NBC,
Gomez Advisors and ZDNet.
OUR FOCUSED GROWTH STRATEGY
Our goal is to expand our position as the leading global Internet-based
market research and polling firm by providing high quality products and services
to our clients. Key elements of our strategy are to:
- maximize the revenue-generating capacity of our Internet panel by
increasing the size and scope of our business with existing and potential
clients;
- establish new strategic relationships worldwide to expand our online panel
rapidly and to facilitate new product development;
- further enhance our scalable, proprietary technology infrastructure;
- continue to build brand awareness of our Internet-based market research
and polling products and services; and
- seek strategic acquisitions of, or investments in, complementary
businesses, products, services or technologies.
5
<PAGE>
CORPORATE INFORMATION
We were incorporated in Delaware on July 1, 1997 under the name Harris Black
International Ltd. and later changed our name to Harris Interactive Inc. We own
all of the capital stock of Gordon S. Black Corporation, a New York corporation.
Substantially all of our operations are currently conducted through Gordon S.
Black Corporation and its wholly owned subsidiaries, GSBC Ohio Corporation, an
Ohio corporation, and Louis Harris & Associates, Inc., a New York corporation.
In 1996, we acquired substantially all of the assets, including the name, of
Louis Harris and Associates, Inc., which was founded in 1959. Our executive
offices are located at 135 Corporate Woods, Rochester, New York 14623. Our
telephone number at that address is (716) 272-9020, and our Internet address is
www.harrisinteractive.com. INFORMATION ON OUR WEBSITE DOES NOT CONSTITUTE PART
OF THIS PROSPECTUS.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY
THAT ADDRESS, AMONG OTHER THINGS:
- THE ACCEPTANCE OF INTERNET-BASED MARKET RESEARCH AND POLLING BY EXISTING
AND POTENTIAL CLIENTS;
- OUR ABILITY TO EXPAND OUR INTERNET PANEL BOTH DOMESTICALLY AND
INTERNATIONALLY;
- OUR ABILITY TO MARKET OUR MULTI-CLIENT MARKET RESEARCH PRODUCTS AND
SERVICES AND HARRIS INTERACTIVE SERVICE BUREAU RESEARCH;
- OUR ABILITY TO ESTABLISH STRATEGIC RELATIONSHIPS;
- OUR ABILITY TO CONTINUE TO DEVELOP AND IMPROVE OUR TECHNOLOGY
INFRASTRUCTURE;
- SIGNIFICANT INCREASES IN COMPETITIVE PRESSURES IN THE MARKET RESEARCH
INDUSTRY; AND
- COSTS OR DIFFICULTIES RELATING TO OUR TRANSITION FROM OUR TRADITIONAL
BUSINESS TO OUR INTERNET-BASED BUSINESS.
THESE FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE SECTIONS OF THIS
PROSPECTUS ENTITLED "PROSPECTUS SUMMARY," "RISK FACTORS," "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AND IN THIS PROSPECTUS GENERALLY. WHEN USED IN THIS
PROSPECTUS, THE WORDS "EXPECTS," "ANTICIPATES," "INTENDS," "PLANS," "BELIEVES,"
"SEEKS" AND "ESTIMATES" AND SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, AS
MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS
PROSPECTUS.
6
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THE OFFERING
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<S> <C>
Common stock offered by us................... shares
Common stock to be outstanding after the
offering................................... shares
Excludes 3,777,200 shares of common stock
issuable upon exercise of outstanding
options, 1,250,000 additional shares of
common stock that have been reserved for
issuance under our 1999 long-term incentive
plan, 500,000 additional shares of common
stock that have been reserved for issuance
under our 1999 employee stock purchase plan
and 216,608 shares of common stock that have
been reserved for issuance upon exercise of
outstanding warrants.
Use of proceeds.............................. For working capital and general corporate
purposes, including expansion of our Internet
panel, development of new technologies,
products and services, and possible strategic
acquisitions or investments. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... HPOL
</TABLE>
7
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes the audited consolidated financial
information for our business. The consolidated financial data for fiscal years
ended June 30, 1995, 1996 and 1997 reflect the results of operations of our
predecessor corporation. You should read this information together with our
audited consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus and the information under "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from services................................. $10,865 $14,625 $23,327 $26,290 $ 28,965
Cost of services....................................... 7,558 10,209 15,629 16,618 19,086
---------- ---------- ---------- ---------- ---------
Gross profit........................................... 3,307 4,416 7,698 9,672 9,879
Operating expenses:
Database development expenses........................ -- -- -- 2,753 4,505
Selling, general and administrative expenses......... 2,753 3,781 6,391 9,812 14,401
---------- ---------- ---------- ---------- ---------
Total operating expenses........................... 2,753 3,781 6,391 12,565 18,906
---------- ---------- ---------- ---------- ---------
Operating income (loss)................................ 554 635 1,307 (2,893) (9,027)
Other income (deductions).............................. 33 13 (89) (160) 180
---------- ---------- ---------- ---------- ---------
Earnings (loss) before income taxes.................... 587 648 1,218 (3,053) (8,847)
Income tax expense (benefit)........................... 250 260 490 (1,114) --
---------- ---------- ---------- ---------- ---------
Net earnings (loss).................................... 337 388 728 (1,939) (8,847)
Accrued dividends on preferred stock................... -- -- -- -- (1,176)
---------- ---------- ---------- ---------- ---------
Net earnings (loss) available to the holders of common
stock................................................ $ 337 $ 388 $ 728 $ (1,939) $(10,023)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Basic and diluted net earnings (loss) per share........ $ .03 $ .03 $ .06 $ (.16) $ (1.01)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Basic weighted average shares outstanding.............. 12,359,319 11,635,454 11,741,935 11,903,256 9,955,261
Diluted weighted average shares outstanding............ 12,426,929 11,954,551 12,371,865 11,903,256 9,955,261
</TABLE>
The following table is a summary of our consolidated balance sheet data:
- on an actual basis;
- on a pro forma basis after giving effect to the conversion of all of our
outstanding preferred stock into common stock which will occur upon the
closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares
of common stock at an assumed initial public offering price of $
per share, after deducting underwriting discounts and commissions
and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 108 $ 108 $
Working capital.............................................................. 552 552
Total assets................................................................. 14,785 14,785
Mandatory redeemable preferred stock......................................... 15,876 --
Total stockholders' equity (deficit)......................................... (8,496) 7,380
</TABLE>
8
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN THAT CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS, INCLUDING OUR AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS.
RISKS RELATED TO OUR BUSINESS
OUR GROWTH WILL DEPEND UPON THE MARKET'S ACCEPTANCE OF INTERNET-BASED MARKET
RESEARCH AND POLLING
The success of our business will depend on our ability to develop and market
products and services that achieve broad market acceptance by our current and
potential clients. These clients must accept the Internet as an attractive and
sustainable substitute medium for traditional methodologies of conducting market
research to which they are accustomed, such as direct mail, telephone-based
surveys, mall intercepts, focus groups and in-person interviews. We have
expended substantial financial and management resources in the development and
growth of our Internet-based market research and polling business. If our
current and potential clients do not accept our Internet-based market research
and polling methodologies, our revenues may not meet expectations or may
decline, and our business would likely suffer.
WE HAVE A LIMITED INTERNET-RELATED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE
US
Historically, we have provided market research and polling services
utilizing traditional methodologies. In September 1997, we began developing our
Internet panel and building the technology infrastructure to provide online
market research and polling services. In November 1997, we introduced our first
Internet-based market research and polling products and services. For fiscal
1999, we recognized $2.9 million in revenues from our Internet-based market
research and polling business, which represented approximately 10% of our total
revenues. Accordingly, we have a limited Internet-related operating history from
which you can evaluate our business and prospects. We face risks and
uncertainties relating to our ability to implement our business plan
successfully. If we are unsuccessful in addressing these risks and
uncertainties, our business, financial condition and results of operations would
likely suffer.
WE WILL NOT BE ABLE TO EXECUTE OUR BUSINESS PLAN IF THE MARKET FOR OUR
INTERNET-BASED MARKET RESEARCH AND POLLING PRODUCTS AND SERVICES DOES NOT
DEVELOP
To date, sales of our traditional market research and polling products and
services, in particular our custom research products, have accounted for a
significant portion of our revenues. For fiscal 1999, we recognized $26.1
million in revenues from our traditional market research and polling business,
which represented approximately 90% of our total revenues. However, our business
plan assumes that our Internet-based products and services will account for a
significant and growing portion of our revenues in the future. If we are
unsuccessful in implementing our business plan, our revenues would likely not
meet expectations or may decline.
WE MUST CONTINUALLY ATTRACT AND RETAIN SKILLED, TECHNICAL, MANAGERIAL,
MARKETING, SALES AND OTHER PERSONNEL OR WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY
Our future success will depend, in part, on our ability to attract, retain
and motivate highly skilled technical, managerial, marketing, sales and client
support personnel. Competition for these personnel is intense, especially in the
Internet industry, and we may be unable to attract, integrate or retain
sufficiently qualified personnel or the number of qualified personnel our
business plan assumes. We
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have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. To the extent that we are unable to
hire and retain skilled employees, our business would likely suffer.
WE RELY HEAVILY ON TWO CLIENTS FOR A SUBSTANTIAL AMOUNT OF OUR REVENUES. IF WE
WERE TO LOSE, OR IF THERE WERE A MATERIAL REDUCTION IN BUSINESS FROM, EITHER ONE
OF THESE CLIENTS, OUR BUSINESS WOULD LIKELY SUFFER
We derive a substantial portion of our total revenues from Xerox Corporation
and Johnson & Johnson. In fiscal 1999, 15% of our total revenues was derived
from Xerox Corporation and 14% of our total revenues was derived from Johnson &
Johnson. In fiscal 1998, 15% of our total revenues was derived from Xerox
Corporation and 19% of our total revenues was derived from Johnson & Johnson. In
fiscal 1997, Xerox Corporation accounted for approximately 22% of our total
revenues. We do not have long-term contracts with either one of these clients.
The loss of, or material reduction in business from, either one of these
clients, without replacement, would have a material adverse effect on our
business, financial condition and results of operations.
WE HAVE INCURRED LOSSES IN RECENT YEARS AND EXPECT TO CONTINUE TO INCUR LOSSES
FOR THE FORESEEABLE FUTURE
Over the past two fiscal years, we have expended approximately $14.3 million
to develop and maintain our Internet capabilities, comprising approximately $7.3
million to develop our Internet panel and approximately $7.0 million to develop
and maintain our technology infrastructure. As a result, we incurred net losses
of $8.8 million in fiscal 1999 and $1.9 million in fiscal 1998, and we have a
stockholders' deficit of $8.5 million as of June 30, 1999. Given the level of
our planned operating expenditures, we expect to continue to incur losses for
the foreseeable future. Furthermore, we base current and future expense levels
on our operating plans and our estimates of future revenues. If our revenues
grow at a slower rate than we anticipate, or if our spending levels exceed our
expectations or cannot be adjusted to reflect slower revenue growth, we may not
be able to achieve profitability. Even if we achieve profitability in the
future, we may be unable to sustain or increase profitability on a quarterly or
annual basis.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE
Our operating results have in the past and may in the future fluctuate
significantly from quarter to quarter. Our operating results are difficult to
forecast given our limited operating history in Internet-based market research
and polling. In some future periods, our results of operations may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock would likely decline.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. Factors that have caused our
results to fluctuate in the past or that may affect us in the future include:
- demand for our Internet-based and traditional market research and polling
products and services;
- demand for market research and polling products and services generally;
- our relative mix of Internet-based and traditional market research and
polling businesses;
- technical difficulties or system downtime affecting the Internet generally
or the operation of our website specifically;
- seasonal fluctuations due to decreases in requests for market research and
polling services during the summer and year-end vacation and holiday
periods;
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- our ability to increase the size and scope of our Internet panel that we
will use to develop new products and services to generate revenues;
- fluctuations in general economic conditions or the budgets of our clients;
and
- development of competitive products and services.
Some of these factors are within our control and others are outside of our
control.
WE HAVE OBTAINED SUBSTANTIALLY ALL OF OUR UNIQUE COOPERATIVE RESPONDENTS FROM
EXCITE@HOME
We have obtained substantially all of our unique cooperative respondents
through our alliance with Excite@Home, a leading Internet portal. If this
contract were terminated by either party, we would need to develop another
reliable source of unique cooperative respondents with which to build and
replenish our online panel. If we were unable to develop an alternative source,
our business, financial condition and results of operations would likely suffer.
WE DEPEND ON OUR UNIQUE COOPERATIVE RESPONDENTS FOR RESEARCH INFORMATION AND
INCREASED REVENUES
Our success is highly dependent on our ability to obtain and retain
cooperative respondents and to increase the number of cooperative respondents we
have available in our Internet panel. Moreover, our cooperative respondents
voluntarily participate in our surveys, with some inducement to continue to
participate through minimal promotional campaigns. Our ability to increase the
number of cooperative respondents or increase revenues from our Internet panel
may be harmed if:
- a significant number of our current cooperative respondents decide that
they are no longer willing to participate in our surveys;
- we are required to rely on a small number of cooperative respondents for
numerous surveys on a variety of subjects and, as a result, we lose our
respondents due to numerous requests for participation; or
- our cooperative respondents become frustrated with the layout and design
of our questionnaires and, as a result, reduce their participation in our
surveys.
If we were required to replace or retain our cooperative respondents through
increased promotional campaigns, our operating expenses would increase.
Moreover, if the number of cooperative respondents in our Internet panel
decreases or the demographic composition of our Internet panel narrows, our
ability to provide our clients with accurate and statistically projectable
information would likely suffer. Our business cannot grow and will suffer if our
Internet panel becomes unreliable because of its size or because it is no longer
representative of the general population.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
The markets for our products and services are highly competitive. We compete
for clients with market research firms offering Internet-based and traditional
market research and polling services. We expect to face competition in the
future from other traditional market research firms who develop Internet-related
products and services or other companies with access to large databases of
individuals with whom they can communicate on the Internet. These companies may,
either alone or in alliances with other firms, penetrate the Internet-based
market research and polling market.
Many of our current and potential competitors have longer operating
histories and significantly greater financial and marketing resources. These
competitors may be able to undertake more extensive marketing campaigns for
their services, adopt more aggressive pricing policies and make more attractive
offers to potential employees, strategic partners and customers. Further, our
competitors and potential competitors may develop technologies that are superior
to ours, or that achieve greater market acceptance than our own. The above
factors, either alone or in combination, would likely result in a loss of market
share and reduced levels of revenue and profitability.
11
<PAGE>
THERE ARE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR INVESTMENTS
As part of our continued strategy to expand our Internet panel, our
technology infrastructure and our products and services, we may acquire or make
investments in complementary businesses, services, products or technologies if
appropriate opportunities arise. We may be unable to identify suitable
acquisition or investment candidates at reasonable prices or on reasonable
terms. Risks involved with acquisitions are numerous, and include:
- the difficulties in the integration and assimilation of the operations,
technologies, products and personnel of the acquired business;
- the diversion of management's attention from other business concerns;
- the availability of favorable acquisition financing; and
- the potential loss of key employees of any acquired business.
Furthermore, future acquisitions may result in, among other things, the use
of significant amounts of cash, potentially dilutive issuances of equity
securities, and amortizable expenses related to goodwill and other intangible
assets. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses.
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL COULD DISRUPT OUR
OPERATIONS AND RESULT IN LOSS OF REVENUES
Our future success depends to a significant extent on the continued services
of our key technical and senior management personnel and their ability to
execute our business plan. The loss of the services of any of these persons, or
certain other key employees, could seriously harm our business. None of our
officers or key employees is bound by an employment agreement, and our
relationships with our officers and key employees are at will. We carry "key
person" life insurance on Gordon S. Black, our Chairman and Chief Executive
Officer. We do not have "key person" life insurance policies covering any of our
other employees.
WE ARE GROWING RAPIDLY AND MUST EFFECTIVELY MANAGE AND SUPPORT OUR GROWTH FOR
OUR BUSINESS STRATEGY TO SUCCEED
We have grown rapidly and will need to continue to grow in all areas of
operation to execute our business strategy. Managing and sustaining our growth
will place significant demands on management as well as on our administrative,
operational, technical and financial systems and controls. If we are unable to
manage our growth effectively, we would have to divert resources away from the
continued growth of our business and the implementation of our business
strategy.
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE COMPETITION OF
THE MARKET RESEARCH AND POLLING INDUSTRY TO SUCCEED
The market research and polling industry is characterized by intense
competition, frequent new product and service introductions and evolving
methodologies. The recent growth of the Internet exacerbates these market
characteristics. To succeed, we will need to develop and integrate effectively
the various software programs, technologies and methodologies required to
enhance and improve our market research product and service offerings and manage
our business. Any enhancements or new services or products must meet the
requirements of our current and potential clients and achieve significant market
acceptance. Our success also will depend on our ability to adapt to rapidly
changing technologies by improving continually the performance features and
reliability of our products and services. We may experience difficulties that
could delay or prevent the successful development, introduction or marketing of
new products and services. We could also incur substantial costs if we need to
modify our services or infrastructure to adapt to these changes.
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<PAGE>
THE PERFORMANCE OF OUR INTERNET-BASED TECHNOLOGY INFRASTRUCTURE IS CRITICAL TO
OUR BUSINESS AND OUR REPUTATION
Any system failure, including network, software or hardware failure, that
causes an interruption in our ability to communicate with our Internet panel or
in our ability to collect research data could result in reduced revenue, and
could impair our reputation.
Our systems and operations are vulnerable to damage or interruption from
fire, earthquake, power loss, telecommunications failure, break-ins and similar
events and we depend on a third party for protection of most of our systems from
these events. We have no formal disaster recovery plan and our business
interruption insurance may not adequately compensate us for any losses that may
occur due to any failures in our system and any resulting interruptions in our
communications with our Internet panel or in our data collection efforts. In
addition, our servers and software must be able to accommodate a high volume of
traffic. Any substantial increase in demands on our servers will require us to
expand and adapt our network infrastructure. If we were unable to add additional
software and hardware to accommodate increased demand, unanticipated system
disruptions and slower data collection would likely result. Moreover, our
Internet panel members communicate with us using various Internet service
providers. These providers have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems. Any system delays or failures of service providers to
our Internet panel could adversely affect the results of our Internet-based
research data, which could have a material adverse effect on our business,
financial condition and results of operations.
YEAR 2000 PROBLEMS WITH OUR INTERNAL SYSTEMS AND THE SYSTEMS OF OUR SUPPLIERS
AND WEB INFRASTRUCTURE COULD REQUIRE SIGNIFICANT TIME AND EXPENSE AND COULD
REDUCE OUR FUTURE REVENUES
We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure are information
technology, including computers and software which we purchase or license from
third parties and internally developed software, and non-information technology,
including telephone systems and other equipment used internally. The reasonably
likely, worst case scenario for year 2000 issues would be the existence of a
significant defect in key hardware or software without an immediately available
solution. If a problem is detected in these components during our year 2000
compliance testing process, these components will need to be revised or
replaced. If our present efforts to address the year 2000 compliance issues are
not successful, or if suppliers and other third parties with which we do
business do not successfully address these issues, our business would likely
suffer. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY
Our success and ability to compete substantially depend on our internally
developed technologies and trademarks, which we protect through a combination of
patent, copyright, trade secret and trademark laws. However, patent applications
or trademark registrations may not be approved. Even if they are approved, our
patents or trademarks may be successfully challenged by others or invalidated.
If our trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks would be restricted unless we enter into
arrangements with the third-party owners, which might not be possible on
commercially reasonable terms or at all. We have trademark registrations for a
number of our trademarks, including the HARRIS POLL. If we were prevented from
using our HARRIS POLL, our brand recognition and business would likely suffer.
We would have to make substantial financial commitments to promote and rebuild
our brand identity and loyalty with our clients and members of our Internet
panel, reimplement our website and devise new hard copy materials, such as
promotional brochures and similar marketing materials. In addition, the prior
owner
13
<PAGE>
of Louis Harris & Associates sold the HARRIS name to a third party for use in
Europe and the European portion of the former Soviet Union. As a result, in
those territories, we do not have rights to use the HARRIS name in any form.
We generally enter into confidentiality or license agreements with parties
with whom we do business, and generally control access to and distribution of
our technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use our technologies. The steps we
have taken may not prevent misappropriation of our technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We also rely on off-the-shelf technologies that we license from third
parties. "Off-the-shelf" technology refers to generally commercially available
software that is not customized for a particular user. These third party
licenses may not continue to be available to us on commercially reasonable terms
or at all. The inability to use licensed technology important to our business
could require us to obtain substitute technology of lower quality or performance
standards or at a greater cost. In the future, we may seek to license additional
technology to enhance our current technology infrastructure. We cannot be
certain that any such licenses will be available on commercially reasonable
terms or at all. The loss any of these technology licenses could result in
delays in providing our products and services until equivalent technology, if
available, is identified, licensed and integrated.
POSSIBLE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BY THIRD PARTIES COULD BE
COSTLY
We cannot guarantee that infringement or other claims will not be asserted
or prosecuted against us in the future, whether resulting from our
internally-developed intellectual property or licenses or content from third
parties. Any future assertions or prosecutions could be time consuming, result
in costly litigation and diversion of technical and management personnel or
require us to pay money damages, introduce new trademarks, develop
non-infringing technology, or enter into royalty or licensing agreements. Any of
those events could substantially increase our operating expenses and potentially
reduce our expected revenues. These royalty or license agreements, if required,
may not be available on acceptable terms, or at all. Our ability to execute our
business strategy will suffer if a successful claim of infringement is brought
against us and we are unable to introduce new trademarks, develop non-infringing
technology or license the infringed or similar technology on a timely basis.
Moreover, our general liability insurance may not cover, or may not be adequate
to cover all costs incurred in, defense of potential trademark infringement
claims, or to indemnify us for all liability that may be imposed.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO ACHIEVE OUR BUSINESS OBJECTIVES
We may need to raise additional funds in the future to fund the expansion of
our Internet panel and the marketing of our products and services, or to acquire
complementary businesses, technologies or services. Any required additional
financing may be unavailable on terms favorable to us, or at all. If we raise
additional funds by issuing equity securities, you may experience significant
dilution of your ownership interest and such securities may have rights senior
to those of the holders of our common stock. If additional financing is not
available when required or is not available on acceptable terms, we may be
unable to fund the development and expansion of our business, promote our brand
name successfully, take advantage of business opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, financial condition and results of operations. We currently anticipate
that our available cash resources, combined with the net proceeds from this
offering and financing available under our existing bank line of credit, will be
sufficient to meet our anticipated needs for the next 24 months.
14
<PAGE>
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS IS LARGELY DEPENDENT ON THE DEVELOPMENT AND GROWTH OF THE INTERNET,
WHICH MAY NOT GROW, OR IF IT DOES GROW, MAY BE UNABLE TO SUPPORT THE DEMANDS
PLACED ON IT BY THIS GROWTH
If Internet usage in general does not continue to grow, we may be unable to
attract additional cooperative respondents to our Internet panel or clients for
our Internet-based market research and polling products and services. If
Internet usage does continue to grow, the Internet infrastructure may be unable
to support the demands placed on it by this growth and its performance and
reliability may decline. Varying factors could inhibit future growth or the
ability of the Internet infrastructure to adequately support the growth in
Internet usage, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- unavailability of cost effective, high speed service.
Our Internet panel depends on Internet service providers, online service
providers and other website operators for access to the Internet and our
websites. Many websites have experienced interruptions in their service as a
result of outages and other delays occurring throughout the Internet network
infrastructure. If Internet usage declines or grows at a slower rate than
expected, our ability to retain our Internet panel, add further members to our
Internet panel and gather research data and information quickly will decrease,
which would likely harm our business.
CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR INTERNET ACTIVITIES OR RESULT
IN ADDITIONAL COSTS OF DOING BUSINESS ON THE INTERNET
There are currently few laws or regulations that specifically regulate
communications on the Internet. However, we expect more stringent laws and
regulations to be enacted due to the increasing popularity and use of the
Internet. Any new legislation or regulations or the application of existing laws
and regulations to the Internet could limit our effectiveness in conducting
Internet-based market research and polling, and increase our operating expenses.
In addition, the application of existing laws to the Internet could expose us to
substantial liability for which we might not be indemnified by content providers
or other third parties. Existing laws and regulations currently address, and new
laws and regulations are likely to address, a variety of issues, including the
following:
- user privacy and expression;
- the rights and safety of children;
- intellectual property;
- information security;
- anti-competitive practices;
- the convergence of traditional channels with Internet commerce;
- taxation and pricing; and
- the characteristics and quality of products and services.
Those laws that do reference the Internet have not yet been interpreted by
the courts and their applicability and scope are not defined. Any new laws or
regulations relating to the Internet could adversely affect our business.
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<PAGE>
INTERNET SECURITY CONCERNS COULD HINDER INTERNET COMMUNICATIONS AND OUR ABILITY
TO OBTAIN SUFFICIENT AND RELIABLE RESPONSES FROM OUR COOPERATIVE RESPONDENTS
The need to transmit confidential information securely over the Internet has
been a significant barrier to communications over the Internet. Internet
security concerns could cause some cooperative respondents to reduce their
participation levels or to terminate their membership in our Internet panel. We
could also face concerns with the accuracy and reliability of our data collected
over the Internet. This could harm our creditability with our current clients.
If our clients become dissatisfied, they may stop using our products and
services. In addition, dissatisfied and lost clients could damage our
reputation. A loss of cooperative respondents or a loss of clients would hurt
our efforts to generate increased revenues.
WE MAY BE LIABLE FOR THE USE OR SALE OF THE PERSONAL INFORMATION OF OUR INTERNET
PANEL
If third parties were able to penetrate our network security or otherwise
misappropriate our cooperative respondents' personal information, we could be
subject to liability claims. This could include claims for misuse of personal
information, such as for unauthorized marketing purposes. These claims could
result in costly litigation. We may be required to expend significant financial
and management resources to protect against the threat of breaches or to
alleviate problems caused by such breaches, which could have a material adverse
effect on our business, financial condition and results of operations. In
addition, the Federal Trade Commission and state agencies have been
investigating various Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if our privacy practices are
investigated.
RISKS ASSOCIATED WITH CONDUCTING BUSINESS ON A GLOBAL LEVEL
Key components of our strategy are extension of our Internet-based market
research and polling products and services to clients globally, expansion of our
Internet panel to include global cooperative respondents and expansion of our
strategic alliances globally. The following risks are inherent in doing business
on a global level:
- export controls relating to encryption technology;
- more restrictive privacy laws;
- unexpected changes in regulatory requirements;
- lower penetration of Internet use globally;
- currency exchange fluctuations;
- problems in collecting accounts receivable and longer collection periods;
- potentially adverse tax consequences; and
- political instability and Internet access restrictions.
We have little or no control over these risks, and we do not have extensive
experience in global operations or in dealing with these risks.
WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER THE
INTERNET
We may be subject to claims relating to content that is published on or
downloaded from our websites. We also could be subject to liability for content
that is accessible from our website through links to other websites. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type, such as defamation or trademark infringement, or may not be
adequate to
16
<PAGE>
cover all costs incurred in defense of potential claims or to indemnify us for
all liability that may be imposed. In addition, any claims of this type, with or
without merit, would result in the diversion of our financial resources and
management personnel.
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS
The market prices of the securities of Internet-related companies have been
especially volatile and these securities may be overvalued. The market price of
our common stock is likely to be subject to wide fluctuations. If our revenues
do not grow or grow more slowly than we anticipate, or if operating or capital
expenditures exceed our expectations and cannot be adjusted accordingly, or if
some other event adversely affects us, the market price of our common stock
would decline. In addition, if the market for Internet-related stocks or the
stock market in general experiences a loss in investor confidence or otherwise
falls, the market price of our common stock could fall for reasons unrelated to
our business, financial condition and results of operations. Investors might be
unable to resell their shares of our common stock at or above the offering
price. In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. If we were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion of management's
attention and resources.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could decline as a result of sales of a
large number of shares in the market after this offering, or the perception that
such sales could occur. This may make it more difficult for us to raise funds
through future offerings of our common stock. See "Shares Eligible for Future
Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE PRO FORMA AS ADJUSTED
NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE
The estimated initial public offering price is substantially higher than the
pro forma as adjusted net tangible book value of $ per share that our
outstanding common stock will have immediately after this offering. Accordingly,
if you purchase shares of our common stock, you will incur immediate and
substantial dilution of $ per share. If the holders of outstanding
options or warrants exercise those options or warrants, you will suffer further
dilution.
WE HAVE DISCRETION AS TO THE USE OF PROCEEDS FROM THIS OFFERING
Our management will have broad discretion with respect to the expenditure of
the net proceeds of this offering. You will be relying on the judgment of our
management regarding the application of these net proceeds. See "Use of
Proceeds."
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DELAY OR PREVENT AN ACQUISITION OF US
Our restated certificate of incorporation provides for the division of our
board of directors into three classes and provides our board of directors with
the power to issue shares of preferred stock without stockholder approval. This
preferred stock could have voting rights, including voting rights that could be
superior to that of our common stock, and the board of directors has the power
to determine these voting rights. In addition, Section 203 of the Delaware
General Corporation Law contains provisions which impose restrictions on
stockholder action to acquire our company. The effect of these provisions of our
amended and restated certificate of incorporation and Delaware law provisions
could discourage third parties from seeking to obtain control of our company.
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<PAGE>
OUR EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT AND AFFAIRS
We anticipate that our executive officers, our directors, members of their
families and entities affiliated with them together will beneficially own
approximately % of our outstanding common stock following the completion
of this offering, or approximately % of our outstanding common stock in
the event that the underwriters' over-allotment option is exercised in full. As
a result, these stockholders will be able to exercise substantial influence over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of our company.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock in this
offering at the assumed initial public offering price of $ per share,
after deducting underwriting discounts and commissions and estimated offering
expenses, will be approximately $ million. If the underwriters'
over-allotment option is exercised in full, we estimate that net proceeds will
be $ million.
We intend to use the net proceeds of this offering for working capital and
general corporate purposes, including expansion of our Internet panel and
development of new technologies, products and services. We believe opportunities
may exist to expand our current business through acquisitions or investments in
complementary businesses, technologies, services or products, and we may utilize
a portion of the net proceeds for these purposes. We are not currently a party
to any contracts or letters of intent with respect to any acquisitions or
investments. As of the date of this prospectus, we cannot identify specific uses
of the net proceeds. Accordingly, our management will have significant
flexibility in applying the net proceeds of this offering. Pending their uses,
we intend to invest the net proceeds of this offering in interest-bearing bank
accounts or in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities. We presently intend to retain all of our future earnings, if
any, for use in the operation and expansion of our business and do not expect to
pay any cash dividends in the foreseeable future. Future decisions regarding
cash dividends on our common stock will be made by our board of directors. These
decisions will depend on our results of operations, financial position, capital
requirements, general business conditions and restrictions imposed by any
financing arrangements. Our revolving credit agreement currently prohibits the
payment of dividends, and we anticipate that any future credit agreement would
prohibit or restrict the payment of dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
- on an actual basis;
- on an unaudited pro forma basis to reflect the conversion of all of our
outstanding shares of preferred stock into common stock, which will occur
upon the closing of this offering; and
- on an unaudited pro forma as adjusted basis to reflect the sale of the
shares of common stock at the assumed initial public offering price
of $ per share in this offering after deducting underwriting discounts
and commissions and estimated offering expenses to be paid by us. See "Use
of Proceeds."
You should read this information together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------------
PRO FORMA PRO FORMA
ACTUAL ------------- AS ADJUSTED
----------- (IN THOUSANDS) -----------
<S> <C> <C> <C>
Mandatory redeemable preferred stock, par value $.01 per share, 147,000
shares authorized; 147,000 shares issued and outstanding, actual; no
shares issued and outstanding pro forma and pro forma as adjusted..... $ 15,876 $ -- $
Stockholders' equity (deficit):
Preferred stock, par value $.01 per share, 5,000,000 shares
authorized, no shares issued and outstanding, actual, pro forma and
pro forma as adjusted............................................... -- --
Common stock, par value $.01 per share, 28,000,000 shares authorized,
actual and pro forma; par value $.001 per share, 100,000,000 shares
authorized, pro forma as adjusted; 10,870,692 shares issued and
outstanding, actual; 22,661,016 shares issued and outstanding pro
forma; and shares issued and outstanding pro forma as
adjusted............................................................ 109 227
Additional paid-in capital.............................................. 4,813 19,395
Unamortized deferred compensation....................................... (650) (650)
Accumulated deficit..................................................... (12,768) (11,592)
----------- ------------- -----------
Total stockholders' (deficit) equity.................................. (8,496) 7,380
----------- ------------- -----------
Total capitalization................................................ $ 7,380 $ 7,380 $
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
In addition to the shares of common stock to be outstanding after the
offering, as of June 30, 1999, we may issue additional shares of common stock
under the following plans and arrangements:
- 3,777,200 shares underlying stock options issued and outstanding at a
weighted average exercise price of $0.48 per share; and
- 260,960 shares issuable upon exercise of warrants outstanding at an
exercise price of $1.50 per share.
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<PAGE>
DILUTION
Our pro forma net tangible book value at June 30, 1999 was approximately $
million, or approximately $ per share of common stock. Pro
forma net tangible book value per share represents total tangible assets, less
total liabilities, divided by the pro forma number of shares of common stock
outstanding after giving effect to the conversion of all of our outstanding
preferred stock into common stock.
Dilution to net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of the shares of common stock offered by this prospectus and after
deducting underwriting discounts and commissions and estimated offering expenses
to be paid by us, our pro forma as adjusted net tangible book value as adjusted
at June 30, 1999 would have been approximately $ million, or
$ per pro forma as adjusted share of common stock. This represents
an immediate increase in net tangible book value of $ per share to
our existing stockholders and an immediate dilution in net tangible book value
of $ per share to new investors of common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ --
Pro forma net tangible book value per share as of June 30, 1999.......... $
Increase per share attributable to this offering......................... --
---------
Pro forma net tangible book value per share after this offering..........
Dilution per share to new investors...................................... $
---------
---------
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma net tangible book value at June 30, 1999 would have been approximately
$ per share, representing an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors.
The following table sets forth, on a pro forma basis as of June 30, 1999,
after giving effect to:
- the conversion of all of our outstanding preferred stock into common
stock; and
- the sale of common stock to investors in this offering;
the number of shares of common stock purchased from us, the total price
paid, and the average price per share paid by the existing stockholders and new
public investors, before deducting underwriting discounts and commissions and
estimated offering expenses to be paid by us, at the assumed initial public
offering price of $ per share:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED AVERAGE
------------------------ ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................................... % $ % $
New investors...................................................
--- --- ----- ---
Totals.......................................................... 100% $ % $
--- --- ----- --- -----
--- --- ----- --- -----
</TABLE>
The above discussion assumes no exercise of outstanding options or warrants.
You will experience additional dilution in the event these options or warrants
are exercised.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected audited consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements and
the notes to those statements and other financial information appearing
elsewhere in this prospectus. The selected consolidated statement of operations
data for each of the years ended June 30, 1997, 1998 and 1999 and the selected
consolidated balance sheet data as of June 30, 1998 and 1999 are derived from
our audited consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus. The consolidated statement of operations
data for the years ended June 30, 1995 and 1996 and the consolidated balance
sheet data as of June 30, 1995, 1996 and 1997 are derived from our audited
financial statements not included in this prospectus. The consolidated financial
data for the years ended June 30, 1995, 1996 and 1997 reflect the results of
operations and balance sheet data of our predecessor corporation. The historical
results presented below are not necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues from services................................ $10,865 $14,625 $23,327 $26,290 $ 28,965
Cost of services...................................... 7,558 10,209 15,629 16,618 19,086
------------ ------------ ------------ ------------ ----------
Gross profit.......................................... 3,307 4,416 7,698 9,672 9,879
Operating expenses:
Database development expenses..................... -- -- -- 2,753 4,505
Selling, general and administrative expenses...... 2,753 3,781 6,391 9,812 14,401
------------ ------------ ------------ ------------ ----------
Total operating expenses........................ 2,753 3,781 6,391 12,565 18,906
------------ ------------ ------------ ------------ ----------
Operating income (loss)............................... 554 635 1,307 (2,893) (9,027)
Other income (deductions)............................. 33 13 (89) (160) 180
------------ ------------ ------------ ------------ ----------
Earnings (loss) before income taxes................... 587 648 1,218 (3,053) (8,847)
Income tax expense (benefit).......................... 250 260 490 (1,114) --
------------ ------------ ------------ ------------ ----------
Net earnings (loss)................................... 337 388 728 (1,939) (8,847)
Accrued dividends on preferred stock.................. -- -- -- -- (1,176)
------------ ------------ ------------ ------------ ----------
Net earnings (loss) available to holders of common
stock............................................... $ 337 $ 388 $ 728 $(1,939) $(10,023)
------------ ------------ ------------ ------------ ----------
------------ ------------ ------------ ------------ ----------
Basic and diluted net earnings (loss) per share....... $ .03 $ .03 $ .06 $ (.16) $ (1.01)
------------ ------------ ------------ ------------ ----------
------------ ------------ ------------ ------------ ----------
Basic weighted average shares outstanding............. 12,359,319 11,635,454 11,741,935 11,903,256 9,955,261
Diluted weighted average shares outstanding........... 12,426,929 11,954,551 12,371,865 11,903,256 9,955,261
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 1,474 $ 1,073 $ 349 $ 4 $ 108
Working capital................................................ 487 (246) (31) (2,196) 552
Total assets................................................... 3,504 6,628 9,721 9,798 14,785
Long-term debt, excluding current installment.................. -- 1,100 700 400 --
Mandatory redeemable preferred stock........................... -- -- -- -- 15,876
Total stockholders' equity (deficit)........................... $ 1,325 $ 1,663 $ 2,392 $ 947 $ (8,496)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH THE AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We provide market research and polling products and services to a broad
range of companies, non-profit organizations and governmental agencies. Since
1959, we have provided these services utilizing traditional market research and
polling methodologies, such as direct mail, telephone-based surveys, mall
intercepts, focus groups and in-person interviews. In September 1997, we began
developing our Internet panel and building the technology infrastructure to
provide online market research and polling services. In November 1997, we
introduced our first Internet-based market research and polling products and
services.
Through fiscal 1998, all of our revenues were derived from custom research
projects using traditional market research and polling methodologies. In fiscal
1999, revenues from those sources represented 90% of our total revenues, while
revenues from Internet-based products represented 10% of total revenues. We
consider all of the revenues from a project to be Internet-based whenever 50% or
more of the surveys used in the completed project were completed by respondents
over the Internet. We anticipate that, as our online business grows, revenues
derived from Internet-based custom research and multi-client products and Harris
Interactive Service Bureau research will represent the dominant portion of our
total revenues.
We generally perform traditional and Internet-based custom research services
on a fixed fee basis in response to client-generated requests. We sell our
multi-client research products on a periodic subscription basis, typically
quarterly or annual. Harris Interactive Service Bureau performs research for
other market research firms on a project-by-project basis in response to
requests from those firms. We provide customer relationship services on an
outsourced basis to our clients on a project-by-project basis.
Revenues under fixed fee arrangements are recognized on a percentage of
completion method based on the ratio of costs incurred to total estimated costs.
These revenues include amounts billed to our clients to cover subcontractor
costs and other direct expenses. Provision for estimated contract losses, if
any, is made in the period such losses are determined. Subscription revenues
will be recognized upon delivery of the research product.
Gross margin represents revenues less variable project costs and associated
direct labor. Variable project costs related to market research and polling
services utilizing traditional methodologies include interviewer payroll,
subcontractor charges, respondent incentives, telecommunication charges and
mailing costs. In contrast, variable costs related to Internet-based market
research and polling methodologies are nominal. Direct labor costs consist
primarily of survey design costs and are comparable for both traditional and
Internet-based methodologies. We anticipate that our gross margins will increase
as the percentage of revenues we generate from Internet-based products and
services increases.
Operating expenses consist primarily of database development costs and
selling, general and administrative expenses. Database development expenses are
the expenses we incur in connection with the ongoing development of our Internet
panel, primarily through our strategic alliance with Excite@Home. Those costs
are expensed as incurred. Selling expenses consist primarily of marketing
personnel and program expenses, public relations advertising and promotion
costs, commissions and telemarketing costs and other marketing expenses. General
and administrative expenses consist of
23
<PAGE>
salaries, payroll taxes, benefits and related costs for both technology
infrastructure development and general corporate functions, occupancy costs and
depreciation.
Other income (deductions) consists exclusively of net interest income or net
interest expense in each fiscal year.
We had net losses of $8.8 million in fiscal 1999 and $1.9 million in fiscal
1998 and net earnings of $728,000 in fiscal 1997. The net losses incurred in
fiscal 1999 and 1998 reflect our substantial expenditures for the development of
our technology infrastructure and Internet database necessary for our transition
from traditional to Internet-based market research and polling methodologies. As
of June 30, 1999, we had a stockholders' deficit of $8.5 million. We expect to
continue to incur losses for the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data for
the periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1997 1998 1999
--------- --------- ---------
Revenues from services......................................... 100.0% 100.0% 100.0%
Cost of services............................................... 67.0 63.2 65.9
Gross profit................................................... 33.0 36.8 34.1
Database development expenses.................................. 0.0 10.5 15.6
Selling, general and administrative expenses................... 27.4 37.3 49.7
Operating income (loss)........................................ 5.6 (11.0) (31.2)
Interest income (expense), net................................. (0.4) (0.6) 0.6
Net earnings (loss)............................................ 3.1% (7.4)% (30.5)%
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
REVENUES FROM SERVICES. Total revenues increased 10.2% to $29.0 million in
fiscal 1999 from $26.3 million in fiscal 1998. The increase in total revenues
was due to the initial market penetration of our Internet-based market research
products which contributed $2.9 million, or 10% of total revenues, in fiscal
1999. Revenues from our market research and polling products and services
utilizing traditional methodologies were relatively unchanged as we focused our
marketing efforts on our Internet-based market research products and services.
GROSS MARGIN. Gross margin decreased to 34.1% in fiscal 1999 from 36.8% in
fiscal 1998 due primarily to a change in project mix and the substantial direct
expenses incurred in connection with the development of multi-client products,
from which only nominal revenues were recognized in fiscal 1999.
DATABASE DEVELOPMENT EXPENSES. Database development expenses increased
63.6% to $4.5 million in fiscal 1999 from $2.8 million in fiscal 1998. The
increase in fiscal 1999 reflects database development expenses incurred over a
full fiscal year and an increased rate of name acquisition for our Internet
panel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 46.8% to $14.4 milion in fiscal 1999 from $9.8
million in fiscal 1998. As a percentage of total revenues, selling, general and
administrative expenses increased to 49.7% in fiscal 1999 from 37.3% in fiscal
1998. These increases were primarily due to higher costs associated with the
development of new products, services and technologies for the Internet.
24
<PAGE>
NET INTEREST INCOME (EXPENSE). We had net interest income of $180,000 in
fiscal 1999 and net interest expense of $160,000 in fiscal 1998. We had net
interest income in fiscal 1999 as a result of paying down our long-term debt and
the short-term investment of the proceeds of redeemable preferred stock issued
in July 1998 to finance our database development expenses. We had net interest
expense in fiscal 1998 primarily due to higher levels of indebtedness incurred
principally to finance database development expenses.
INCOME TAXES. We incurred net losses in both fiscal 1999 and fiscal 1998.
As a result of our net losses, we had no income tax expense in either year. In
fiscal 1998, we recognized a tax benefit due in large part to the availability
of federal net operating loss carrybacks. No such carryback was available in
fiscal 1999 and therefore we did not recognize an income tax benefit in that
year. As of June 30, 1999, we had approximately $9.1 million and $11.1 million
of federal and state net operating loss carryforwards, respectively, available
to offset future taxable income. These carryforwards expire at various times
through 2019.
FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES FROM SERVICES. Total revenues increased 12.7% to $26.3 million in
fiscal 1998 from $23.3 million in fiscal 1997. In both years, all of our
revenues were earned from custom research services utilizing traditional polling
methodologies. The increase in total revenues in fiscal 1998 was due to growth
in our business from new and existing clients.
GROSS MARGIN. Gross margin increased to 36.8% in fiscal 1998 from 33.0% in
fiscal 1997 due primarily to a change in project mix.
DATABASE DEVELOPMENT EXPENSES. Database development expenses in fiscal 1998
were $2.8 million. Since we commenced the development of our Internet panel in
the first quarter of fiscal 1998, we incurred no database development expenses
in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 53.5% to $9.8 milion in fiscal 1998 from $6.4
million in fiscal 1997. As a percentage of total revenues, selling, general and
administrative expenses increased to 37.3% in fiscal 1998 from 27.4% in fiscal
1997. The increases were primarily due to higher costs associated with the
development of new products, services and technologies for the Internet.
NET INTEREST INCOME (EXPENSE). Net interest expense increased to $161,000
in fiscal 1998 from $89,000 in fiscal 1997. The increase in interest expense was
due to higher levels of indebtedness incurred principally to finance database
development expenses.
INCOME TAXES. We incurred a net loss in fiscal 1998. As a result of our net
loss, we recognized a tax benefit due in large part to the availability of
federal net operating loss carrybacks. In fiscal 1997, we had net earnings of
$728,000, and we recognized federal income tax expense of $390,000 and state
income tax expense of $100,000.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited consolidated quarterly statement of
operations data for each of our eight most recent quarters ended June 30, 1999.
In management's opinion, this information has been prepared on the same basis as
the audited consolidated financial statements and includes all adjustments,
consisting only of normal recurring adjustments necessary for the fair
presentation of the unaudited information for the periods presented. This
information should be read in conjunction with our audited consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus. The results of operations for any quarter are not necessarily
indicative of results that may be expected for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1998 1998 1998 1998 1999
--------------- --------------- ----------- ----------- --------------- ------------- -----------
<CAPTION>
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from services... $ 5,517 $ 6,410 $ 7,320 $ 7,043 $ 6,530 $ 6,935 $ 6,462
Cost of services......... 3,814 4,046 4,241 4,517 4,133 4,637 4,291
------ ------ ----------- ----------- ------- ------------- -----------
Gross profit............. 1,703 2,364 3,079 2,526 2,397 2,298 2,171
Operating expenses:
Database development
expenses............... -- -- -- 2,753 561 1,751 1,233
Selling, general and
administrative
expenses............... 2,063 2,571 2,450 2,728 2,832 3,163 3,520
------ ------ ----------- ----------- ------- ------------- -----------
Operating (loss)
income................. (360) (207) 629 (2,955) (996) (2,616) (2,582)
Other (deductions)
income................. (29) (30) (49) (52) 23 96 31
------ ------ ----------- ----------- ------- ------------- -----------
Earnings (loss) before
income taxes........... (389) (237) 580 (3,007) (973) (2,520) (2,551)
Income tax (benefit)
expense................ (142) (87) 212 (1,097) -- -- --
------ ------ ----------- ----------- ------- ------------- -----------
Net (loss) earnings...... (247) (150) 368 (1,910) (973) (2,520) (2,551)
Accrued dividends on
preferred stock........ -- -- -- -- (294) (294) (294)
------ ------ ----------- ----------- ------- ------------- -----------
Net (loss) earnings
available to common
stock.................. $ (247) $ (150) $ 368 $ (1,910) $ (1,267) $ (2,814) $ (2,845)
------ ------ ----------- ----------- ------- ------------- -----------
------ ------ ----------- ----------- ------- ------------- -----------
SELECTED RESPONDENT DATA:
Number of cooperative
respondents at end of
quarter................ -- 254 461 606 1,035 1,418 3,021
<CAPTION>
<S> <C>
JUNE 30,
1999
-----------
<S> <C>
Revenues from services... $ 9,038
Cost of services......... 6,025
-----------
Gross profit............. 3,013
Operating expenses:
Database development
expenses............... 960
Selling, general and
administrative
expenses............... 4,886
-----------
Operating (loss)
income................. (2,833)
Other (deductions)
income................. 30
-----------
Earnings (loss) before
income taxes........... (2,803)
Income tax (benefit)
expense................ --
-----------
Net (loss) earnings...... (2,803)
Accrued dividends on
preferred stock........ (294)
-----------
Net (loss) earnings
available to common
stock.................. $ (3,097)
-----------
-----------
SELECTED RESPONDENT DATA:
Number of cooperative
respondents at end of
quarter................ 3,552
</TABLE>
Our revenues and operating results fluctuate on a quarter-to-quarter basis
and may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside our control. For more detailed information
regarding these factors, see "Risk Factors--Fluctuations in our quarterly
operating results may cause our stock price to decline."
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through earnings from operations,
bank financings and, more recently, private placements of our common and
preferred stock. As of June 30, 1999, our sources of liquidity consisted of
approximately $100,000 of cash and cash equivalents, and a $1.5 million line of
credit with a commercial bank.
In July 1999, we increased the total amount available under our line of
credit from $1.5 million to $5.0 million to provide additional funds for
continued development of our Internet panel and to meet working capital
requirements. The interest rate on borrowings up to $2.0 million is prime rate
plus 1.0%, and on borrowings in excess of $2.0 million the interest rate is
10.0% to 12.0%, depending on the period of time that the borrowings remain
outstanding. As of June 30, 1999, the prime rate was
26
<PAGE>
7.75%. This line of credit is collateralized by all of our assets and is
repayable on demand. Outstanding borrowings under our line of credit were
$291,000 as of June 30, 1999 and $2.2 million as of June 30, 1998.
Net cash used in operating activities was $8.2 million in fiscal 1999 and
$1.0 million in fiscal 1998. Net cash used in operating activities in each of
these periods was primarily the result of net operating losses.
Net cash used in investing activities was $4.3 million in fiscal 1999 and
$1.0 million in fiscal 1998. Net cash used in investing activities in each
period was primarily related to capital expenditures associated with our
Internet infrastructure development and facilities expansion.
Net cash provided by financing activities was $12.6 million in fiscal 1999
and $1.7 million in fiscal 1998. In fiscal 1999, our financing activities
consisted primarily of a private placement of preferred stock with net proceeds
of $14.1 million in the first quarter, and the issuance of common stock to a
long-term participant in our Harris Interactive Service Bureau with net proceeds
of $4.1 million in the fourth quarter. These net proceeds were partially offset
by the repurchase of $3.0 million of common stock from two of our executive
officers and several other stockholders, the repayment of $1.9 million on our
line of credit and principal repayments of $700,000 on our long-term debt. In
fiscal 1998, our financing activities consisted primarily of a $1.6 million
increase in short-term borrowings and the issuance of common stock upon exercise
of stock options in the amount of $500,000. These proceeds were partially offset
by $400,000 in principal repayments on our long-term debt.
As of June 30, 1999, we had no material commitments for capital
expenditures. However, we anticipate continuing increases in our capital
expenditures and working capital requirements consistent with our anticipated
growth in operations, Internet infrastructure and personnel. We currently
believe that our available cash and cash equivalents and our line of credit,
combined with the net proceeds from this offering, will be sufficient to meet
our anticipated needs for at least the next 24 months. Our capital requirements
depend on numerous factors, including market acceptance of our products and
services, the resources we allocate to the continuing development of our
Internet infrastructure and Internet panel, marketing and selling of our
services, our promotional activities and other factors.
We may need to raise additional funds in future periods through public or
private financings or other arrangements:
- to fund further development of our database and our technology
infrastructure;
- to fund facilities expansion;
- to develop new or enhance existing services and products;
- to respond to competitive pressures; and
- to acquire or invest in complementary businesses, services or products.
Any additional financing, if needed, might not be available on favorable
terms or at all. Failure to raise capital when needed could harm our business,
financial condition and results of operations. If additional funds are raised
through the issuance of equity securities, further dilution could result. In
addition, any securities issued might have rights, preferences or privileges
senior to our common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software development or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. We expect to
27
<PAGE>
adopt the provisions in fiscal 2000, but have not yet determined whether that
adoption will have a material effect.
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited to interest rate sensitivity, which
is affected by changes in the general level of United States interest rates. We
intend to invest the net proceeds of this offering, pending their use, in
interest-bearing bank accounts or in short-term, interest-bearing,
investment-grade securities. Because our investments will be short-term, we
believe that we are not subject to any material market risk exposure.
We do not have any foreign currency hedging or other derivative financial
instruments as of June 30, 1999.
YEAR 2000 COMPLIANCE
We may be exposed to a loss of revenue and our operating expenses could
increase if the systems on which we depend to conduct our operations are not
year 2000 compliant. Our potential areas of exposure are information technology,
including computers and software that we purchase or license from third parties
and internally-developed software, and non-information technology, including
telephone systems and other equipment used internally. In addition, any system
delays or failures of Internet service providers to us, our online panel or our
clients could interrupt our business operations. The reasonably likely, worst
case scenario for year 2000 issues would be the existence of a significant
defect in key hardware or software without an immediately available solution. If
a problem is detected in these components during our year 2000 compliance
testing process, these components will need to be revised or replaced.
All areas that are vital to our operations have been tested and validated or
certified for year 2000 compliance. All of our critical systems currently meet
one of the following criteria:
- they have been tested and found to be year 2000 compliant;
- they have been built or developed internally on platforms certified by the
manufacturer as being year 2000 compliant;
- they are purchased integrated hardware and software systems certified by
the manufacturer as being year 2000 compliant; or
- they will be taken out of service prior to December 31, 1999 and replaced
with systems meeting one of the above criteria.
To date, we have not incurred any material costs in connection with
identifying and evaluating year 2000 compliance issues. Most of our expenses
have been related to the operating costs associated with time spent by our
employees in the evaluation process and year 2000 compliance matters generally.
These costs are not separately tracked. We expect similar expenses to continue
and we also intend to engage an independent third party to evaluate our year
2000 compliance prior to the closing of this offering.
In the event that the production and operational facilities that support our
website are not year 2000 compliant, portions of our website may become
inaccessible. A prolonged disruption in our operations could cause our business
clients to stop doing business with us or our unique cooperative respondents
from communicating with us. Our review of our systems has shown that there is no
single application that would make our website totally unavailable, and we
believe that we can quickly address any difficulties that may arise.
If our present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers, service providers or other third
parties with whom we conduct business do not successfully address such issues,
our business could be significantly disrupted.
28
<PAGE>
BUSINESS
OVERVIEW
We are the leading Internet-based market research and polling firm in the
world, with what we believe to be the largest online panel of approximately 4.3
million unique cooperative respondents. Known for our HARRIS POLL, we have
provided our clients with high quality products and services for over 40 years.
We believe we are the largest full-service provider of Internet-based market
research and polling services, providing such services as custom research,
multi-client research, service bureau research and customer relationship
services. Our extensive Internet panel and proprietary technology infrastructure
enable us to provide our clients with timely and cost-efficient access to the
opinions, experiences and attitudes of people worldwide. We have rapidly grown
our Internet panel, in large part through our relationship with Excite@Home, a
leading Internet portal. We also conduct market research and polling services
utilizing traditional polling methodologies, which include direct mail,
telephone-based surveys, mall intercepts, focus groups and in-person interviews.
Historically, we have provided our market research services exclusively
through traditional methodologies. We believe, however, that the Internet is
changing our industry. Accordingly, we have made, and will continue to make,
significant expenditures in the development of our technology platform, our
online panel and management and staff to lead the transformation of the market
research and polling industry to an Internet-based platform.
OUR MARKET OPPORTUNITY
GENERAL OVERVIEW
Companies are operating in an increasingly complex business environment,
characterized by heightened competition, globalization of product markets,
shortened product life cycles and rapidly changing consumer preferences. This
business environment has escalated the need for accurate and timely information
about the preferences, needs, purchase behavior and brand recognition of
existing and potential clients. Companies also need continuous tracking
capabilities so that they can ascertain product performance and competitive
position, monitor consumer satisfaction, measure advertising effectiveness and
determine price sensitivity. According to the European Society of Opinion and
Marketing Research, $13.4 billion was spent for market research and polling
services worldwide in 1998.
Historically, information-gathering and tracking functions in market
research have been performed using traditional market research methodologies.
The ability of traditional market research methodologies to deliver accurate and
objective data rapidly is limited by high data acquisition costs, small sample
sizes and the extensive time required to perform the research. As a result,
broad-based research projects, which require a large number of survey
participants, are prohibitively costly except for companies and organizations
with significant resources. The growth and rapid adoption of the Internet is
changing the market research and polling industry, making it possible for the
first time to survey a very broad, diverse population at low cost and at speeds
that are unattainable through any other method.
THE INTERNET AND ITS IMPACT ON THE MARKET RESEARCH AND POLLING INDUSTRY
The Internet has emerged as a mass communications and commerce medium
enabling millions of people worldwide to gather and share information and
conduct business electronically. International Data Corporation estimates that
the number of Internet users worldwide will grow from 142 million at the end of
1998 to more than 500 million by the year 2003, and in the United States from 63
million at the end of 1998 to 177 million by the year 2003.
The use of the Internet as a market research and polling tool is still in
its infancy. Companies began the first testing efforts in 1995, at a time when
less than 10 million persons in the United States had access to the Internet and
the population on the Internet was not representative of the general
29
<PAGE>
population. As Internet usage has increased, the demographic composition of
those using the Internet has shifted to better reflect the characteristics of
the overall population, making it a viable medium in which to conduct market
research.
We believe that Internet-based market research and polling offers
significant advantages over traditional methodologies. These include:
- COST-EFFICIENCY--Internet-based market research and polling offers
significant cost benefits when compared to traditional market research
methodologies. Under traditional methodologies, the sample size of a
survey is limited due to the high data collection costs per response.
However, utilizing Internet-based market research methods, larger and more
robust sample sizes can be used for effectively the same cost, or the same
sample size can be used to reduce the overall cost of a study.
- VERSATILITY--Internet-based market research combines the interactivity of
telephone sampling with the visual capabilities of mail surveys. Pictures,
graphics, advertising copy and other visual materials can be viewed over
the Internet, a feature not available with telephone sampling. With
Internet-based methodology, questions and their sequence in surveys can be
modified as panelists respond. Mail panel surveys, in contrast, are
limited to the order and content in the printed text of the survey.
- SPEED--Responses from online panelists are generally received within
several days, while mail panelists' responses are generally received over
several weeks. Further, when compared to a telephone survey, the speed
advantage of the Internet model becomes greater as sample sizes increase.
- PRODUCTIVITY--The Internet is user-friendly to cooperative respondents
because surveys can be completed at the convenience of the participant and
can be conducted 24 hours per day, seven days per week. In addition,
because respondents can read questions faster than they can listen, more
questions can be asked to panelists in the same amount of time on the
Internet than with traditional telephone survey methods.
THE HARRIS ADVANTAGE
We offer a broad suite of Internet-based market research and polling
products and services to meet our clients' needs for rapid, comprehensive and
accurate information about the opinions, experiences and attitudes of people
worldwide. We possess several key competitive advantages that we believe will
enable us to maintain and expand our leading market position. Our key
competitive advantages include:
THE LARGEST INTERNET PANEL. We have developed what we believe to be the
largest Internet panel in the world. Currently, our Internet panel consists of
approximately 4.3 million unique cooperative respondents, who are individuals
that have voluntarily agreed to participate in our various online research
studies. Our large and diverse Internet panel enables us to:
- conduct a broad range of customer specific or multi-client research
studies across a wide set of industries;
- utilize survey sizes that range from a large representative sample of the
overall population to targeted subsets;
- market new products and services through co-branded alliances that we
historically could not develop; and
- market our online panel to other research firms through the Harris
Interactive Service Bureau, enabling us to penetrate new markets in which
we do not have relationships or specific expertise.
PROPRIETARY TECHNOLOGY INFRASTRUCTURE. A significant amount of computer
software and hardware is required to conduct Internet-based market research and
polling. Over the past two fiscal years, we have
30
<PAGE>
expended, and will continue to expend, substantial financial and management
resources in the development of our scalable, proprietary technology
infrastructure, data analysis techniques, and internal systems and procedures to
capitalize on the Internet opportunity within our industry.
Key elements of our technology infrastructure include:
- A high speed customized e-mail system, which enables us to rapidly format,
target and deliver over 290,000 e-mails per hour, inviting panelists in
our database to participate in our online surveys.
- A sophisticated survey engine, which can be programmed to conduct up to
144,000 interactive, five-minute surveys per hour in any language
supported by Microsoft Word.
- An advanced survey dispatcher system, which monitors, controls and
allocates all respondent contact and survey results across our servers. In
addition, our proprietary dispatcher system gathers real-time statistics
on survey starts, suspensions and completions to ensure high quality data
collection.
- Customizable multi-language registration and polling system, which allows
new and existing panel members to add, delete or update registration
information online. In addition, this system, for which a patent
application has been filed, recognizes each panelist's language
preferences and delivers the survey in that language.
- CONCEPTLOC, a patent pending web content protection system, which allows
users to access proprietary and confidential product images and sound and
video files on the computer screen, but precludes retention of the content
in a useable electronic form.
We are developing flexible, automated reporting tools which will allow
online access to survey information at any time and speed the process of data
delivery to clients. We have designed our technology infrastructure to be
scalable, which means that it can accommodate the expansion of our business
without significant modifications to our existing system design.
STRONG BRAND NAME/LONG STANDING CLIENT RELATIONSHIPS. We believe the HARRIS
POLL is one of the best known polls operating in the United States today. For
over 40 years, we have been recognized as providing trusted market research
products and services to a broad range of companies, non-profit organizations
and governmental agencies. We use a variety of marketing strategies to heighten
awareness of and enhance brand recognition for the HARRIS POLL, HARRIS
INTERACTIVE and our Internet-based products and services.
KEY STRATEGIC RELATIONSHIPS. We have entered into several agreements and
relationships to expand and replenish our Internet panel and to develop and
promote our various market research products and services.
- EXCITE@HOME. Our relationship with MatchLogic, Inc., a subsidiary of
Excite@Home, began in 1997 and has generated substantially all of the 4.3
million names in our Internet panel. We have recently entered into a new
agreement with Excite@Home which will continue until October 1, 2002. This
agreement will automatically renew for sucessive one-year terms after that
date, subject to either party's right to terminate upon 120 days' prior
notice. We have also entered into agreements with Excite@Home for the
provision of research services, including custom research and multi-client
research products, and the use and distribution of our ECOMMERCEPULSE
multi-client research product. We have also entered into discussions with
Excite@Home related to the development and distribution of co-branded
Internet-based panels and polls.
- MARKET FACTS. In April 1999, Market Facts, one of the largest market
research firms in the United States, became our first long-term Harris
Interactive Service Bureau client and agreed to use us exclusively for all
of their Internet-based data collection. In addition to this agreement,
Market Facts purchased $4.1 million of our common stock.
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- NBC. Since March 1999, we have been conducting program evaluation studies
for NBC which has resulted in more than 100,000 viewers becoming unique
cooperative respondents in our Internet panel.
- GOMEZ ADVISORS. Our relationship with Gomez Advisors, a research and
analysis firm, provides us with the opportunity to co-develop and co-own
multi-client research studies. Our first study tracks quarterly changes in
the online securities trading industry. We market this product on a
subscription basis to financial institutions and brokerage houses.
- ZDNET. In September 1999, we began conducting a co-branded quick
"unscientific" poll that is posted on the ZDNetwork web page. A respondent
to the poll is linked directly to our website where he or she has the
opportunity to join our Internet panel. We have the right to use a portion
of the ZDNetwork web page for our own advertising. ZDNet is Ziff-Davis's
website for information technology specialists.
- TALMEY-DRAKE RESEARCH. We have entered into an agreement with
Talmey-Drake, a research organization focused on the ski industry, to
co-develop and co-own a multi-client research study of the spending
habits, preferences and product satisfaction of individuals who ski and
snowboard.
- TELEPHIA, INC. We have entered into an agreement with Telephia, a research
organization focused on the wireless communication industry, to co-develop
and co-own a wireless communication study which tracks wireless
communication usage by market.
- AMERICAN COUNCIL ON EXERCISE. We have collaborated with the American
Council on Exercise, a non-profit organization that promotes physical
fitness, in a co-branded survey on treadmill ownership satisfaction. We
have created two Harris ACE Awards, which are presented annually to
manufacturers of various types of exercise equipment, based on our
customer satisfaction studies.
OUR FOCUSED GROWTH STRATEGY
Our goal is to expand our position as the leading global Internet-based
market research and polling firm by providing high quality products and services
to our clients. Key elements of our strategy are to:
MAXIMIZE THE REVENUE-GENERATING CAPACITY OF OUR INTERNET PANEL. We intend
to generate multiple revenue sources from our proprietary Internet panel by:
- INCREASING THE SIZE AND SCOPE OF OUR CUSTOM RESEARCH BUSINESS. We believe
that the Internet is a viable global communications medium for conducting
rapid, accurate and cost-efficient market research. We intend to
aggressively market all of the benefits of Internet-based market research
to new and existing clients to generate additional custom research
business.
- ACCELERATING THE DEVELOPMENT OF MULTI-CLIENT RESEARCH STUDIES. Our
multi-client products are developed and marketed on a subscription basis
to a large number of interested clients, providing them with general
studies of particular market segments or industries. These studies include
products that could not previously be conducted on a cost-effective basis
or studies for markets and industries that did not exist prior to the
Internet. We intend to invest significantly in multi-client products due
to the high margins and recurring revenue streams associated with these
products.
- PENETRATING NEW MARKETS NOT PREVIOUSLY REACHED. Harris Interactive Service
Bureau provides other market research firms with access to our Internet
panel and our sophisticated technology. We believe the Harris Internet
Service Bureau enables us to derive revenues from markets or industries
that we would not otherwise penetrate because we do not have client
relationships or specific expertise.
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- ACTIVELY MARKETING SPECIALIZED RESEARCH STUDIES. We offer our clients the
means to conduct specialized studies on highly targeted demographic groups
or subsets of the overall population, such as individuals who are
chronically ill. The availability of such groups within our Internet panel
dramatically reduces the cost of recruiting individuals for such studies.
ESTABLISH NEW STRATEGIC RELATIONSHIPS WORLDWIDE. We are actively seeking
new strategic relationships with leading organizations to rapidly expand our
Internet panel worldwide and facilitate new product development. Examples of new
strategic relationships that we are actively pursuing include:
- INTERNATIONAL RESEARCH DATA ALLIANCE. We are establishing an international
research alliance designed to build a worldwide Internet panel. This
alliance will comprise several international market research firms, each
of which will agree to contribute a certain number of unique cooperative
respondents who are willing to participate in online market research and
polling. These respondents' names will be licensed to the other members in
the alliance on a project-by-project basis. We will be exclusively
responsible for the database and monitoring its usage by members.
Currently, we are in discussions with several international market
research firms that we have identified as possible initial members in this
alliance.
- ALLIANCES WITH LEADING GLOBAL NEWS ORGANIZATIONS. In addition to the
program evaluation studies we currently provide for NBC, we are
negotiating with several leading news organizations worldwide to provide
other online television programming evaluations. In exchange for
conducting these evaluations, we will have access to the names of those
respondents to invite them to participate in our Internet panel.
FURTHER ENHANCE OUR SCALABLE, PROPRIETARY TECHNOLOGY INFRASTRUCTURE. We
have expended, and will continue to expend, substantial financial and management
resources in the development and improvement of our scalable, proprietary
technology infrastructure. Our efforts are focused on enhancing the speed,
sophistication, flexibility, functionality and security of our technology. Our
ongoing technology enhancements will allow us to better serve our clients and
better retain participants in our Internet panel, which will increase our
competitive position in the marketplace.
CONTINUE TO BUILD BRAND AWARENESS OF OUR INTERNET-BASED MARKET RESEARCH AND
POLLING PRODUCTS AND SERVICES. We intend to promote actively and aggressively
the awareness of the HARRIS POLL and HARRIS INTERACTIVE as the leading
full-service provider of high quality Internet-based market research and polling
products and services. We intend to utilize a combination of innovative and
cost-effective marketing programs designed to continue to build our brand name
recognition.
SEEK STRATEGIC ACQUISITIONS OR INVESTMENTS. The market research industry is
highly fragmented, providing opportunities to expand our business through
acquisitions or investments with:
- complementary businesses that own or have access to products and services
that we do not offer or that have strategic client relationships which we
do not possess;
- complementary proprietary technologies that would enhance our existing
technology infrastructure; and
- companies in countries where we are expanding our Internet panel
development and Internet-based market research and polling capabilities.
OUR RELATIONSHIP WITH EXCITE@HOME
Our agreement with Excite@Home is a key factor in the growth of our Internet
panel. Under our agreement, Excite@Home offers individuals who visit its web
site the opportunity to participate in a HARRIS POLL online survey. Under this
agreement, we have the exclusive right to use the names of those
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who voluntarily participate in a survey for purposes of conducting other
research and surveys. Excite@Home has the exclusive right to use those same
names for promotional and commercial marketing uses. This agreement provides us
with a rapid and cost-efficient means of building and replenishing our Internet
panel. Since its inception in 1997, substantially all of our 4.3 million names
of unique cooperative respondents came from Excite@Home. We have recently
entered into a new agreement with Excite@Home which will continue until October
1, 2002. This agreement will automatically renew for successive one-year terms
after that date, subject to either party's right to terminate upon 120 days'
prior notice. We have also entered into agreements with Excite@Home for the
provision of research services, including custom research and multi-client
research products, and the use and distribution of our ECOMMERCEPULSE
multi-client research product. We have also entered into discussions with
Excite@Home related to the development and distribution of co-branded Internet-
based panels and polls.
OUR PRODUCTS AND SERVICES
We are a full-service provider of market research and polling services,
utilizing both Internet-based and traditional survey methodologies. Our business
model comprises four main sources of revenues:
- custom research;
- multi-client research;
- service bureau research; and
- customer relationship services.
Our custom research products and services and our customer relationship
services are provided using both traditional and Internet-based methodologies,
while our remaining products have been recently developed exclusively using the
Internet-based model. For fiscal 1999, 90% of our total revenues were derived
from custom research utilizing traditional research methods, and 10% of our
total revenues were derived from our Internet-based products and services. We
are transitioning our custom research and polling products and services to
Internet-based research. We plan to dedicate a significant amount of our
financial and management resources to develop and market additional products and
services which utilize our Internet-based methodologies.
The following table summarizes our products and services.
<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION METHODOLOGY
- --------------------------- ------------------------------------------------------ ---------------------------
<S> <C> <C>
Custom Research Market research and polling conducted on an issue Traditional and Internet-
specifically identified by a client based
Multi-Client Research Studies developed for and sold to a large number of Internet-based
clients who have a similar interest in a particular
subject area
Harris Interactive Service Market research and polling conducted for other market Internet-based
Bureau research organizations
Customer Relationship Outsourced customer service operations for Traditional and Internet-
Services corporations and organizations based
</TABLE>
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CUSTOM RESEARCH
For more than 40 years, we have provided custom business and consumer
research to a broad range of companies, non-profit organizations and
governmental agencies. In custom research, we have particular expertise in the
following markets:
- office equipment and technology;
- pharmaceuticals;
- healthcare;
- education and public policy; and
- transportation.
We conduct custom research using a variety of traditional methodologies,
including direct mail, telephone-based surveys, mall intercepts, focus groups
and in-person interviews. We use these methods to produce a variety of surveys
and polls, including customer satisfaction surveys, market share studies, new
product introduction studies and brand recognition studies.
Although we rely upon the same methodologies as our competitors with respect
to traditional market research and polling services, we believe that we have
developed several unique competitive strengths in custom research. First, our
proprietary sample design techniques and our questionnaire development process
result in the collection of complete and accurate information responsive to the
specific inquiries of our clients. We have also developed in-depth data
collection techniques that enhance the integrity and reliability of our sample
database. Moreover, we take affirmative steps to assure that our responses are
derived from the appropriate decision makers in each particular survey so as to
assure the accuracy of our results. As a result, we are able to deliver
samplings that represent the desired demographics of our clients based on our
significant expertise in assembling appropriate samples and in developing
effective survey content.
Revenues derived from custom research services in fiscal 1999 were $28.3
million representing 97.7% of our total revenues.
MULTI-CLIENT RESEARCH
Multi-client research products are studies that are conducted and sold on a
subscription basis to a large number of individuals or companies that have an
interest in a particular market segment or research application. Our
multi-client products are developed on an independent or co-branded basis. Our
independent multi-client products are developed and marketed by us. Co-branding
involves the development and marketing of a study with another party having a
unique experience base in a particular subject or market. These other parties
are able to conduct research and collect useful data in their area of expertise
that they could not do without our Internet panel and technology infrastructure.
By combining their expertise and our Internet-based market research
capabilities, we are able to develop and market a product that benefits both
parties.
Our current multi-client products include:
- ECOMMERCEPULSE, a quarterly survey of more than 100,000 online shoppers
assessing the performance of approximately 200 widely visited e-commerce
websites. This service tracks such issues as online brand awareness,
market presence, customer purchases, customer satisfaction, customer
loyalty and future buying intention. ECOMMERCEPULSE also provides analysts
and online merchants with unique, detailed insights into trends which are
emerging in the e-commerce industry.
- INTERMEDIAPULSE, a new monthly consumer tracking survey that captures the
media usage and consumer purchase behaviors of more than 100,000 adults
each year.
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- ELECTION 2000, an Internet-based polling of the year 2000 elections,
including the presidential election, 33 senate elections, 13 gubernatorial
elections and a number of congressional elections.
- HEALTHCARE ONLINE, a combination of research products that draw on a
subset of approximately 280,000 households in our Internet panel, in which
someone has been diagnosed with a chronic medical condition. We conduct a
wide range of health-related research, including large-scale population
health surveys, surveys of health care providers, surveys of traditional
difficult-to-reach populations, as well as clinical trial recruitment and
post-market surveillance.
- SKIER/SNOWBOARDER, a survey of individuals who have skied in the past two
years. This study is co-branded with Talmey-Drake.
- GOMEZ ONLINE TRADING STUDY, a study that tracks quarterly changes in the
online securities trading industry. This study is co-branded with Gomez
Advisors.
- QUICKQUERY, a convenient, cost-effective method for asking questions and
getting accurate responses from more than 2,000 respondents in a two-day
period.
- HARRIS ACE AWARDS, an annual award, based on a survey of individual
satisfaction with exercise equipment. This award is a collaboration with
the American Council on Exercise and is presented to manufacturers of
various types of exercise equipment. We believe that we can expand this
model to other industries.
- TELEPHIA WIRELESS COMMUNICATION STUDY, a study that tracks consumer use of
wireless communication usage by geographic market. This study is
co-branded with Telephia.
- QUICKSCREENER, a cost-efficient way to conduct high-quality single concept
screening, offering results from up to 300 respondents per concept, within
a week.
- QUICKINSIGHTS, a cost-effective research tool designed for gaining
consumer insights from small, targeted populations.
Revenues derived from multi-client research products in fiscal 1999 were
$0.1 million, representing 0.5% of our total revenues.
HARRIS INTERACTIVE SERVICE BUREAU
Our Harris Interactive Service Bureau conducts Internet-based market
research for other market research firms and other organizations that either do
not have the necessary resources to develop an Internet-based market research
service or that have otherwise chosen not to develop such a capability
themselves. Harris Interactive Service Bureau provides us with a new
revenue-generating source utilizing our data collection capabilities, our
proprietary Internet panel and our scalable technology infrastructure. It
enables us to penetrate markets or industries in which we do not have
relationships or specific expertise. We believe that Harris Interactive Service
Bureau reduces the likelihood that those market research firms and other
organizations, which are our clients, will invest significant financial and
management resources in developing their own Internet-based market research
capabilities.
Harris Interactive Service Bureau clients can access our data collection
facilities on a long-term, continuous basis or on a project-by-project basis. We
currently have a long-term agreement with Market Facts, Inc., a major research
firm that focuses on mail panel research. Our agreement with Market Facts
extends through April 2004, and is automatically renewed for one year terms
subject to termination on one year's notice. Market Facts has agreed to pay us
fees to access and use our Internet panel and technologies. In addition, it has
agreed to use us exclusively for all of its Internet-based data collection
rather than developing similar research capabilities during the term of the
agreement. ACNielsen, one of the leading market research firms in the United
States, uses our data collection facilities on a project-by-project basis.
Revenues derived from Harris Interactive Service Bureau in fiscal 1999 were
$0.4 million, representing 1.2% of our total revenues.
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CUSTOMER RELATIONSHIP SERVICES
By combining our traditional telephone research capabilities, our experience
in customer contact services, and our sophisticated technology infrastructure,
we provide high quality customer relationship services to clients. Our services
include maintaining customer contact on behalf of our clients for the collection
of customer-specific data and provision of "help desk" services. We have an
agreement to use LivePerson, an interactive communications software program,
that allows us to provide assistance to the customers of our clients using both
the telephone and the Internet. The LivePerson software enables us to transition
the utilization of our telephone interviewing facilities and personnel to
Internet-based customer relationship services.
Revenues derived from customer relationship services in fiscal 1999 were
$0.2 million, representing 0.6% of our total revenues.
OUR CLIENTS
For over 40 years, we have provided high quality market research products
and services to a broad range of companies, non-profit organizations and
governmental agencies. A selected list of our clients includes the following,
each of which accounted for more than $100,000 of revenues in fiscal 1999.
<TABLE>
<S> <C>
MANUFACTURING SERVICES
The Dow Chemical Company ACNielsen Corporation
Eastman Kodak Company Danka Business Systems, PLC
General Motors Corporation Metropolitan Life Insurance Company
Moog Inc. Roadway Express, Inc.
Xerox Corporation United Parcel Service of America, Inc.
</TABLE>
<TABLE>
<S> <C>
TECHNOLOGY EDUCATION/NON-PROFIT
Ameritech Corporation American Medical Association
Compaq Computer Corporation Educational Testing Service
Excite@Home Harvard School of Public Health
International Business Machines
Corporation The University of Michigan
Packard Bell NEC, Inc. The University of Texas
</TABLE>
<TABLE>
<S> <C>
HEALTHCARE/PHARMACEUTICALS OTHER
Blue Cross and Blue Shield of New Jersey CCH Incorporated
Girl Scouts of the United States of
Bristol-Myers Squibb Company America
Cordis Webster, Inc. National Collegiate Athletic Association
Johnson & Johnson Nationwide Insurance Enterprise
Merck & Co., Inc. Ryder System, Inc.
</TABLE>
We derive a substantial portion of our total revenues from Xerox Corporation
and Johnson & Johnson. In fiscal 1999, 15% of our total revenues was derived
from Xerox Corporation and 14% of our total revenues was derived from Johnson &
Johnson. In fiscal 1998, 15% of our total revenues was derived from Xerox
Corporation and 19% of our total revenues was derived from Johnson & Johnson. In
fiscal 1997, Xerox Corporation accounted for approximately 22% of our total
revenues.
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OUR TECHNOLOGY INFRASTRUCTURE
We have expended, and will continue to expend, significant financial and
management resources to develop and improve our scalable proprietary technology
infrastructure capable of offering our clients high quality Internet-based
market research and polling products and services.
Key components of our technology infrastructure are:
- HIGH SPEED CUSTOMIZED E-MAIL. We send e-mail messages customized for each
panel member targeted as a survey respondent for a project. These e-mail
messages can be formatted rapidly and customized to the individual's
e-mail for receipt in rich text or plain format. Our current capacity is
over 290,000 e-mails per hour.
- SOPHISTICATED SURVEY ENGINE. Our survey engine constructs the page
necessary to ask the respondent a single question or small group of
questions. After the respondents submit their answers, the answers are
immediately checked for respondent errors and processed into the database.
The survey engine then produces the next appropriate question, a process
which continues until the survey is complete. The survey engine provides
the same interactive function as a telephone interview, with all of the
visual, sound, and animation properties of the Internet. Our survey engine
can perform complex experimental designs, randomization, rotation of
questions and response sets, successive disclosure, and reduction and
expansion of response sets based on previous answers. Our current capacity
is 144,000 five-minute completed surveys per hour.
- INTELLIGENT SURVEY DISPATCH SYSTEM. Our survey dispatcher system allows a
single survey project to be conducted over several independently operating
survey engines. It also allows a single survey engine to process
respondents to several different surveys at the same time. Our dispatcher
system observes the load on the survey engines and distributes incoming
respondents appropriately. It checks that valid passwords have been
entered and it senses systems outages and routes around them. It also
allows survey respondents to suspend a survey, return to the point of
suspension at a later time, and resume where they suspended. Finally, it
gathers real time statistics on survey starts, suspensions and
completions.
- FLEXIBLE, POWERFUL REPORTING TOOLS. We are deploying an online reporting
system that will enable us to process data from the raw completed survey,
through various stages, to a data repository. Using a secure web
interface, clients will be able to access the data, view standard tables
and perform their own analysis with the ability to view data on multiple
levels of detail.
- CUSTOMIZABLE MULTI-LANGUAGE AND MULTI-COUNTRY REGISTRATION AND POLLING
SYSTEM. Our proprietary technology infrastructure allows panel members to
update their own registration information online, as well as add new
respondents to their household, or remove themselves from the database. It
recognizes and stores the member's country and language of choice, so that
information and prompts are provided in their own language. It allows
registration questions to be customized by mode of solicitation. It
provides an incentive to register for the panel by providing the panel
member with the results of the survey to date.
- CONTENT PROTECTION SYSTEM. Our CONCEPTLOC encryption system allows our
clients' proprietary information to be presented to survey respondents in
such a way that they are able to view it on their computer screens for the
purpose of survey participation, but cannot retain the content in a usable
electronic form after viewing. While on the screen, the CONCEPTLOC viewer
disables all of the computer's ability to capture the image, the "Save As"
function, the "Print Screen" key, and any screen saver program interrupts.
The decryption is done in real time. The clear text image is available
only on the screen and is never saved to the computer's memory.
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In fiscal 1997, 1998 and 1999, we expended $137,000, $165,000 and $518,000,
respectively, for research and development of technologies for data collection
and communication.
OUR SYSTEM
Our system consists of more than 40 servers supporting a variety of
functions, operating on a 24-hour, seven days a week basis and conforming to our
stringent performance requirements.
The majority of our servers run the Microsoft NT operating system. Our web
servers run Microsoft Internet Information Server software, with custom written
ISAPI filters and Active Server Pages applications. Our application software is
a combination of off-the-shelf programs and custom-designed programs created by
our in-house engineers and outside consultants. Our database system is Microsoft
SQL Server.
We maintain most of our servers at the Verio Collocation Facility in
Rochester, New York, while some servers are maintained at our corporate
headquarters location in Rochester, New York. A high-speed private line connects
the two locations. Our operations are dependent on Verio's ability to protect
its systems against damage from fire, earthquakes, power loss,
telecommunications failure, break-ins and other similar events. We maintain our
own uninterruptible power supply and heating, ventilation and air conditioning
systems that are independent of the Verio facilities.
Our data are backed up to magnetic tape on a daily basis. Except for servers
used for interactive communication with our Internet panel and the general
public, access to our servers is restricted to authorized users in reliance on
secure communication channels. Strong physical security is in place at both
server locations. We monitor computer security bulletins both from the
manufacturers, as well as government and public advocacy organizations.
Operating systems are continuously upgraded with security program revisions as
they become available.
OUR SALES AND MARKETING PROGRAMS
We have designed and implemented a broad range of sales and marketing
programs, intended to:
- enhance the brand recognition of the HARRIS POLL and build brand name
recognition for HARRIS INTERACTIVE;
- add new clients who purchase our products and services;
- expand our Internet panel; and
- develop additional ways to increase our revenues.
Our marketing activities include both offline advertising and online
promotion, including print publications and direct mail, and promotion on online
portals, including Excite@Home.
- OFFLINE ADVERTISING. We use offline advertising for continuous promotion
of our brand name and our associated products and services. As we
transition our business to the Internet, we engage in promotional
activities with our offline clients about our Internet products and
services. Our most significant offline promotional activity is our
continuous release of HARRIS POLL results to the public. These results are
reported by various newswire services, such as UNITED PRESS INTERNATIONAL,
the ASSOCIATED PRESS and GANNETT NEWS SERVICE. Our offline advertising and
promotional efforts also include print advertising in MARKETING NEWS,
QUIRKS MAGAZINE, INDUSTRY STANDARD, ADVERTISING AGE, other publications
and client brochures.
- ONLINE PROMOTION. We have entered into relationships with Excite@Home and
ZDNet, which allow us to place the HARRIS POLL icon on these online
portals or websites. The HARRIS POLL icon provides a direct link to our
website.
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We recently developed a formal sales management structure, and in July 1999
hired a Vice President of Sales. We intend to create a separate sales force
dedicated to marketing our multi-client products and our Harris Interactive
Service Bureau services.
OUR COMPETITION
The traditional market research and polling industry is highly competitive.
The Internet-based market research and polling industry is new and rapidly
evolving. We expect competition to intensify as existing market research firms
recognize the significance of the Internet to their business and as other
companies already engaged in Internet-based services recognize the potential
market.
In our traditional market research and polling business, we compete on the
basis of our proprietary sample designs techniques, our questionnaire
development, our in-depth data collection and our ability to deliver samplings
that represent the desired demographics of our clients. We believe that the
primary competitive factors in the Internet-based market research and polling
industry are:
- a large and diverse proprietary Internet panel, with geographic scope and
demographic depth;
- a scalable proprietary Internet technology platform to provide a variety
of services and operational support;
- quality, depth and breadth of products and services offered;
- brand recognition and strong reputation; and
- cost.
In the delivery of both our traditional and Internet-based market research
products and services, we compete with numerous market research firms, as well
as corporations and individuals that perform market research studies on an
isolated basis, many of whom have market shares larger than our own. We will
likely also face competition in the future from other traditional market
research firms who move into Internet-based technologies or other companies with
access to large databases of individuals with whom they can communicate on the
Internet. These companies may, either alone or in alliances with other firms,
attempt to penetrate this market.
Many of our current and potential competitors have longer operating
histories, significantly greater financial and marketing resources. These
competitors may be able to undertake more extensive marketing campaigns for
their services, adopt more aggressive pricing policies and make more attractive
offers to potential employees, partners, and potential customers. Further, our
competitors and potential competitors may develop technologies that are superior
to ours, or that achieve greater market acceptance than our own.
OUR INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success is dependent upon proprietary software technology, research
methods, data analysis techniques, and internal systems and procedures that we
have developed to address client and Internet-based market research needs. Our
intellectual property is essential to our success and we rely on a combination
of patent, copyright, trademark and trade secret laws and confidentiality and
license agreements with our employees, clients, independent contractors and
other third parties to further protect our proprietary rights, software and
procedures. We currently have two patents pending. One pending patent covers a
multi-location and multi-language registration and polling system being placed
on a variety of websites. Our other pending patent covers our CONCEPTLOC
encryption system. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are made
available.
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Under the terms of our acquisition of Louis Harris & Associates, we
purchased the HARRIS name, including the HARRIS POLL, for use in the United
States. The prior owner of Louis Harris & Associates sold the HARRIS name for
use in Europe and the European portions of the former Soviet Union. Accordingly,
we intend to adopt and promote a new trademark for use in those territories
under which we will offer and sell our Internet-based market research and
polling products and services.
We have licensed in the past, and expect to license in the future, certain
of our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of our brand is maintained
by these licensees, licensees may take actions that might harm the value of our
proprietary rights or reputation. The steps taken by us to protect our
proprietary rights may not be adequate and third parties may infringe or
misappropriate our copyrights, trademarks and similar proprietary rights. In
addition, other parties may assert claims of infringement of intellectual
property or other proprietary rights against us.
In addition, there can be no assurance that third parties will not
independently develop functionally equivalent or superior systems, software or
procedures. We believe that our systems, software and procedures and other
proprietary rights do not infringe on the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against us in the future or that any such claim will not
require us to enter into materially adverse license agreements or result in
protracted and costly litigation, regardless of the merits of such claims.
EMPLOYEES
As of September 15, 1999, we employed a total of 728 persons on a full-time
basis. We also employed 150 part-time individuals. None of our employees is
represented by a collective bargaining agreement. We have not experienced any
work stoppages. We consider our relationship with our employees to be good.
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FACILITIES
The following table describes our facilities:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE USE TERM OF LEASE
- ------------------------ --------------- -------------------------- --------------------------------------------
<S> <C> <C> <C>
Rochester, New York 50,000 Principal corporate Expires June 30, 2003 with one 5-year
(Corporate Woods) offices renewal option
Rochester, New York 29,600 Telephone interviewing and 13,780 square foot lease expires July 1,
(Carlson Road) customer relationship 2008 with one 3-year renewal option; 10,600
services center square foot lease and 5,220 square foot
lease both expire June 30, 2001 and each has
one 2-year and 4-month renewal option and
one 4-year renewal option
New York, New York 21,000 Health and public policy Expires December 31, 2004 with two 5-year
management, project and renewal options
data processing staff
Vestal, New York 5,000 Telephone interviewing and Expires December 31, 2001 with one 5-year
customer relationship renewal option
services center
Boardman, Ohio 5,500 Telephone interviewing and 4,300 square foot lease is a month-to- month
customer relationship lease; 1200 square foot lease expires March
services center 31, 2000 with one 6-month renewal option
San Francisco, 3,000 Corporate office Month-to-month lease
California
</TABLE>
We lease all of our facilities and believe our current facilities are
adequate to meet our needs for the foreseeable future. We believe additional or
alternative facilities can be leased to meet our future needs on commercially
reasonable terms.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings in the
ordinary course of business. These claims, even if without merit, could cause us
to expend significant financial and managerial resources which could adversely
affect our business operations.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees and directors as of August 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
Gordon S. Black(a)..................... 57 Chairman of the Board and Chief Executive Officer
David H. Clemm(a)...................... 54 President, Chief Operating Officer and Director
Leonard R. Bayer....................... 49 Executive Vice President, Chief Technology Officer and Director
Elizabeth K. Abbas..................... 52 Executive Vice President, International Division
Arthur E. Coles........................ 56 Executive Vice President, Marketing and Business Development
Kathy C. Lee........................... 44 Executive Vice President, Sales
Bruce A. Newman........................ 45 Chief Financial Officer, Secretary and Treasurer
KEY EMPLOYEES
Rick S. Geiger......................... 42 President, Data Collection Services Division
Stephen J. Hodownes.................... 40 President, Harris Consulting Division
Robert C. Kallstrand................... 56 President, Business and Consumer Research Division
Robert L. Leitman...................... 52 President, Healthcare and Public Policy Research Division
Gregory T. Novak....................... 37 President, Internet Division
DIRECTORS
Thomas D. Berman(b)(c)................. 41 Director
G. Thomas Clark(b)(c).................. 61 Director
James R. Riedman(b)(c)................. 40 Director
</TABLE>
- ------------------------
(a) Non-voting, ex-officio member of the Compensation Committee
(b) Member of the Audit Committee
(c) Member of the Compensation Committee
EXECUTIVE OFFICERS
GORDON S. BLACK has served as our Chairman of the Board and Chief Executive
Officer since he founded Gordon S. Black Corporation in July 1975. From July
1968 to June 1978, Dr. Black was a member of the faculty of the University of
Rochester, where he was an Associate Professor with tenure. Dr. Black received a
Ph.D. in Political Science from Stanford University and a B.A. degree in
Political Science from Washington University.
DAVID H. CLEMM has served as our President and Chief Operating Officer, and
as a director of our company, since April 1984. From November 1981 to March
1984, Mr. Clemm worked for Bausch & Lomb, Inc., where he held a variety of
senior positions as Vice President of Marketing Operations for Graphic Products
and Vice President and General Manager of the Ophthalmic Instruments Division.
From May 1980 to November 1981, Mr. Clemm served as Manager of Market Research
at Xerox Corporation. From June 1973 to June 1979, Mr. Clemm served as manager
of Financial Operations for the Branded Products Division of Pennzoil Company.
Mr. Clemm received an M.B.A. from Boston University and a B.S. degree from the
United States Military Academy at West Point.
LEONARD R. BAYER has served as our Executive Vice President and Chief
Technology Officer, and as a director of our company, since July 1978. From
August 1976 to July 1978, Mr. Bayer worked for
43
<PAGE>
Practice Development Corporation where he served as Vice President of Research
and Development. From September 1975 to August 1976, Mr. Bayer was a member of
the faculty of the University of Rochester School of Medicine where he taught
mathematical statistics. Mr. Bayer received an M.A. degree in Statistics, a B.S.
degree in Astrophysics and a B.A. degree in Mathematics from the University of
Rochester.
ELIZABETH K. ABBAS has served as our Executive Vice President of the
International Division since January 1999. From October 1996 to December 1998,
she served as an independent consultant to us while she resided in Japan. From
June 1986 to October 1996, Dr. Abbas served as Vice President of Research of the
Gordon S. Black Corporation. From June 1980 to June 1986, Dr. Abbas served as a
project manager of the Gordon S. Black Corporation. Dr. Abbas received a Ph.D.
degree in Education and an M.S. degree in Family and Consumption Economics from
the University of Illinois and a B.A. degree in Education from Central College,
Pella, Iowa.
ARTHUR E. COLES has served as our Executive Vice President of Marketing and
Business Development since June 1999. Mr. Coles was President and Chief
Executive Officer of the Gordon S. Black Corporation from June 1997 to June
1999. Prior to joining our company, Mr. Coles worked for Eastman Kodak Company,
where he served as Corporate Director of Digital Strategic Planning. Mr. Coles
received an M.B.A. from the Rochester Institute of Technology and a B.S. degree
in Mathematics from the State University of New York at Albany.
KATHY C. LEE has served as our Executive Vice President of Sales since July
1999. Prior to joining our company, she spent 22 years with IBM, holding a
variety of sales and sales management positions. Ms. Lee received her B.A. in
Business Administration and Political Science from Albion College.
BRUCE A. NEWMAN has served as our Chief Financial Officer, Secretary and
Treasurer since January 1986. From July 1980 to January 1986, Mr. Newman served
as Treasury Manager of The Case-Hoyt Corporation, a national printer. From July
1975 to August 1978, Mr. Newman worked for Price Waterhouse. Mr. Newman received
a B.A. in accounting from the State University of New York at Albany and is a
Certified Public Accountant.
KEY EMPLOYEES
RICK S. GEIGER has served as the President of our Data Collection Services
Division since January 1997. Previously, Mr. Geiger worked at the E.I. Dupont
Company from 1980 to 1994 in various positions, including Manufacturing Manager,
Supply Chain Manager, Sales and Marketing Management. Mr. Geiger received a J.D.
from the School of Law, University at Buffalo, State University of New York, an
M.B.A. from the Executive Development Program at the William E. Simon Graduate
School of Business at the University of Rochester and a B.S. degree in
Organizational Management from Roberts Wesleyan College. Mr. Geiger is a
practicing attorney in New York State.
STEPHEN J. HODOWNES has served as the President of our Harris Consulting
Division since October 1995. Prior to October 1995, Mr. Hodownes worked for
Xerox Corporation in various positions, including as a director of Worldwide
Loyalty Marketing, Manager of Customer Corporation Retention and Loyalty
Operations and Manager of Customer Satisfaction for U.S. Operations. Mr.
Hodownes received an M.B.A. from the Executive Development Program at the
University of Rochester and a B.S. degree in Computer Science from the Rochester
Institute of Technology.
ROBERT C. KALLSTRAND has served as the President of our Business and
Consumer Research Division since July 1999. Mr. Kallstrand was Executive Vice
President and Chief Operating Officer of Gordon S. Black Corporation from July
1997 to July 1999. From 1986 until July 1997, he served in various executive
capacities for our company. Mr. Kallstrand received B.A. degrees in Economics
and Psychology from the University of Rochester.
44
<PAGE>
ROBERT L. LEITMAN has served as the President of our Health, Education and
Public Policy Division since July 1999. From February 1996 to July 1999, he
served as our Chief Operating Officer and served in various other executive
capacities from 1991 to February 1996. Mr. Leitman received an M.S. degree in
Sociology from the University of Connecticut and a B.A. degree in Sociology from
the State University of New York at Stony Brook.
GREGORY T. NOVAK has served as the President of our Internet Division since
June 1999. Prior to joining our company, Mr. Novak was Vice President/General
Manager of Lightning America's, a unit of GSX. Mr. Novak received an M.S. in
Management from Purdue University's Krannert Business School and a B.S. in
Mechanical Engineering from the University of Pittsburgh. Mr. Novak is also a
graduate of General Electric's Nuclear Power Engineering Program and Corporate
Analyst's Training and Development Program.
DIRECTORS
THOMAS D. BERMAN has served as a director of our company since July 1998.
Mr. Berman is an Executive Director of Brinson Partners, Inc., an investment
management firm. Mr. Berman received an S.M. from Massachusetts Institute of
Technology, Sloan School of Management and an S.B. degree in Electrical
Engineering from Massachusetts Institute of Technology. Mr. Berman is a director
of Creo Products Inc., a publicly-traded computer-to-plate prepress equipment
company, and is a member of the compensation, nominating and corporate
governance committees of its board of directors.
G. THOMAS CLARK has served as a director of our company since October 1989.
From April 1979 until his retirement in November 1996, Mr. Clark served as
Senior Vice President of Finance, Secretary and Treasurer of Paychex, Inc. and
currently serves on the board of directors of Paychex. Mr. Clark received a B.S.
degree in Business Administration from Bucknell.
JAMES R. RIEDMAN has served as a director of our company since October 1989.
Mr. Riedman is the President of the Riedman Corp., an insurance agency. From
April 1984 to January 1987, Mr. Riedman served as Senior Vice President of
Transamerica Financial Systems and Concepts. Mr. Riedman also worked for the
Balboa Insurance Group from January 1983 to April 1984, where he served as
Director of Corporate Planning. Mr. Riedman received an M.S. degree in Risk and
Insurance and Finance from the University of Wisconsin and a B.A. degree in
Business Administration from the University of Notre Dame.
Each officer serves at the discretion of our board of directors. There are
no family relationships between any of our directors or executive officers.
VOTING AGREEMENT. Under a voting agreement among our company, the holders
of our preferred stock, Gordon S. Black, David H. Clemm and Leonard R. Bayer:
- the preferred stockholders are entitled to designate two individuals to
serve as directors and, so long as BVCF III L.P., formerly Brinson Venture
Capital Fund III, L.P., is a stockholder, it shall designate these
individuals. Thomas D. Berman is the designee of BVCF III under these
arrangements;
- each of Dr. Black, Mr. Clemm and Mr. Bayer is to be elected as a director
so long as he is a senior executive of our company and owns at least 50%
of the common stock of our company he owned on July 1, 1998; and
- two directors are to be elected jointly by the preferred stockholders and
by Dr. Black, Mr. Clemm and Mr. Bayer. G. Thomas Clark and James R.
Riedman have been elected pursuant to this arrangement.
This voting agreement will terminate upon the completion of this offering.
45
<PAGE>
BOARD COMPOSITION
Our board of directors consists of six directors divided into three classes
with each class serving for a term of three years and such term initially
expiring on the annual stockholder meeting to be held in the year set forth
below:
<TABLE>
<CAPTION>
CLASS EXPIRATION MEMBERS
- ---------------------------------------------- ------------- -----------------------
<S> <C> <C>
Class I 2000 Leonard R. Bayer
G. Thomas Clark
Class II 2001 Thomas D. Berman
David H. Clemm
Class III 2002 Gordon S. Black
James R. Riedman
</TABLE>
At each annual meeting of stockholders, directors will be elected by the
holders of common stock to succeed those directors whose terms are expiring.
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The audit committee of the board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The audit committee currently consists of Thomas D.
Berman, G. Thomas Clark and James R. Riedman.
The compensation committee of the board of directors reviews and recommends
to the board of directors the compensation and benefits of all of our executive
officers and establishes and reviews general policies relating to compensation
and benefits of our employees. The compensation committee currently consists of
Thomas D. Berman, G. Thomas Clark and James R. Riedman, with Gordon S. Black and
David H. Clemm serving as non-voting, ex-officio committee members. Gordon S.
Black and David H. Clemm participate in all decisions regarding salaries and
incentive compensation for all employees and consultants, except that they are
excluded from discussions regarding their own salary and incentive compensation.
None of Mr. Berman, Mr. Clark or Mr. Riedman has at any time been an officer
or employee of our company. Mr. Berman is an executive director of Brinson
Partners, Inc., the investment advisor to the Virginia Retirement System and
Brinson Map Venture Capital Fund III Trust, a member of Brinson Venture
Management LLC, the investment adviser to BVCF III, L.P. and an assistant trust
officer of Brinson Trust Company, the trustee for Brinson Map Venture Capital
Fund III Trust. See "Certain Transactions."
No interlocking relationship exists between our board of directors or our
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
Our non-employee directors, other than Thomas D. Berman, are paid a fee of
$750 for each board meeting attended, and are entitled to reimbursement for
expenses incurred in attending board meetings. We do not presently provide
additional compensation for committee participation or special assignments of
the board of directors. In September 1998, G. Thomas Clark and James R. Riedman
each received options to purchase an aggregate of 28,000 shares of common stock
at an exercise price per share of $0.465. See "Employee Benefit Plans--1999 Long
Term Incentive Plan" for a description of options that may be granted to
directors.
46
<PAGE>
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our restated certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Delaware General
Corporation Law provides that the personal liability of a director for monetary
damages for breach of his or her fiduciary duties as a director may be
eliminated, except for:
- any breach of the director's duty of loyalty to a corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we may indemnify our directors and officers and may
indemnify our other employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our bylaws covers at least
negligence and gross negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in that
capacity, regardless of whether the bylaws would permit indemnification.
We intend to obtain directors' and officers' insurance providing
indemnification for our directors, officers and some of our employees for
certain liabilities. We believe that this insurance is necessary to attract and
retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation we paid to our Chief
Executive Officer and our four other most highly compensated executive officers
who earned more than $100,000 during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#)
- ----------------------------------------------------------------- ---------- ----------- -----------------------
<S> <C> <C> <C>
Gordon S. Black.................................................. $ 300,000 $ 12,000 --
Chief Executive Officer
David H. Clemm................................................... 285,000 11,400 --
President and Chief Operating Officer
Leonard R. Bayer................................................. 256,000 10,250 --
Executive Vice President and Chief Technology Officer
Elizabeth K. Abbas............................................... 125,000 5,000 84,000
Executive Vice President, International Division
Arthur E. Coles.................................................. 160,000 30,000 --
Executive Vice President, Marketing and Business Development
</TABLE>
47
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth information with respect to stock options
granted to our Chief Executive Officer and our four other most highly
compensated executive officers during fiscal 1999. We have never granted any
stock appreciation rights. The exercise price per share was equal to the fair
value of the common stock on the date of grant as determined by the board of
directors. Percentage of total options is based on an aggregate of 560,000
options granted in fiscal 1999. Potential realizable values are net of exercise
price, but before the payment of taxes associated with exercise. Amounts
represent hypothetical gains that could be achieved for the respective options
if exercised at the end of the option term. The 5% and 10% assumed annual rates
of computed stock price appreciation are mandated by rules of the SEC and do not
represent our estimate or projection of our future common stock price. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
INDIVIDUAL GRANTS RATES OF
------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -----------
GRANTED IN FISCAL YEAR PER SHARE DATE 5%
----------- ----------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Gordon S. Black................................ -- -- -- -- --
David H. Clemm................................. -- -- -- -- --
Leonard R. Bayer............................... -- -- -- -- --
Elizabeth K. Abbas............................. 84,000 15% $ 1.26 2/2/09 $ 5,289
Arthur E. Coles................................ -- -- -- -- --
<CAPTION>
10%
---------
<S> <C>
Gordon S. Black................................ --
David H. Clemm................................. --
Leonard R. Bayer............................... --
Elizabeth K. Abbas............................. $ 10,578
Arthur E. Coles................................ --
</TABLE>
The following table sets forth information concerning stock options held as
of June 30, 1999 by our Chief Executive Officer and our four other most highly
compensated executive officers. No options were exercised by these officers in
fiscal 1999. The value of unexercised in-the-money options at fiscal year-end is
based on $3.70 per share, the assumed fair value of the common stock at June 30,
1999, less the exercise price per share.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1999 JUNE 30, 1999
------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Gordon S. Black.......................................... -- -- -- --
David H. Clemm........................................... 1,274,000 364,000 $ 4,687,240 $ 1,379,210
Leonard R. Bayer......................................... -- -- -- --
Elizabeth K. Abbas....................................... -- 84,000 -- 311,100
Arthur E. Coles.......................................... 56,000 112,000 207,400 414,800
</TABLE>
All of Mr. Clemm's, Dr. Abbas's and Mr. Coles's unvested options will vest
immediately upon the closing of this offering.
48
<PAGE>
EMPLOYEE BENEFIT PLANS
STOCK OPTIONS. We have granted non-qualified stock options from time to
time. In 1997, we adopted our 1997 stock option plan, which provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code and for the granting to employees and
consultants of non-qualified stock options. A total of 4,499,600 shares of
common stock were available for the grant of options under the plan. In
connection with this offering, the 1997 stock option plan was terminated. All
options issued under the plan and that remain outstanding are exercisable in
accordance with their terms.
1997 STOCK PROGRAM. Our 1997 stock program, provided for the:
- granting to employees the right to purchase shares of common stock;
- award of stock bonuses; and
- our repurchase of shares of common stock issued pursuant to the plan.
Any rights to purchase shares of common stock granted to employees under the
1997 stock program terminated 30 days from the date of grant. The aggregate
number of shares of stock awarded as bonuses in any fiscal year could not
exceed, based on the value of the stock as determined by the board of directors,
$500,000. Each fiscal year, we undertook, but were not obligated, to repurchase
that number of shares that was equal to the number of shares subject to purchase
by employees and the number of shares awarded as bonuses. The 1997 stock program
was terminated in connection with this offering.
1999 LONG-TERM INCENTIVE PLAN. In September 1999, our board of directors
and stockholders adopted our 1999 long-term incentive plan. We have reserved
1,250,000 shares of common stock for issuance under the plan. Pursuant to this
plan, we may grant certain combinations of the following to our employees,
officers and non-employee directors, or to the employees, officers and
non-employee directors of our subsidiaries:
- stock options, both incentive stock options within the meaning of Section
422 of the Internal Revenue Code and non-qualified stock options;
- stock appreciation rights;
- restricted or unrestricted share awards; and
- performance-based awards.
The plan is administered by a committee appointed by our board of directors.
The committee will select the individuals to whom options are granted and will
specify the terms of the options.
- INCENTIVE STOCK OPTIONS. These options may only be granted to our
employees, and may not be exercised more than 10 years after the date of
grant. The exercise price must be at least equal to the fair market value
of our common stock on the date of grant. The purchase price of the shares
issued upon exercise of these options may be paid in cash or shares of
common stock having a total fair market value equal to the aggregate
purchase price.
- NON-QUALIFIED STOCK OPTIONS. These options may not be exercised more than
10 years after the date of grant. The purchase price of shares issued upon
exercise of these options may be paid in cash or shares of common stock
having a total fair market value equal to the aggregate purchase price.
- STOCK APPRECIATION RIGHTS. These rights may be granted on a free-standing
or tandem basis. The term of exercise will be determined by the committee,
but in no event will be more than 10 years from the date of grant. These
rights generally entitle the holder to receive a payment
49
<PAGE>
having an aggregate value equal to the product of the excess of the fair
market value over the exercise price per share specified in the grant
multiplied by the number of shares specified in the award. Payment by us
of the amount receivable in respect of the stock appreciation right may be
paid in any combination of cash and common stock.
The 1999 long-term incentive plan provides for adjustments if a
recapitalization or other change in our common stock dilutes the rights of the
1999 long-term incentive plan participants. The board has the authority to
amend, suspend or terminate the plan, provided that no action may affect any
awards previously made under the plan. No options or awards have been granted
under this plan.
EMPLOYEE STOCK PURCHASE PLAN. In September 1999, our board of directors and
stockholders adopted an employee stock purchase plan under which a total of
500,000 shares of common stock are available for sale. The purchase plan, which
is intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code of 1996, is administered by our board
of directors or by a committee appointed by our board. All eligible employees or
eligible employees of any present or future subsidiary designated by our board
may participate in the purchase plan. The purchase plan permits eligible
employees to purchase shares of our common stock through payroll deductions,
which may not exceed 10% of the employee's compensation, subject to certain
limitations. The purchase plan will be implemented in a series of consecutive,
overlapping offering periods, each approximately three months to 24 months in
duration. The purchase price of each share of common stock under the purchase
plan will be equal to the lesser of 85% of the closing price per share of our
common stock on the Nasdaq National Market on the start date of that offering
period or on the date of termination of the offering period. An employee's
participation ends on the employee's termination of employment with us. The
purchase plan will terminate in September 2009 unless sooner terminated by our
board.
401(K) PLAN
We have an tax-qualified employee savings plan which covers all of our
employees who are at least 21 years of age, who have been employed with us for
at least one year and who have at least 1,000 hours of service with us. Our
employees may, however, begin making contributions to our 401(k) Plan at the
beginning of the quarter following completion of three months of service.
Eligible employees may defer up to 18% of their pre-tax earnings, subject to the
Internal Revenue Service's annual contribution limit. Our 401(k) Plan permits
additional discretionary matching and profit sharing contributions by us on
behalf of all participants in our 401(k) Plan in an amount determined by us.
Matching contributions, if made, are equal to 50% of an employee's contribution,
relating to the first 4%, up to a maximum annual contribution of $600. Profit
sharing contributions may equal up to 15% of total annual compensation of all
employees and are allocated in proportion to each employee's compensation. Our
401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code of 1986 so that contributions by employees or by us to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn from the plan, and so that contributions by us, if any, will be
deductible by us when made.
50
<PAGE>
CERTAIN TRANSACTIONS
PREFERRED STOCK PRIVATE PLACEMENT
In July 1998, we sold an aggregate of 147,000 shares of our Series A
preferred stock for an aggregate purchase price of $14.7 million or $100 per
share, to BVCF III, L.P., Brinson Map Venture Capital Fund III Trust and the
Virginia Retirement System. The shares of preferred stock are automatically
convertible into 11,790,324 shares of common stock upon the closing of this
offering. See "Principal Stockholders."
Thomas D. Berman, a director of our company, is an executive director of
Brinson Partners, Inc. Brinson Partners is the investment adviser to Brinson Map
Venture Capital Fund III Trust and the Virginia Retirement System and the
managing member of Brinson Venture Management LLC, which is the investment
advisor to BVCF III, L.P. Mr. Berman is also an assistant trust officer of the
Brinson Trust Company, which is the trustee for Brinson Map Venture Capital Fund
III Trust. The holders of preferred stock have certain registration rights. See
"Description of Capital Stock--Registration Rights."
MARKET FACTS EQUITY INVESTMENT AND STRATEGIC ALLIANCE
In April 1999, Market Facts, Inc. purchased 1,092,980 shares of our common
stock for an aggregate purchase price of $4.1 million or $3.77 per share. Prior
to this offering, Market Facts owned approximately 10% of our outstanding common
stock. See "Principal Stockholders."
In April 1999, we also entered into a strategic alliance agreement with
Market Facts. Under that agreement, we granted Market Facts a non-exclusive
license to access and use our Internet panel and Internet technologies for
purposes of developing market research studies, and for conducting and providing
analysis of surveys and polls. In consideration for such access and use, Market
Facts agreed to pay us use fees, access fees and survey fees. In addition,
Market Facts has granted us a non-exclusive, royalty free license to use its
Internet technologies for the design and development of market research
products, and has agreed to offer certain of its customers, clients and others
with whom they have a relationship, the opportunity to become members of our
Internet panel.
Market Facts has agreed to use us exclusively for all of its Internet-based
market research and polling needs and not to enter into strategic online
alliances with our direct competitors. The agreement also provides for the
development of multi-client studies, either jointly or by each of us
individually. The agreement terminates in April 2004, but automatically extends
for additional one year terms thereafter unless either party terminates upon one
year's prior notice.
CONFIDENTIALLY AND NON-COMPETITION AGREEMENTS WITH EXECUTIVE OFFICERS
In September 1999, we entered into agreements with Gordon S. Black, David H.
Clemm and Leonard R. Bayer. These agreements include confidentiality and
non-competition provisions, and obligate each of these executive officers to
transfer to us any inventions developed by them during their employment with us
and prohibits each of them from competing with us for a period of one year after
their termination of employment. The agreements also provide that, in the event
we terminate Dr. Black's, Mr. Clemm's or Mr. Bayer's employment without cause,
he is entitled to receive severance benefits equal to:
- his base salary in effect before the date of his termination;
- the average of his annual incentive bonus for the past three years;
- his accrued and unused vacation time;
- his expenses incurred on our behalf; and
- insurance benefits for two years following the date of termination.
51
<PAGE>
OTHER TRANSACTIONS
REPURCHASE OF COMMON STOCK. In connection with the sale of our Series A
preferred stock, we repurchased an aggregate of 85,082 shares of our common
stock. We repurchased 54,664 shares from Gordon S. Black, our Chief Executive
Officer, for an aggregate redemption price of $1.9 million and 27,333 shares
from Leonard R. Bayer, our Executive Vice President, for an aggregate redemption
price of $963,761.
LOAN TO OFFICER. In May 1993, we made a demand loan of $70,000 to Gordon S.
Black, our Chairman and Chief Executive Officer. The loan was collateralized by
a pledge of 700,000 shares of our common stock that he owned. The loan bore
interest at a rate equal to the lowest rate of interest permitted by the
Internal Revenue Code (5.1% at the time of repayment) so as to avoid imputation
of interest. The outstanding principal balance of the loan at June 30, 1998 was
$42,500. The loan was fully paid in fiscal 1999.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock, as of August 31, 1999, and as adjusted to reflect
the sale of common stock offered by us in this offering, for:
- each person who we know beneficially owns more than 5% of the common
stock;
- each of our directors;
- each executive officer named in the Summary Compensation Table; 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 and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
c/o Harris Interactive Inc., 135 Corporate Woods, Rochester, New York 14623.
Except as indicated by footnote, each person identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. The number of shares of common stock
outstanding used in calculating the percentage for each listed person includes
the shares of common stock issuable upon conversion of outstanding preferred
stock and shares of common stock underlying options held by such person that are
currently exercisable or exercisable within 60 days of August 31, 1999. These
shares, however, are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Percentage of beneficial ownership is
based on 10,915,044 shares of common stock outstanding as of August 31, 1999,
and shares of common stock outstanding after completion of this offering.
The numbers shown in the table assume no exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
TOTAL NUMBER BENEFICIALLY OWNED BENEFICIALLY OWNED
OF SHARES INCLUDES ------------------------
BENEFICIALLY SECURITIES BEFORE AFTER
OWNED UNDERLYING OPTIONS OFFERING OFFERING
------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Market Facts, Inc. (1)................................. 1,092,980 -- 10.0%
Brinson Partners Inc. (2).............................. 11,790,324 -- 51.9%
DIRECTORS AND EXECUTIVE OFFICERS:
Gordon S. Black (3)(7)................................. 3,922,240 -- 35.9%
David H. Clemm (4)(7).................................. 1,165,332 1,638,000 22.3%
Leonard R. Bayer (5)(7)................................ 3,133,060 -- 28.7%
Elizabeth K. Abbas..................................... 114,212 84,000 1.8%
Arthur E. Coles........................................ 14,924 168,000 1.6%
Thomas D. Berman (6)(7)................................ -- -- --
G. Thomas Clark (7).................................... -- 28,000 *
James R. Riedman (7)................................... -- 28,000 *
Directors and Executive Officers as a group (ten
persons)............................................. 8,428,924 2,282,000 90.05%
</TABLE>
- ------------------------
* Less than 1%
(1) The address of Market Facts, Inc. is 3040 West Salt Creek Lane, Arlington
Heights, Illinois 60005.
(2) Represents shares to be issued upon conversion of 147,000 shares of our
Series A preferred stock. Includes 10,185,661 shares issuable upon
conversion to the Virginia Retirement System, 225,195 shares issuable upon
conversion to Brinson Map Venture Capital Fund III Trust and 1,379,468
shares issuable upon conversion to BVCF III, L.P. Brinson Partners, Inc.
acts as investment adviser
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<PAGE>
to the Virginia Retirement System and Brinson Map Venture Capital Fund III
Trust and has sole voting and investment power over their shares. Brinson
Partners, Inc. is also the managing member of Brinson Venture Management
LLC, the investment advisor to BVCF III, L.P., which has sole voting and
investment power over BVCF III, L.P.'s shares. The address of BVCF III,
L.P., Brinson Map Venture Capital Fund III Trust and the Virginia Retirement
System is c/o Brinson Partners, Inc., 209 South LaSalle, Chicago, Illinois
60604.
(3) Includes 364,000 shares held by Lonny H. Dolin, Dr. Black's wife, 364,980
shares held by the Lindsay L. Black Trust, 121,380 shares held by the Brooke
E. Dolin Trust and 121,380 shares held by the Nathaniel M. Dolin Trust. Dr.
Black is the trustee of these trusts.
(4) Includes 42,000 shares held by Christopher Clemm and 42,000 shares held by
Julie Clemm, Mr. Clemm's children. 42,000 shares held by Jean Clemm, Mr.
Clemm's wife, as custodian for Robert Clemm under the Uniform Transfers to
Minors Act.
(5) Includes 16,800 shares held by Lorraine W. Bayer, Mr. Bayer's wife.
(6) Mr. Berman is an executive director of Brinson Partners, Inc. and in that
capacity, Mr. Berman participates in investment advisory decisions with
other personnel of Brinson Partners, Inc. with respect to the voting and
investment power over the shares of the Virginia Retirement System and the
Brinson Map Venture Capital Fund III Trust. Mr. Berman is also a member of
Brinson Venture Management LLC, the investment adviser to BVCF III, L.P.
and, by virtue of carried interest fee arrangements between Brinson Venture
Management LLC and BVCF III, L.P., may be deemed to have an indirect
pecuniary interest in the common stock owned by BCVF III, L.P. Mr. Berman is
also an assistant trust officer of the Brinson Trust Company, which is the
trustee for Brinson Map Venture Capital Fund III Trust. Mr. Berman disclaims
beneficial ownership of the shares owned by these entities, except to the
extent of his pecuniary interest, if any.
(7) Director.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $.001 par value, and 5,000,000
shares of preferred stock, $.01 par value.
The following summary of the rights of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our amended and restated certificate of incorporation and
bylaws which are included as exhibits to the registration statement of which
this prospectus is a part and by the provisions of Delaware law.
COMMON STOCK
After giving effect to the conversion of all previously outstanding
preferred stock into shares of common stock, as of June 30, 1999, there were
22,661,016 shares of common stock outstanding held of record by approximately 45
stockholders. After giving effect to the sale of common stock in the offering,
there will be shares of common stock outstanding, assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or warrants.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Except as required
under Delaware law or the rules of the Nasdaq National Market, the rights of
stockholders may not be modified otherwise than by a vote of a majority or more
of the shares outstanding. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, the holders of common stock are entitled
to receive ratably any dividends as may be declared by the board of directors
out of funds legally available for the payment of dividends. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, the holders
of common stock are entitled to share ratably in all assets, subject to prior
distribution rights of the preferred stock, if any, then outstanding. Holders of
common stock have no preemptive rights or rights to convert their common stock
into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable, and the shares of common stock to be issued in the
offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of this offering, the 147,000 shares of Class A
preferred stock outstanding will automatically convert into a total of
11,790,324 shares of common stock. Pursuant to our restated certificate of
incorporation, the board of directors has the authority, without further action
by the stockholders, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix the designations, powers, preferences and privileges,
which may be greater than the rights of the common stock. The board, without
stockholder approval, can issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. Preferred stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of our company or make
removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock. At
present, there are no shares of preferred stock outstanding, and we have no
plans to issue any of the preferred stock.
COMMON STOCK WARRANTS
Upon completion of the offering, we will have warrants outstanding to
purchase an aggregate of 216,608 shares of common stock, exercisable at an
exercise price of $1.50 per share. Each warrant has a net exercise provision
under which the holder may, in lieu of payment of the exercise price in cash,
55
<PAGE>
surrender the warrant and receive a net amount of shares, based on the fair
market value of our stock at the time of the exercise of the warrant, after
deducting the aggregate exercise price. The warrants expire in November 2003.
REGISTRATION RIGHTS
After the closing of this offering, the holders of 11,790,324 shares of
common stock will be entitled to have their shares registered under the
Securities Act of 1933. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
stockholders exercising registration rights, these holders are entitled to
notice of the registration and are entitled to include their shares as part of
that registration. Holders of registration rights may also require us to file a
registration statement under the Securities Act at our expense with respect to
their shares of common stock. Further, holders may require us to file
registration statements on Form S-3 at our expense when we are eligible to use
that form. All registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in the registration.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKE OVER STATUTE
Provisions of our restated certificate of incorporation and bylaws, to be
effective following the offering, may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of our
common stock. These provisions:
- divide our board of directors into three classes serving staggered
three-year terms;
- eliminate the right of stockholders to act by written consent without a
meeting; and
- allow us to issue preferred stock without any vote or further action by
the stockholders.
The classification system of electing directors may tend to discourage a
third-party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of our board of directors, as the
classification of the board of directors increases the difficulty of replacing a
majority of the directors. These provisions may have the effect of deferring
hostile takeovers, delaying changes in our control or management, or may make it
more difficult for stockholders to take certain corporate actions. An amendment
of the provisions relating to the staggered board or the elinimation of the
prohibition to act by written consent would require approval by holders of at
least 66 2/3% of the outstanding common stock.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with an interested
stockholder, unless:
- prior to the date of the proposed action, the board of directors of the
corporation approved either the business combination or the transaction
that resulted in the stockholder's becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
56
<PAGE>
- on or subsequent to the date of the proposed action, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage certain types of transactions that may involve an actual
or threatened change of control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited proposal for a takeover that does not
contemplate the acquisition of all of our outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of our company. These
provisions, however, could discourage potential acquisition proposals and could
delay or prevent a change in control of our company. They may also have the
effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no market for the common stock. Future
sales of substantial amounts of our common stock in the public market following
the offering could cause the prevailing market price of our common stock to fall
and impede our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming that the underwriters do not exercise
their over-allotment option and no exercise of outstanding options or warrants.
Of these shares, the shares sold in this offering will be freely tradable
without registration or further restriction under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. The remaining shares of common stock outstanding
upon completion of this offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701
promulgated under the Securities Act, which rules are summarized below.
LOCK UP AGREEMENTS
Sales of the restricted shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the common
stock. All of our officers, directors, members of their families and certain
other stockholders have entered into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of shares of common stock owned by them, or later acquired
by them, or that could be purchased by them through the exercise of options or
warrants for a period of 180 days after the date of this prospectus without an
exemption from, or without the prior written consent of, Lehman Brothers Inc. As
a result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rule 144 and 701,
additional shares will be eligible for sale beginning 181 days after the
effective date of this offering, subject to the requirements of Rule 144.
Of the remaining restricted shares, will be eligible for sale
immediately upon the effective date of this offering pursuant to Rule 144(k),
and will be eligible for sale pursuant to Rule 144 and Rule 701 beginning 91
days after the effective date of this offering.
RULE 144
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates," would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a stockholder who is not deemed to have been our
"affiliate" at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the restricted shares proposed to be
sold, including the holding period of any prior owner except an affiliate, is
entitled to sell the shares, without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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<PAGE>
WARRANTS, STOCK OPTIONS AND EMPLOYEE COMMON STOCK PURCHASES
As of June 30, 1999, there were outstanding warrants to purchase 260,960
shares of common stock and options to purchase 3,777,200 shares of common stock,
of which 2,892,624 options were fully vested. The common stock underlying these
warrants and options will be eligible for sale subject to the requirements of
Rule 144 or Rule 701.
An additional 1,250,000 shares are reserved for issuance under our 1999 long
term incentive plan and additional 500,000 shares are reserved under our 1999
employee stock purchase plan. We intend to file a registration statement under
the Securities Act covering the shares of common stock reserved for issuance
under our 1999 long term incentive plan and our 1999 employee stock purchase
plan. The registration statement is expected to be filed simultaneously with the
effectiveness of the registration statement covering the shares of common stock
offered in this offering and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates and the expiration of
the 180-day lock-up period, be available for sale in the open market, except to
the extent that such shares are subject to our vesting schedules.
PREFERRED STOCK
Holders of 11,790,324 shares of common stock issuable upon conversion of a
preferred stock are entitled to registration rights with respect to these shares
for resale under the Securities Act of 1933. If these holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, these sales could harm the market price for our
common stock. These registration rights may not be exercised prior to the
expiration of the 180 days from the date of this prospectus. See "Description of
Capital Stock--Registration Rights."
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirements. In addition, the Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options granted by an issuer
before it becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, along with the shares acquired upon exercise of such
options, including exercises after the date the issuer becomes so subject.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 91 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its one-year minimum holding period requirements.
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of Lehman Brothers Inc.
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<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., U.S. Bancorp Piper Jaffray Inc., Volpe
Brown Whelan & Company, LLC, and E*OFFERING Corp. are acting as representatives,
have each agreed to purchase from us the respective number of shares of common
stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Lehman Brothers Inc. .............................................................
U.S. Bancorp Piper Jaffray Inc. ..................................................
Volpe Brown Whelan & Company, LLC.................................................
E*OFFERING Corp...................................................................
-----------
Total...........................................................................
-----------
-----------
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, then
all of the shares of common stock which the underwriters have agreed to purchase
under the underwriting agreement, must be purchased. The conditions contained in
the underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
PAID BY HARRIS INTERACTIVE NO EXERCISE FULL EXERCISE
- ------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Per Share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc. for a
period of 180 days from the date of this prospectus, we will not directly or
indirectly, offer, sell or otherwise dispose of any shares of common stock or
any securities which may be converted into or exchanged for any such
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<PAGE>
shares of common stock. All of our executive officers and directors, members of
their families and several other stockholders have agreed under lock-up
agreements that, without an exemption from, or without the prior written consent
of, Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities that they may
own, or later acquire, or which may be converted into or exchanged for any such
shares for the period ending 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earning prospects, an overall
assessment of our management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
We will list our common stock for quotation on the Nasdaq National Market
under the symbol "HPOL."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $600,000.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed % of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
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<PAGE>
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
A copy of the prospectus in electronic format will be made available on the
Internet web site hosted by E*OFFERING Corp. and E*TRADE Securities, Inc.
E*TRADE will accept conditional offers to purchase shares from all of its
customers that pass and complete an online eligibility profile. In the event
that the demand for shares from the customers of E*TRADE exceeds the amount of
shares allocated to it, E*TRADE will use a random allocation methodology to
distribute shares in even lots of 100 shares/customer.
At our request, the underwriters have reserved up to 5% of the shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the initial
public offering price set forth on the cover page of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares. In addition to the 5% of the shares of common stock that have
been reserved as described above, E*OFFERING Corp. has reserved up to
shares for sale to some of our cooperative respondents on the same terms and
conditions. The number of shares available for sale to customers of E*OFFERING
Corp. will be reduced to the extent these persons purchase their reserved
shares.
In connection with this offering, we have agreed to pay The Wallach Company
$150,000 as a finder's fee for its assistance in introducing us to the
underwriters.
LEGAL MATTERS
Harris Beach & Wilcox, LLP, Rochester, New York will pass upon the validity
of the common stock that we are selling in this offering. O'Melveny & Myers LLP,
New York, New York will pass upon legal matters for the underwriters. Beth Ela
Wilkens, a partner of Harris Beach & Wilcox, LLP, holds options to purchase
28,000 shares of our common stock.
EXPERTS
Our consolidated balance sheets as of June 30, 1998 and 1999 and our
consolidated statements of operations, stockholders' equity and cash flows for
the three years in the period ended June 30, 1999 have been included in this
prospectus and in the registration statement in reliance upon the reports of
PricewaterhouseCoopers, LLP, independent accountants, appearing elsewhere, and
upon the authority of PricewaterhouseCoopers, LLP as experts in accounting and
auditing.
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CHANGE IN PRINCIPAL ACCOUNTANTS
In May 1998, we dismissed KPMG LLP and engaged PricewaterhouseCoopers, LLP
as our independent accountants. The selection of PricewaterhouseCoopers, LLP as
our independent accountants was ratified by the Board of Directors in October
1998. KPMG LLP's report on our consolidated financial statements for fiscal 1997
(which does not appear in this prospectus) did not contain an adverse opinion or
a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During fiscal 1997, we had no disagreement
with KPMG LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
their satisfaction, would have caused them to make reference in connection with
their report on our consolidated financial statements. KPMG LLP did not issue a
report on our consolidated financial statements for fiscal 1998 or 1999.
During fiscal 1998, we discussed with KPMG LLP the accounting treatment for
database development costs and requested that KPMG consider whether
capitalization and amortization of all or any significant portion of those costs
would be appropriate. KPMG LLP advised us that generally accepted accounting
principles require expensing such costs as incurred. We inquired of KPMG LLP
whether there was any flexibility with respect to the accounting treatment and,
after considerable additional discussion, KPMG LLP confirmed its original
advice. Because this involved a matter of generally accepted accounting
principles, if KPMG LLP had continued as the company's independent accountants
without resolution of the issue to their satisfaction, it would have caused KPMG
LLP to qualify its opinion regarding this matter in its report on our
consolidated financial statements for fiscal 1998. The matter was not pursued
further with KPMG LLP. We subsequently retained PricewaterhouseCoopers, LLP to
replace KPMG LLP as our independent accountants in connection with the audit of
our consolidated financial statements for fiscal 1998. KPMG LLP was authorized
to respond fully to any inquiries of PricewaterhouseCoopers concerning this
subject matter. PricewaterhouseCoopers, LLP confirmed the advice of KPMG LLP
regarding the expensing of database development costs, and our consolidated
statements appearing elsewhere in this prospectus reflect this treatment.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to our company and
the shares we are offering by this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
You may inspect a copy of the registration statement without charge at the
Public Reference Room of the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission also maintains an Internet site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
HTTP://WWW.SEC.GOV.
63
<PAGE>
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for the quotation on the Nasdaq National Market, such reports, proxy and
information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington D.C. 20006.
We intend to furnish holders of the common stock with annual reports
containing, among other information, audited consolidated financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. We intend to furnish such other reports as we may
determine or as may be required by law.
64
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at June 30, 1998 and 1999...................................................... F-3
Consolidated Statements of Operations for the fiscal years ended June 30, 1997, 1998 and 1999.............. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30, 1997, 1998 and 1999.... F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1997, 1998 and 1999.............. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Harris Interactive Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Harris
Interactive Inc. (the Company) and its subsidiaries at June 30, 1999 and 1998
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
September 1, 1999, except as to Note 16, which is as of
September 7, 1999
F-2
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
--------------------------- (NOTE 2)
1998 1999 (UNAUDITED)
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 3,751 $ 108,161 $ 108,161
Accounts receivable................................................ 3,918,278 5,989,164 5,989,164
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ 1,249,129 1,705,943 1,705,943
Prepaid expenses................................................... 64,432 82,728 82,728
Deferred income taxes.............................................. 191,000 29,000 29,000
Income taxes receivable............................................ 786,361 41,633 41,633
Loan to officer.................................................... 42,500
------------ ------------- -------------
Total current assets............................................. 6,255,451 7,956,629 7,956,629
Property, plant and equipment, net................................... 1,814,326 5,028,785 5,028,785
Goodwill, less accumulated amortization of $249,722 in 1998 and
$353,055 in 1999................................................... 1,300,278 1,196,945 1,196,945
Deferred income taxes................................................ 289,000 451,000 451,000
Other assets......................................................... 138,735 151,535 151,535
------------ ------------- -------------
$ 9,797,790 $ 14,784,894 $ 14,784,894
------------ ------------- -------------
------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term debt.............................. $ 300,000
Accounts payable................................................... 177,712 $ 1,843,264 $ 1,843,264
Accrued expenses................................................... 2,648,379 1,799,980 1,799,980
Short-term borrowings.............................................. 2,217,920 291,300 291,300
Billings in excess of costs and estimated earnings on uncompleted
contracts........................................................ 3,107,197 3,470,492 3,470,492
------------ ------------- -------------
Total current liabilities........................................ 8,451,208 7,405,036 7,405,036
Long-term debt, excluding current installment........................ 400,000
------------ ------------- -------------
Total liabilities................................................ 8,851,208 7,405,036 7,405,036
------------ ------------- -------------
Mandatory redeemable preferred stock................................. 15,876,000
------------ ------------- -------------
Stockholders' equity (deficit):
Common stock, $.01 par value -
Authorized--56,000,000 and 28,000,000 shares in 1998 and 1999,
respectively
Issued and outstanding--12,062,960 shares in 1998 and 10,870,692
shares in 1999................................................... 120,629 108,706 226,609
Additional paid-in capital......................................... 492,120 4,812,824 19,394,921
Unamortized deferred compensation.................................. (650,180) (650,180)
Retained earnings (deficit)........................................ 333,833 (12,767,492) (11,591,492)
------------ ------------- -------------
Total stockholders' equity (deficit)............................. 946,582 (8,496,142) 7,379,858
------------ ------------- -------------
$ 9,797,790 $ 14,784,894 $ 14,784,894
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
<S> <C> <C> <C>
1997 1998 1999
------------- ------------- --------------
Revenues from services............................................. $ 23,326,862 $ 26,290,496 $28,965,299
Cost of services................................................... 15,629,282 16,617,755 19,086,311
------------- ------------- --------------
Gross profit................................................. 7,697,580 9,672,741 9,878,988
Database development expenses...................................... 2,753,000 4,505,000
Selling, general and administrative expenses....................... 6,390,753 9,811,788 14,400,996
------------- ------------- --------------
Operating income (loss)...................................... 1,306,827 (2,892,047) (9,027,008)
------------- ------------- --------------
Other income (deductions):
Interest income.................................................. 29,735 5,269 206,531
Interest expense................................................. (118,583) (166,329) (26,202)
------------- ------------- --------------
(88,848) (161,060) 180,329
------------- ------------- --------------
Earnings (loss) before income taxes.......................... 1,217,979 (3,053,107) (8,846,679)
Income tax expense (benefit)....................................... 490,000 (1,114,000)
------------- ------------- --------------
Net earnings (loss).......................................... 727,979 (1,939,107) (8,846,679)
Accrued dividends on preferred stock............................... (1,176,000)
------------- ------------- --------------
Net earnings (loss) available to holders of common stock........... $ 727,979 $ (1,939,107) $ (10,022,679)
------------- ------------- --------------
------------- ------------- --------------
Basic net earnings (loss) per share................................ $ .06 $ (.16) $ (1.01)
------------- ------------- --------------
------------- ------------- --------------
Weighted average shares outstanding--basic....................... 11,741,935 11,903,256 9,955,261
------------- ------------- --------------
------------- ------------- --------------
Diluted net earnings (loss) per share.............................. $ .06 $ (.16) $ (1.01)
------------- ------------- --------------
------------- ------------- --------------
Weighted average shares outstanding--diluted..................... 12,371,865 11,903,256 9,955,261
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
OUTSTANDING ADDITIONAL UNAMORTIZED RETAINED TOTAL
------------------------ PAID-IN DEFERRED EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
------------ ---------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996........... 11,793,096 $ 117,931 $ 1,544,961 $ 1,662,892
Issuance of common stock........... 276,332 2,763 $ 71,442 74,205
Purchase and retirement of common
stock from a related party....... (306,768) (3,068) (69,570) (72,638)
Net earnings....................... 727,979 727,979
------------ ---------- ------------ ------------- -------------- -------------
Balance at June 30, 1997........... 11,762,660 117,626 1,872 2,272,940 2,392,438
Issuance of common stock........... 314,664 3,147 87,031 90,178
Purchase and retirement of common
stock............................ (14,364) (144) (6,535) (6,679)
Compensation expense on stock
options issued................... 409,752 409,752
Net loss........................... (1,939,107) (1,939,107)
------------ ---------- ------------ ------------- -------------- -------------
Balance at June 30, 1998........... 12,062,960 120,629 492,120 333,833 946,582
Purchase and retirement of common
stock............................ (2,382,296) (23,823) (492,120) (2,484,048) (2,999,991)
Issuance costs incurred on
preferred stock.................. (594,598) (594,598)
Issuance of common stock........... 1,190,028 11,900 4,146,960 4,158,860
Deferred compensation on stock
options issued (but not
vested).......................... 665,864 $ (665,864) --
Amortization of deferred
compensation..................... 15,684 15,684
Accrued dividends on preferred
stock............................ (1,176,000) (1,176,000)
Net loss........................... (8,846,679) (8,846,679)
------------ ---------- ------------ ------------- -------------- -------------
Balance at June 30, 1999........... 10,870,692 $ 108,706 $ 4,812,824 $ (650,180) $ (12,767,492) $ (8,496,142)
------------ ---------- ------------ ------------- -------------- -------------
------------ ---------- ------------ ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ------------- -------------
Cash flows from operating activities:
Net earnings (loss)................................................. $ 727,979 $ (1,939,107) $ (8,846,679)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization....................................... 639,924 782,649 1,261,141
Amortization of deferred compensation............................... 15,684
Deferred income taxes............................................... (29,000) (385,000)
(Increase) decrease in --
Accounts receivable............................................... (1,521,032) 305,715 (2,070,886)
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... (1,260,673) 681,339 (456,814)
Prepaid expenses.................................................. 38,710 (6,002) (18,296)
Income taxes receivable........................................... (786,361) 744,728
Other assets...................................................... (12,009) (12,260) (12,800)
Increase (decrease) in--
Accounts payable.................................................. 192,404 (304,395) 1,665,552
Accrued expenses.................................................. 505,086 1,076,374 (848,399)
Income taxes payable.............................................. 206,952 (221,411)
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... 559,527 (227,071) 363,295
----------- ------------- -------------
Net cash provided by (used in) operating activities........... 47,868 (1,035,530) (8,203,474)
----------- ------------- -------------
Cash flows from investing activities:
Repayment (borrowings) of loan to officer........................... 17,500 (25,000) 42,500
Capital expenditures................................................ (689,255) (976,971) (4,372,267)
----------- ------------- -------------
Net cash used in investing activities......................... (671,755) (1,001,971) (4,329,767)
----------- ------------- -------------
Cash flows from financing activities:
Principal payments under long-term debt............................. (720,783) (400,000) (700,000)
Increase (decrease) in short-term borrowings........................ 618,600 1,599,320 (1,926,620)
Net proceeds from issuance of preferred stock....................... 14,105,402
Repurchase of common stock.......................................... (72,638) (6,679) (2,999,991)
Issuance of common stock and stock options.......................... 74,205 499,930 4,158,860
----------- ------------- -------------
Net cash (used in) provided by financing activities............. (100,616) 1,692,571 12,637,651
----------- ------------- -------------
Net (decrease) increase in cash and cash equivalents.................. (724,503) (344,930) 104,410
Cash and cash equivalents at beginning of year........................ 1,073,184 348,681 3,751
----------- ------------- -------------
Cash and cash equivalents at end of year.............................. $ 348,681 $ 3,751 $ 108,161
----------- ------------- -------------
----------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest............................................................ $ 133,583 $ 171,329 $ 34,952
----------- ------------- -------------
----------- ------------- -------------
Income taxes........................................................ $ 378,048 $ 255,574 $ (748,117)
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
1. BUSINESS
Harris Interactive Inc. and Subsidiaries (the Company) is a marketing
research, consulting and polling firm. The Company conducts work in a number of
specialized areas: Commercial Market Research, Media Research and Polling,
Health Care Research and Customer Satisfaction Research, employing various
methods of data collection, including using their exclusive panel of on-line
respondents for both custom and multi-client projects.
The Company includes the accounts of Gordon S. Black Corporation (GSBC),
GSBC Ohio Corporation, with principal operations located in Youngstown, Ohio and
Louis Harris & Associates, Inc. (LHA), with principal operations located in New
York, New York. During fiscal 1999, the Company changed its name from Harris
Black International, Ltd. to Harris Interactive Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
GSBC, GSBC Ohio Corporation and LHA. All intercompany balances and transactions
have been eliminated in consolidation.
UNAUDITED PRO FORMA BALANCE SHEET
The Company's Preferred Stock automatically converts into Common Stock
concurrent with the closing of an initial public offering (Note 11).
Accordingly, the unaudited pro forma balance sheet has been presented on a basis
to give effect to the automatic conversion of such stock as of the closing date
of the initial public offering which is assumed to have been converted as of
June 30, 1999.
CASH AND CASH EQUIVALENTS
Cash equivalents include marketable securities with original maturities of
three months or less.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation of fixed assets is calculated
on the straight-line or accelerated methods over the estimated useful lives of
the assets, which are generally 3 to 7 years. Leasehold improvements are
amortized on the straight-line method over the estimated useful life of the
assets or lease term, whichever is shorter.
GOODWILL
Goodwill, which represents the excess of the purchase price over fair value
of LHA's net assets acquired, is amortized on a straight-line basis over 15
years. The Company evaluates goodwill and all long-lived assets for impairment
at least annually. In completing this evaluation, the Company compares its best
estimate of future cash flows with the respective carrying value of such assets.
Amortization expense amounted to $103,333 in each of the fiscal years ended
1997, 1998 and 1999, respectively.
F-7
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from services principally on the percentage
of completion method in the ratio that costs incurred bears to estimated cost at
completion. Revenues include amounts billed to customers to cover subcontractor
costs and other direct expenses. Provision for estimated contract losses, if
any, is made in the period such losses are determined.
INTERNET DATABASE DEVELOPMENT EXPENSES
The Company is in the process of developing a database of e-mail addresses
through a strategic alliance formed with a marketing services firm. The Company
is using these addresses to conduct marketing research, polling and surveys on
behalf of its customers. The costs to acquire these addresses and other external
database development costs approximated $2.8 million and $4.5 million in fiscal
1998 and 1999, respectively. Such costs have been classified as database
development expenses in the consolidated statement of operations and are
expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities, if any, 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable and Preferred Stock are valued at their carrying
or redemption amounts, which are reasonable estimates of their fair value. The
carrying value of the note payable and short-term borrowings approximates fair
value, as the interest rate on this debt approximates market rates at June 30,
1998 and 1999. The fair value of all other financial instruments approximates
cost.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist principally of accounts receivable as well as costs and
estimated earnings in excess of billings on uncompleted contracts. The Company
performs ongoing credit evaluations of its customers' financial condition and
based upon the existing client portfolio and limited historical write-offs,
management believes that a reserve for doubtful accounts is not considered
necessary.
INCOME TAXES
The Company accounts for income taxes using the asset and liability approach
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year in
which the temporary differences are expected to reverse and gives immediate
effect to changes in income tax rates upon
F-8
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
enactment. Deferred tax assets are recognized, net of any valuation allowance,
for deductible temporary differences and net operating loss and tax credit
carryforwards.
RECENT PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires companies to capitalize certain costs of
computer software developed or obtained for internal use, provided that those
costs are not research and development. The Company expects to adopt the
provisions of SOP 98-1 in fiscal 2000. Management has not yet determined the
effect that the adoption of SOP 98-1 will have on the Company's results of
operations or financial position.
RECLASSIFICATIONS
It is the Company's policy to reclassify amounts in prior year's financial
statements to conform with the current year's presentation.
3. CONTRACTS IN PROGRESS
Accumulated costs and estimated earnings and billings on contracts in
progress at June 30 follows:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Accumulated costs and estimated earnings........................ $ 6,368,573 $ 6,407,993
LESS--Billings................................................ (8,226,641) (8,172,542)
------------- -------------
$ (1,858,068) $ (1,764,549)
------------- -------------
------------- -------------
</TABLE>
Contracts in progress are included in the accompanying balance sheets under
the following captions:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... $ 1,249,129 $ 1,705,943
Billings in excess of costs and estimated earnings on
uncompleted contracts......................................... (3,107,197) (3,470,492)
------------- -------------
$ (1,858,068) $ (1,764,549)
------------- -------------
------------- -------------
</TABLE>
4. LOAN TO OFFICER
The Company made a demand loan of $70,000 to an officer of the Company with
an outstanding balance of $42,500 at June 30, 1998. This loan was collateralized
by 700,000 shares of Company stock held by the officer. The loan was fully
repaid in fiscal 1999.
F-9
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
<S> <C> <C>
1998 1999
------------- -------------
Furniture and fixtures.......................................... $ 832,088 $ 1,393,560
Equipment....................................................... 3,441,165 6,435,848
Leashold improvements........................................... 771,562 1,587,674
------------- -------------
5,044,815 9,417,082
LESS--Accumulated depreciation................................ (3,230,489) (4,388,297)
------------- -------------
$ 1,814,326 $ 5,028,785
------------- -------------
------------- -------------
</TABLE>
Depreciation expense amounted to $536,591, $679,316 and $1,157,808 in fiscal
years 1997, 1998 and 1999, respectively.
The Company has several noncancelable operating leases for office space and
office equipment. Future minimum lease payments under noncancelable operating
leases as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30:
- --------------------------------------------------------------------------------
<S> <C>
2000............................................................................ $ 1,418,836
2001............................................................................ 1,415,437
2002............................................................................ 1,295,709
2003............................................................................ 1,149,275
2004............................................................................ 580,500
2005 and beyond................................................................. 265,250
</TABLE>
Total rental expense for operating leases in 1997, 1998 and 1999 was
$1,173,277, $1,335,315 and $1,612,459, respectively.
6. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
In 1999, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosure About Segments of an Enterprise and Related
Information." SFAS No. 131 superseded SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The Company operates in a single domestic market
engaged principally in marketing research, consulting and polling.
For the year ended June 30, 1999, revenues from the Company's two largest
customers comprised 15% and 14% of revenues, respectively. For the year ended
June 30, 1998, revenues from the two largest customers comprised 19% and 15% of
revenues. For the year ended June 30, 1997, revenues from one major customer
amounted to 22% of revenues.
F-10
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
7. ACCRUED EXPENSES
Accrued expenses consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Internet database development expenses............................ $ 1,000,000
Payroll and withholding expenses.................................. 754,053 $ 474,233
Bonuses........................................................... 665,000 838,700
Other............................................................. 229,326 487,047
------------ ------------
$ 2,648,379 $ 1,799,980
------------ ------------
------------ ------------
</TABLE>
8. LONG-TERM DEBT
Long-term debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Note payable to Gannett Co., Inc.
Interest is payable quarterly at 7 1/2%............................... $ 700,000 $ --
LESS--Current installment............................................. (300,000)
---------- ----------
Long-term debt, excluding current installment......................... $ 400,000 $ --
---------- ----------
---------- ----------
</TABLE>
The note payable was paid in fiscal 1999.
9. LINE OF CREDIT
The Company maintains a line of credit with a commercial bank providing
borrowings up to $3,000,000 in fiscal 1998 and $1,500,000 in fiscal 1999 at
prime plus 1%. The prime rate in effect at June 30, 1999 was 7.75%. Borrowings
under this arrangement are due upon demand. The Company had borrowings of
$2,217,920 and $291,300 under this agreement at June 30, 1998 and 1999,
respectively. The line of credit is collateralized by the assets of the Company.
F-11
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
10. INCOME TAXES
Income tax (benefit) expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- -------------
<S> <C> <C> <C>
1999:
Federal............................................ $ -- $ -- $ --
State
----------- ----------- -------------
$ -- $ -- $ --
----------- ----------- -------------
----------- ----------- -------------
1998:
Federal............................................ $ (728,300) $ (170,500) $ (898,800)
State.............................................. (700) (214,500) (215,200)
----------- ----------- -------------
$ (729,000) $ (385,000) $ (1,114,000)
----------- ----------- -------------
----------- ----------- -------------
1997:
Federal............................................ $ 419,000 $ (29,000) $ 390,000
State.............................................. 100,000 -- 100,000
----------- ----------- -------------
$ 519,000 $ (29,000) $ 490,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance was
recorded in 1999 primarily related to federal and state net operating loss
carryforwards generated for the year ended June 30, 1999. The Company
continually reviews the adequacy of the valuation allowance and recognizes these
benefits only as reassessment indicates that it is more likely than not that the
benefits will be realized. The components of deferred income tax assets at June
30 are presented below:
<TABLE>
<CAPTION>
1998 1999
---------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 191,000 $ 3,659,000
Financial statement versus tax depreciation....................... 64,000 62,000
Tax credit carryforwards.......................................... 78,000 93,000
Compensation expense accounted for differently between financial
reporting and tax purposes...................................... 147,000 153,000
Book expenses currently not deductible for tax purposes........... 29,000
---------- ------------
Gross deferred tax assets..................................... 480,000 3,996,000
LESS--Valuation allowance....................................... (3,516,000)
---------- ------------
Net deferred tax assets....................................... $ 480,000 $ 480,000
---------- ------------
---------- ------------
</TABLE>
The New York State and Federal net operating loss carryforwards (NOLs) of
approximately $11,120,000 and $9,149,000, respectively, expire at various times
through 2019.
F-12
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
10. INCOME TAXES (CONTINUED)
The differences between income taxes (benefit) at the U.S. statutory rate
and the effective rate are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ------------- -------------
<S> <C> <C> <C>
Provision (benefit) at Federal statutory rate....... $ 414,000 $ (1,038,100) $ (3,008,000)
State income taxes, net of federal income tax
benefit........................................... 66,000 (141,200) (435,000)
Book expenses not deductible for tax................ 64,000 7,400
Other............................................... 10,000 1,300 (80,400)
Valuation allowance................................. 3,516,000
---------- ------------- -------------
$ 490,000 $ (1,114,000) $ --
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
11. STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
In July 1998, the Company authorized and issued 147,000 shares of Preferred
Stock having a par value of $.01 per share and received proceeds in the amount
of $14,700,000. Beginning November 1, 2002, the holders may redeem up to an
aggregate of 49,000 shares and commencing November 1, 2004, they may redeem all
shares outstanding. The redemption value of Preferred Stock is equal to $100 per
share plus accrued and unpaid dividends. The total redemption value of Preferred
Stock at June 30, 1999 in the amount of $15,876,000 is classified on the
Company's balance sheet as mandatory redeemable Preferred Stock and includes
$1,176,000 of accrued and unpaid dividends. In the event of voluntary or
involuntary liquidation of the Company, the holders of Preferred Stock are
entitled to receive liquidating distributions in the amount of $100 per share
plus accrued and unpaid dividends before payment is made to holders of Common
Stock. The costs associated with issuing these securities in the amount of
$594,598 were charged to retained deficit due to the fact that the Preferred
Stock is required to be carried at redemption value.
Dividends are cumulative from the date of issuance at an annual rate of 8%
and are added to the net loss in fiscal 1999 in determining net loss per common
share.
The Preferred Stock is convertible into 11,790,324 shares of Common Stock at
the option of the holders. In the event of a public offering pursuant to an
effective registration statement with the Securities and Exchange Commission
that results in aggregate net proceeds to the Company of not less than
$25,000,000, each share of Preferred Stock will be automatically converted to
Common Stock of the Company.
The holders of Preferred Stock are entitled to vote upon all matters upon
which holders of shares of Common Stock of the Company have the right to vote,
and shall be entitled to the number of votes equal to the largest number of full
shares of Common Stock into which shares of Preferred Stock are then
convertible.
F-13
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
11. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
In 1999, the Company amended the Certificate of Incorporation to decrease
the number of authorized Common Stock to 28,000,000 shares.
The Company has outstanding Warrants to purchase 260,960 shares of Common
Stock at $1.50 per share. The Warrants expire in July 2003.
In 1999, the Board of Directors of the Company increased the total number of
shares of Common Stock authorized and reserved for issuance under its stock
option plan by 1,120,000 shares to 4,499,600 shares. There were 560,000 shares
available for future grant at June 30, 1999.
12. EARNINGS PER SHARE
In 1999, the Company adopted SFAS No. 128, "Earnings per Share," which
requires the disclosure of basic and diluted earnings per share. Basic earnings
per share is computed based on the weighted average number of Common Shares
outstanding during the period. In arriving at the net loss available to holders
of Common Stock, Preferred Stock dividends of $1,176,000 were added in fiscal
1999. Diluted earnings per share reflects the potential dilution that could
occur if dilutive securities and other contracts to issue Common Stock were
exercised or converted into Common Stock or resulted in the issuance of Common
Stock that then shared in the earnings of the Company.
The table below summarizes the amounts used to calculate basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------------- ---------------------------------------- --------------
NET EARNINGS WEIGHTED NET LOSS WEIGHTED NET LOSS
AVAILABLE TO AVERAGE AVAILABLE TO AVERAGE AVAILABLE TO
HOLDERS OF OUTSTANDING PER HOLDERS OF OUTSTANDING PER HOLDERS OF
COMMON STOCK SHARES SHARE COMMON STOCK SHARES SHARE COMMON STOCK
-------------- ----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic net earnings (loss) per
share...................... $ 727,979 11,741,935 $ .06 $ (1,939,107) 11,903,256 $ (.16) $(10,022,679)
Effect of dilutive stock
options.................... 629,930
-------------- ----------- -------------- ----------- --------------
Diluted net earnings (loss)
per share.................. $ 727,979 12,371,865 $ .06 $ (1,939,107) 11,903,256 $ (.16) $(10,022,679)
-------------- ----------- --- -------------- ----------- ----- --------------
-------------- ----------- --- -------------- ----------- ----- --------------
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING PER
SHARES SHARE
----------- ---------
<S> <C> <C>
Basic net earnings (loss) per
share...................... 9,955,261 $ (1.01)
Effect of dilutive stock
options....................
-----------
Diluted net earnings (loss)
per share.................. 9,955,261 $ (1.01)
----------- ---------
----------- ---------
</TABLE>
All potentially dilutive securities were excluded from the above
calculations for the years ended June 30, 1998 and 1999 because they were
antidilutive. The equivalent weighted average share effects of Common Stock
options excluded were 1,186,183 and 2,553,434 in fiscal 1998 and 1999,
respectively. The weighted average potentially dilutive shares related to
Preferred Stock excluded were 11,564,208 in fiscal 1999. The equivalent weighted
average share effect of the outstanding Warrant excluded was 255,948 in fiscal
1999.
13. EMPLOYEE STOCK OPTION PLAN
The Company has a nonqualified and incentive stock option plan that enables
key employees and directors of the Company to purchase shares of Common Stock of
the Company. The Company grants options to key employees to purchase its Common
Stock, generally at fair value as of the date of grant,
F-14
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
13. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
based upon valuations determined by management and the Board of Directors. Such
valuations have been prepared by the Company, primarily on an annual basis,
since June 30, 1993. Options generally vest over a period up to 3 years and
expire after 10 years from the date of grant.
During fiscal 1999, 266,000 options were granted to employees at an amount
which was less than the fair value of the Common Stock as of the grant date.
Accordingly, the Company recorded $665,864 in unamortized deferred compensation
for such options which vest over 3 years. Compensation expense will be amortized
over the vesting period and unamortized deferred compensation has been recorded
as a reduction in stockholders' equity. During fiscal 1999, compensation expense
recognized in the consolidated statement of operations amounted to $15,684.
During fiscal 1998, the life was extended on 1,050,000 options. As a result,
a new measurement date occurred. Accordingly, the Company recorded approximately
$301,000 in compensation expense for such options which were fully vested.
Also during fiscal 1998, 980,000 options were granted to employees at an
amount which was less than the fair value of the Common Stock as of the grant
date. Accordingly, the Company recorded approximately $109,000 in compensation
expense for such options which vested immediately upon grant.
Stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE
---------- -------------------
<S> <C> <C>
Outstanding at June 30, 1996................................... 1,134,000 $ .18
Granted...................................................... 1,136,800 .35
Canceled..................................................... 84,000 .18
Exercised.................................................... 81,200 .35
----------
Outstanding at June 30, 1997................................... 2,105,600 .26
Granted...................................................... 2,240,000 .42
Canceled..................................................... 770,000 .35
Exercised.................................................... 196,000 .18
----------
Outstanding at June 30, 1998................................... 3,379,600 .35
Granted...................................................... 560,000 1.26
Canceled..................................................... 65,352 .47
Exercised.................................................... 97,048 .37
----------
Outstanding at June 30, 1999................................... 3,777,200 .48
----------
----------
</TABLE>
Under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to continue to account for its stock
option plan in accordance with the provisions of APB
F-15
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
13. EMPLOYEE STOCK OPTION PLAN (CONTINUED)
Opinion No. 25. Had compensation cost for the Company's stock option plan been
determined consistent with the provisions of SFAS No. 123, the Company's net
earnings (loss) and net earnings (loss) per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
BASIC NET EARNINGS DILUTED NET EARNINGS
(LOSS) (LOSS)
PER SHARE PER SHARE
AVAILABLE TO HOLDERS AVAILABLE TO HOLDERS
NET EARNINGS (LOSS)
AVAILABLE TO HOLDERS OF COMMON STOCK OF COMMON STOCK
OF COMMON STOCK
---------------------------- ------------------------ ------------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997.............................. $ 727,979 $ 702,376 $ .06 $ .06 $ .06 $ .06
1998.............................. (1,939,107) (2,043,487) (.16) (.17) (.16) (.17)
1999.............................. (10,022,679) (10,100,110) (1.01) (1.01) (1.01) (1.01)
</TABLE>
For purposes of this disclosure, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants outstanding in 1997,
1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate................................................ 6.23% 5.68% 4.70%
Weighted average expected life (years)................................. 3 3 3
</TABLE>
The weighted average grant date fair value of options granted in 1997, 1998
and 1999 is summarized below:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ -----------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED
FAIR EXERCISE FAIR EXERCISE FAIR
VALUE PRICE VALUE PRICE VALUE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Options whose exercise price equaled
the grant date fair value................................. $ .06 $ .35 $ .06 $ .47 $ .15
Options whose exercise price was less
than the grant date fair value............................ $ .28 $ .24 $ 2.63
<CAPTION>
AVERAGE
EXERCISE
PRICE
-----------
<S> <C>
Options whose exercise price equaled
the grant date fair value................................. $ 1.26
Options whose exercise price was less
than the grant date fair value............................ $ 1.26
</TABLE>
The following represents additional information about stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- -----------------------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ---------------------------
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE LIFE AVERAGE AVERAGE
PRICES NUMBER CONTRACTUAL EXERCISE PRICE NUMBER EXERCISE PRICE
PER SHARE OUTSTANDING (YEARS) (PER SHARE) EXERCISABLE (PER SHARE)
- -------------- ----------- ------------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
.$18--$.24.... 1,204,000 8 $ .20 1,204,000 $ .20
.35--.47..... 2,013,200 8 .44 929,712 .42
1.26......... 560,000 10 1.26 7,000 1.26
</TABLE>
F-16
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
14. 1997 STOCK PROGRAM
The 1997 Stock Program replaces a similar program enacted in 1993. Under
this program, the Company purchases outstanding shares of Common Stock and may:
1) grant to certain employees the right to purchase shares; and/or 2) designate
that a portion of the compensation payable under the Company's bonus plans be
paid in Common Stock. All purchases and sales are at the same Board-approved
transaction price (deemed to be fair value) and occur within six months
following the end of the Company's year end. The plan has a repurchase
requirement whereby the Company must attempt to repurchase certain amounts of
its Common Stock.
Transactions under the 1997 Stock Program are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
Shares purchased or retired.............................. 306,768 $ 72,638 14,364 $ 6,679 57,540 $ 72,459
Shares issued............................................ 195,132 46,046 118,664 55,178 57,540 72,459
</TABLE>
15. 401(K) PLAN
Effective January 1, 1995, the Company adopted the Gordon S. Black
Corporation 401(k) Plan (the Plan).
Eligibility to participate in the Plan, including employer matching
contributions, if any, is limited to those employees who are at least 21 years
of age and have completed one year of employment with at least 1,000 hours of
service. However, employees are eligible to contribute to the Plan upon
completion of one quarter of service.
Participants may contribute 1% to 18% of compensation. Employer
contributions are discretionary, and include matching contributions and profit
sharing contributions. Matching contributions, if made, are equal to 50% of a
participant's contributions, relating to the first 4% of compensation up to a
maximum contribution of $600 per year. Profit sharing contributions may range
from 0% to 15% of the total compensation of the participants in the Plan, and
are allocated to each participant based on the ratio that each participant's
compensation bears to the total compensation of all participants eligible for an
allocation.
Matching contribution expense incurred by the Company during 1997, 1998, and
1999 was $72,867, $80,616 and $94,284, respectively.
16. SUBSEQUENT EVENTS
LINE OF CREDIT
In July 1999, the Company increased the total amount available under its
line of credit from $1,500,000 to $5,000,000. The interest rate for borrowings
on the first $2,000,000 will be prime plus 1% and any borrowings in excess of
$2,000,000 will be from 10% to 12%.
F-17
<PAGE>
HARRIS INTERACTIVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
16. SUBSEQUENT EVENTS (CONTINUED)
STOCK SPLIT
On September 7, 1999, the Company declared a 28-for-1 stock split. All
references in the consolidated financial statements referring to share prices,
conversion rates, per share amounts, stock option plans and Common Stock issued
and outstanding have been adjusted retroactively for the 28-for-1 stock split.
On September 7, 1999, the Company amended its certificate of incorporation
to increase the authorized number of Common Stock to 100,000,000 with a par
value of $0.001 per share.
F-18
<PAGE>
[INTENTIONALLY OMITTED]
<PAGE>
SHARES
[LOGO]
HARRIS INTERACTIVE INC.
COMMON STOCK
---------------------
PROSPECTUS
, 1999
------------------------
LEHMAN BROTHERS
U.S. BANCORP PIPER JAFFRAY
VOLPE BROWN WHELAN & COMPANY
E*OFFERING
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses payable by the
Registrant in connection with the issuance and distribution of the common stock
being registered, other than underwriting discounts and commissions. All amounts
are estimates, except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 23,978
NASD Filing Fee.................................................... 8,952
Nasdaq National Market Listing Fee................................. 95,000
Legal Fees and Expenses............................................
Accountants Fees and Expenses......................................
Printing and Engraving Fees........................................
Blue Sky fees and expenses.........................................
Transfer Agent and Registrar Fee and Expenses......................
Miscellaneous......................................................
Total.............................................................. $
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article VIII of the Registrant's Bylaws provides for indemnification by the
Registrant of its directors, officers and employees to the fullest extent
permitted by the Delaware Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (I) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. Article X of the Registrant's Amended and Restated
Certificate of Incorporation provides for such limitation of liability.
The Registrant intends to obtain directors' and officers' insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
Reference is also made to the Underwriting Agreement to be filed as Exhibit
1.1 to the Registration Statement for information concerning the Underwriters'
obligation to indemnify the Registrant and its officers and directors in certain
circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1, 1996, the Registrant has issued and sold the following
unregistered securities:
(a) From September 1996 to September 1999, the Registrant issued and sold an
aggregate of 374,248 shares of common stock to directors, officers, employees
and former employees at prices ranging from $0.18 to $0.37 per share, for
aggregate cash consideration of approximately $99,032. These shares were sold
pursuant to the exercise of options granted by the Registrant's board of
directors. From September 1996 to September 1999, 371,336 shares of common stock
were awarded to officers and employees pursuant to the Registrant's 1997 Stock
Program. As to each director, officer, employee and former employee of the
Registrant who was issued the common stock described in this paragraph, the
Registrant relied upon Rule 701 of the Securities Act of 1933. Each such person
purchased securities of the Registrant pursuant to a written contract between
such person and the Registrant. In addition, the Registrant met the conditions
imposed by Rule 701(b).
(b) In July 1998, the Registrant issued and sold an aggregate of 147,000
shares of Series A preferred stock at a price per share of $100.00, to three
accredited investors, as that term is defined in Rule 501 of the Securities Act
of 1933, for an aggregate cash consideration of $14,700,000. The shares were
sold pursuant to a purchase agreement between the Registrant and such investors.
The Registrant relied upon Section 4(2) of the Securities Act of 1933 in
connection with the sale of these shares.
(c) In July 1998, the Registrant issued a warrant to purchase 260,960 shares
of common stock, with an exercise price per share of $1.50 to The Wallach
Company, in consideration for The Wallach Company's arrangement of the
investment referenced in subsection (b) above. The warrant was issued pursuant
to an engagement letter. The warrant may be exercised in whole or in part at any
time prior to the fifth anniversary date of grant and may be exercised for cash
or pursuant to a net exercise provision contained therein. The Registrant relied
upon Section 4(2) of the Securities Act of 1933 in connection with the original
issuance of the warrants.
(d) In April 1999, the Registrant issued and sold an aggregate of 1,092,980
shares of common stock at a price per share of $3.77 to an accredited investor,
as that term is defined in Rule 501 of the Securities Act of 1933, for an
aggregate cash consideration of $4,123,000. The shares were sold pursuant to an
investment agreement with the investor. The Registrant relied upon Section 4(2)
of the Securities Act of 1933 in connection with the sale of these shares.
(e) In August 1999, the Registrant issued 44,352 shares of common stock to
an individual upon the exercise, at an exercise price of $1.50 per share, of a
warrant. The Registrant received an aggregate consideration of $66,528. The
Registrant relied upon Section 4(2) of the Securities Act of 1933 in connection
with the issuance of the shares.
Appropriate restrictions were contained in the purchase and/or investment
contracts relating to the sale of the securities issued in the above
transactions, and appropriate legends were fixed to the certificates for the
securities issued in those transactions. All recipients had adequate access,
through their relationships with the Registrant to information about the
Registrant.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be
filed upon completion of this offering
3.3* Bylaws of the Registrant
4.1++ Specimen Certificate of Common Stock of the Registrant
5.1++ Opinion of Harris Beach & Wilcox, LLP
10.1* 1999 Long Term Incentive Plan and form of agreements thereto
10.2* 1999 Employee Stock Purchase Plan and form of agreements thereto
10.3+ Unique Name Agreement between At Home Corporation and Registrant dated October 1,
1999
10.4+ Strategic Alliance Agreement between Market Facts, Inc. and the Registrant dated
April 23, 1999
10.5.1* Confidentiality and Non-Competition Agreement dated September 1, 1999, between the
Registrant and Gordon S. Black
10.5.2* Confidentiality and Non-Competition Agreement dated September 1, 1999 between the
Registrant and David H. Clemm
10.5.3* Confidentiality and Non-Competition Agreement dated September 1, 1999 between the
Registrant and Leonard R. Bayer
10.6.1* Leases for 135 & 60 Corporate Woods, Rochester, New York dated April 12, 1991
between Gordon S. Black Corporation and Corporate Woods Associates, together with
all amendments
10.6.2* Lease for 70 Carlson Road, Rochester, New York dated July 1, 1998 between Gordon S.
Black Corporation and Carlson Park Associates, together with all amendments thereto
10.7++ Lease for 111 Fifth Avenue, New York, New York dated June 9, 1994 between Louis
Harris and Associates, Inc. and B.J.W. Associates
10.8* Registration Agreement dated July 7, 1998 among the Registrant, Brinson Venture
Capital Fund III, L.P., Brinson MAP Venture Capital Fund III Trust and the Virginia
Retirement System
10.9++ Revolving Credit Facility dated August 18, 1999 between Gordon S. Black Corporation
and Manufacturers and Traders Trust Company
10.10 Form of Lock-up Agreement
16.1++ Letter of KPMG LLP
21.1* List of Subsidiaries
23.1++ Consent of Harris Beach & Wilcox, LLP (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
24.1* Power of Attorney (included on Page II-5)
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
+ Confidential treatment has been requested pursuant to Rule 406 of the
Securities Act for portions of this exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission.
++ To be filed by amendment.
II-3
<PAGE>
(b) Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
(c) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under
the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(d) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Rochester, State of New York on October 5, 1999.
HARRIS INTERACTIVE INC.
By: /s/ GORDON S. BLACK
-----------------------------------------
Gordon S. Black, Chief Executive Officer
and Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
Dated: October 5, 1999 /s/ GORDON S. BLACK
------------------------------------------
Gordon S. Black, Chief Executive Officer
and Chairman of the Board (Principal
Executive Officer)
Dated: October 5, 1999 *
------------------------------------------
David H. Clemm, President, Chief Operating
Officer and Director
Dated: October 5, 1999 /s/ BRUCE A. NEWMAN
------------------------------------------
Bruce A. Newman, Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: October 5, 1999 *
------------------------------------------
Leonard R. Bayer, Director
Dated: October 5, 1999 *
------------------------------------------
Thomas D. Berman, Director
Dated: October 5, 1999 *
------------------------------------------
G. Thomas Clark, Director
Dated: October 5, 1999 *
------------------------------------------
James R. Riedman, Director
</TABLE>
<TABLE>
<S> <C> <C>
Dated: October 5, 1999 *By: /s/ BRUCE A. NEWMAN
----------------------------------------
Bruce A. Newman, as Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed upon
completion of this offering
3.3* Bylaws of the Registrant
4.1++ Specimen Certificate of Common Stock of the Registrant
5.1++ Opinion of Harris Beach & Wilcox, LLP
10.1* 1999 Long Term Incentive Plan and form of agreements thereto
10.2* 1999 Employee Stock Purchase Plan and form of agreements thereto
10.3+ Unique Name Agreement between At Home Corporation and Registrant dated October 1, 1999
10.4+ Strategic Alliance Agreement between Market Facts, Inc. and the Registrant dated April 23, 1999
10.5.1* Confidentiality and Non-Competition Agreement dated September 1, 1999, between the Registrant and
Gordon S. Black
10.5.2* Confidentiality and Non-Competition Agreement dated September 1, 1999 between the Registrant and
David H. Clemm
10.5.3* Confidentiality and Non-Competition Agreement dated September 1, 1999 between the Registrant and
Leonard R. Bayer
10.6.1* Leases for 135 & 60 Corporate Woods, Rochester, New York dated April 12, 1991 between Gordon S.
Black Corporation and Corporate Woods Associates, together with all amendments
10.6.2* Lease for 70 Carlson Road, Rochester, New York dated July 1, 1998 between Gordon S. Black
Corporation and Carlson Park Associates, together with all amendments thereto
10.7++ Lease for 111 Fifth Avenue, New York, New York dated June 9, 1994 between Louis Harris and
Associates, Inc. and B.J.W. Associates
10.8* Registration Agreement dated July 7, 1998 among the Registrant, Brinson Venture Capital Fund III,
L.P., Brinson MAP Venture Capital Fund III Trust and the Virginia Retirement System
10.9++ Revolving Credit Facility dated August 18, 1999 between Gordon S. Black Corporation and
Manufacturers and Traders Trust Company
10.10 Form of Lock-up Agreement
16.1++ Letter of KPMG LLP
21.1* List of Subsidiaries
23.1++ Consent of Harris Beach & Wilcox, LLP (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
24.1* Power of Attorney (included on Page II-5)
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
+ Confidential treatment has been requested pursuant to Rule 406 of the
Securities Act for portions of this exhibit. Omitted portions have been
filed separately with the Securities and Exchange Commission.
++ To be filed by amendment.
<PAGE>
Exhibit 10.3
AT HOME CORPORATION AND HARRIS INTERACTIVE INC.
UNIQUE NAME AGREEMENT
- --------------------------------------------------------------------------------
THIS UNIQUE NAME LICENSE AGREEMENT (the "Agreement") is made as of
October 1, 1999 (the "Effective Date"), by and between At Home Corporation, a
Delaware corporation ("ATHM"), with an address at 10333 Church Ranch Blvd.,
Westminster, Colorado 80021, and Harris Interactive Inc., a Delaware corporation
("HI"), with an address at 135 Corporate Woods, Rochester, New York 14623-1457.
In consideration of the foregoing premises the mutual covenants
contained herein, the parties agree as follows:
1. DEFINITIONS: Unless otherwise specified herein, all capitalized terms
used in this Agreement shall have the meaning set forth below:
1.1 ACTIVELY OPTED-IN: means that a consumer, in response to relevant
questions, has affirmatively expressed a desire allow to HI to use his or her
email communication information for Research Purposes with specific reference to
the Harris Poll Online(TM).
1.2 PASSIVELY OPTED-IN: means that a consumer, in response to relevant
questions, has not affirmatively expressed a desire to have his or her email
communication information excluded from use by HI for Research with specific
reference to the Harris Poll Online(TM).
1.3 UNIQUE NAME(S): means information collected by ATHM about an
individual who (i) is over eighteen (18) years of age or who is not known to be
under the age of eighteen (18) at the time of registration as a Unique Name,
(ii) has a valid deliverable email address, (iii) is not already a Unique Name
not already in the Harris Poll Online(TM) database, and (iv) has either Actively
Opted-In or Passively Opted-in. Unique Names includes all Completed Names but
also includes names which have Passively Opted-in or which have less than three
of the required demographics, but does not include Unqualified Limited Names.
1.4 COMPLETED NAME(S): means a Unique Name that has Actively Opted-in
STATUS and has at least three (3) of the following six (6) Data elements: age,
gender, education, income, marital status and occupation.
1.5 LIMITED NAMES: [Confidential Information. Intentionally omitted and
filed separately with the Securities and Exchange Commission].
1.6 QUALIFIED LIMITED NAMES: means Limited Names that (i) do not
constitute [Confidential Information. Intentionally omitted and filed separately
with the Securities and Exchange Commission], as the case may be, derived by
ATHM from a particular source or arrangement and delivered to HI hereunder,
measured
<PAGE>
cumulatively from the date of this Agreement, and (ii) are derived from a source
or provider that has not offered the Unique Name an active or passive opt-in for
use by a person or entity, other than HI, primarily for Research Purposes (it
being understood that opt-ins for research directly related to the product or
service offered in connection with the opt-in is not an opt-in for use primarily
for Research Purposes).
1.7 UNQUALIFIED LIMITED NAMES: means all Limited Names that are not
Qualified Limited Names.
1.8 DATA means the data elements collected through the online data
collection activities of ATHM, including behavioral data derived from
transaction log files.
1.9 PROMOTIONAL PURPOSES: means use of the Unique Names, or part of
them, for the primary purpose of advertising, marketing or promoting any good or
service, including, without limitation, advertising delivery, measurement and
targeting, profiling of audiences, lead generation, cooperative marketing
programs, list rental for purposes of advertising and promotional activities,
client database enhancement and development, and the sale of branded merchandise
associated with the ATHM and its Affiliate's brand names.
1.10 RESEARCH PURPOSES: means use of the Unique Names, or part of them,
by recontacting the relevant individuals for the purpose of additional data
collection and data analysis conducted to provide research studies, including
without limitation conducting customer satisfaction and loyalty retention
studies, creating research studies and reports (including studies on assessments
of advertising effectiveness and copy testing), and conducting and providing
analysis of surveys an polls (including among others the Harris Poll
Online(TM)).
1.11 CONFIDENTIAL INFORMATION: has the meaning described in Section 13
of this Agreement.
1.12 AFFILIATE: means any person or entity which directly or
indirectly, or through one or more intermediaries, controls or is controlled by
or is under common control with the applicable person or entity.
2. GRANT TO HI. Subject to the terms and conditions of this Agreement,
ATHM hereby grants HI exclusive ownership rights, for Research Purposes only, in
the Unique Names and Data; provided that such exclusivity with respect to
Limited Names is limited to the extent, and only to the extent, that ATHM's
rights in that respect are limited by its third party arrangement involved in
generation of the Unique Names. ATHM expressly retains all ownership and other
rights except for Research Purposes in the Unique Names and Data. ATHM shall not
use, and shall neither transfer nor license the Unique Names and Data to any
third party, in any manner inconsistent with the exclusive Research Purposes
rights granted to HI hereunder. The transfer of
2
<PAGE>
ownership rights to HI hereunder shall become irrevocable at such time as HI
pays the Fee related to each Unique Name. HI owns all rights, for Research
Purposes only, to the Unique Names in perpetuity, and these Unique Names or any
interest therein cannot be transferred from ATHM to any third party for Research
Purposes.
3. RESTRICTIONS. Neither the Unique Names, nor the Data, nor any portion
thereof may be made accessible, copied, downloaded, stored in a retrieval
system, published, transmitted or otherwise reproduced, transferred, stored,
disseminated or used in any form or any means except in a manner consistent with
the limited ownership rights granted by ATHM in Section 2. HI shall not sell,
transfer, assign, publish, distribute, disseminate, or convey any of the Unique
Names or Data, or any portion thereof, or otherwise, to any third party, in any
manner inconsistent with the limited Research Purpose ownership rights granted
to HI hereunder.
4. OBLIGATIONS OF ATHM. In consideration for the Fee paid by HI, ATHM
will do the following:
4.1 ATHM will deliver to HI all Unique Names held or generated by ATHM
and/or MatchLogic (whether Actively Opted-in or Passively Opted-in and with or
without demographics) during the term of this agreement, with a minimum
guaranteed delivery of [Confidential Information. Intentionally omitted and
filed separately with the Securities and Exchange Commission.] Unique Names per
calendar quarter. ATHM will advise HI as to the restrictions applicable to
Qualified Names delivered to HI, and also will advise HI as to Unqualified
Limited Names held or generated by ATHM and/or MatchLogic with a description of
the respective restrictions applicable thereto. HI may elect to receive such
Unqualified Limited Names, and if it so elects, they will count toward the
minimum guaranteed delivery.
4.2 Included in the minimum [Confidential Information. Intentionally
omitted and filed separately with the Securities and Exchange Commission.] names
delivered to HI, ATHM will deliver to HI a minimum of [Confidential Information.
Intentionally omitted and filed separately with the Securities and Exchange
Commission.] Completed Names per calendar quarter. Unique Names will be sent to
HI pursuant to Section 4.1, but only Unique Names that are Completed Names count
toward the minimum delivery of this Section 4.2. If ATHM sends a particular
Unique Name with no additional Data elements or without an Active Opt-In to HI
in one quarter, then ATHM may, in a future quarter, re-send such Unique Name
records with the required three (3) Data elements and Active Opt-In as part of
the [Confidential Information. Intentionally omitted and filed separately with
the Securities and Exchange Commission.] Completed Names per quarterly quota.
4.3 To the extent there is a cumulative shortfall (in other words if
ATHM has met or is ahead of the [Confidential Information. Intentionally omitted
and filed separately with the Securities and Exchange Commission.] Completed
Names quota for prior quarters and then, in a particular quarter the number of
Unique Names
3
<PAGE>
delivered falls below the cumulative total due HI) then ATHM will not be in
breach of the Agreement if ATHM makes up the cumulative shortfall in addition to
the current required deliveries during the quarter immediately following the
quarter in which the shortfall occurs. As long as cumulatively the quota is met,
a shortfall in a specific quarter shall not be considered a breach of the
Agreement.
4.4 ATHM will include the HI Opt-In on all new user and membership
pages sponsored exclusively by Excite.com.
4.5 ATHM will use commercially reasonable efforts to deliver Unique
Names to HI semi-monthly on the 15th, and last day of the month, but in no event
less frequently than twice per month on average.
5. OBLIGATIONS OF HI. HI will use commercially reasonable efforts to send
ATHM a confirmation report ("Report") (or make the Report available via FTP)
within ten (10) business days after each delivery of Unique Names in order to
notify ATHM of any discrepancies in the amount of Unique Names delivered, but in
no event less frequently than twice per month on average. If ATHM does not
receive a Report, or the Report is not available, within twenty (20) business
days then HI will be deemed to have accepted the amount of Unique Names sent as
specified by ATHM. HI may not reject a Unique Name if it contains a valid
deliverable email address after HI has successfully delivered a message to the
subject of the Unique Name.
6. OWNERSHIP:
6.1 ATHM will retain exclusive ownership of all Unique Names and Data
provided to HI hereunder for all purposes except for the exclusive ownership
rights for Research purposes granted to HI in Section 2. Notwithstanding the
foregoing, ATHM acknowledges that if the Unique Names and Data have been made
available to HI prior to, and independent from, delivery to HI by ATHM, such
Unique Names and Data shall not be deemed proprietary or confidential
information of ATHM in their independently derived form.
6.2 ATHM will retain exclusive ownership of (i) the techniques,
methods, processes, systems, strategies and technology, including but not
limited to software and hardware applications that were Confidential Information
of ATHM and its Affiliates on the date of this Agreement, and (ii) all ATHM
trademarks trade names, and brands, including the GOBOSHTM trademark. HI will
retain exclusive ownership of (i) the techniques, methods, processes, systems,
strategies and technology, including but not limited to software and hardware
applications that were Confidential Information of HI and its Affiliates on the
date of this Agreement, and (ii) all HI trademarks trade names, and brands,
including the Harris Poll Online trademark.
6.3 During the term of this Agreement and thereafter, with respect to
the Unique Names, ATHM shall have the exclusive rights to income and revenues of
every
4
<PAGE>
nature derived from the Unique Names for all purposes other than Research
Purposes. During the term of this Agreement and thereafter, with respect to the
Unique Names delivered to HI hereunder, HI shall have the exclusive rights to
income and revenues of every nature derived from the Unique Names for all
Research Purposes.
7. FEES; PAYMENT TERMS: As consideration for the delivery and license of
the Unique Names to HI, during the term of this Agreement, HI agrees to pay ATHM
[Confidential Information. Intentionally omitted and filed separately with the
Securities and Exchange Commission] per month ("Fee"). HI agrees to pay ATHM an
initial Fee of [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission] within five days after
the Effective Date, and thereafter, HI will pay ATHM the Fee by the first day of
each month during the term of the Agreement. If at any time a cumulative
shortfall has occurred as of the end of any quarter, HI may withhold a
proportionate share of the Fee for the following month(s) equal to at a rate
[Confidential Information. Intentionally omitted and filed separately with the
Securities and Exchange Commission] per Completed Name shortfall and
[Confidential Information. Intentionally omitted and filed separately with the
Securities and Exchange Commission] per Unique Name shortfall, provided that the
withheld Fee shall be due with the first monthly payment due after the shortfall
is cured. HI's rights to withhold a portion of the Fee shall not affect ATHM's
obligations to deliver names as required by this agreement.
8. TERM AND TERMINATION:
8.1 The initial term of the Agreement will begin on the Effective Date,
continue for three (3) years, and automatically renew for succeeding one (1)
year terms; provided that (i) HI may terminate this Agreement effective March
31, 2000 by giving written notice to Excite@Home on or before March 31, 2000 in
the event that HI has not completed an initial public offering of its shares on
or before March 20, 2000, and (ii) after the initial three (3) year term either
party may terminate this Agreement without cause by giving the other at least
one hundred twenty (120) days prior written notice of its intention to
terminate. If termination occurs due to failure to complete a public offering,
or during any annual renewal term, the Unique and Completed Names to be provided
and the Fee to be paid shall be pro rated based upon the portion of the year
during which this Agreement remains in effect.
8.2 The parties may terminate the Agreement as follows: (i) either
party may terminate this Agreement upon the (a) material breach of the other
party, if such breach remains uncured for thirty (30) days following written
notice to the breaching party, (b) dissolution or liquidation of the other
party, or (c) bankruptcy or other proceeding for the relief of debts by the
other party that is not dismissed within thirty (30) days, (ii) ATHM may
terminate this Agreement upon the failure by HI to provide monthly payments due
to ATHM pursuant to Section 4.2 within two (2) weeks after receipt of written
notice that such payment is past due, and (iii) HI may terminate this Agreement
upon the failure by ATHM to provide HI with the required number of Unique Names
and
5
<PAGE>
Completed Names pursuant to Section 4. In addition to termination, the
terminating party shall be entitled to any other remedy available at law and
equity (subject to the provisions of Sections 11, 13.2 and 13.3), it being
understood that damages may not be a sufficient remedy because of the unique
nature of the benefits to be derived under this agreement, and injunctive and
other equitable relief may be appropriate. A party shall not be required to
terminate this Agreement prior to seeking to enforce its legal and equitable
rights hereunder.
8.3 All sections of this Agreement which, by their nature should
survive termination of this Agreement, shall survive, including, without
limitation, Sections 1, 2, 3, 6.1, 6.2, 6.3, and 8 through and including 14. The
ownership rights as to Unique and Completed Names, for which the Fee has been
paid, granted to HI in Sections 2 and 6, are perpetual and shall survive
termination or expiration of this Agreement.
8.4 Upon any termination of this Agreement, each party shall promptly
return to the other party any Confidential Information (and all copies thereof)
of such other party in its possession or control, provided that HI shall be
entitled to retain Unique Names and Data owned by it hereunder.
9. WARRANTY DISCLAIMERS. HI acknowledges that any collection and
compilation of data entails the likelihood of inaccuracies and losses, including
inadvertent loss of data or damage to media, that may give rise to loss or
damage. ATHM will use reasonable commercial efforts to minimize such
inaccuracies. THE UNIQUE NAMES ARE PROVIDED "AS IS"; AND ATHM MAKES NO
REPRESENTATION OR WARRANTY WITH RESPECT TO THEIR ACCURACY, COMPLETENESS, OR
CURRENTNESS; OR THE ACCURACY OR GENUINENESS OF ANY UNIQUE NAMES OR DATA
(provided, however, that ATHM's obligations to deliver names which are within
the definitions of Unique Names and Completed Names are not affected by this
warranty disclaimer). ATHM SPECIFICALLY DISCLAIM ANY OTHER WARRANTY, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. EACH PARTY AGREES THAT IN NO EVENT WILL THE OTHER PARTY BE
LIABLE FOR THE RESULTS OF ITS OR ANY OF ITS CUSTOMER'S USE OF THE UNIQUE NAMES
OR DATA CONTAINED THEREIN.
10. INDEMNITY: Notwithstanding any other provision contained in this
Agreement, each party shall defend the other party hereto, and shall pay all
reasonable costs, expenses and damages that a court finally awards, or
settlements approved by the indemnifying party, based upon a third party claim
arising from (i) any intentional misrepresentation, fraud, or unlawful activity
of the indemnifying party related to this Agreement, or (ii) the breach of any
of the indemnifying party's obligations hereunder; provided that the party to be
indemnified under this Section promptly notifies the indemnifying party in
writing of the claim, allows the indemnifying party to control the defense or
any related settlement negotiations and cooperates with the indemnifying party
in such defense or settlement negotiations.
6
<PAGE>
11. COMPLIANCE WITH LAWS AND REGULATIONS: Each party shall, at its own
expense, comply with any governmental law, statute, ordinance, administrative
order, rule, or regulation relating to its duties, obligations, and performance
under this Agreement, including, but not limited to, the use of any Unique Names
or Data, and shall procure all governmental licenses and pay all fees and other
charges required thereby. Each party agrees to respect all consumer preferences
in its use of any Unique Names or Data.
12. LIMITATIONS ON LIABILITY: IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT
LIMITED TO DAMAGES FOR BREACH OF CONTRACT OR WARRANTY OR FOR NEGLIGENCE OR
STRICT LIABILITY), OR FOR INTERRUPTED COMMUNICATIONS OR LOST DATA, ARISING OUT
OF OR IN CONNECTION WITH THE AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
(OR KNOWS OR SHOULD KNOW OF) THE POSSIBILITY OF SUCH DAMAGES. EXCEPT AS PROVIDED
IN SECTION 14.4, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE
OTHER OR ANY THIRD PARTIES FOR AN AMOUNT GREATER THAN THE AMOUNTS RECEIVED
HEREUNDER DURING THE PRECEDING EIGHTEEN (18) MONTH PERIOD.
13. CONFIDENTIAL INFORMATION:
13.1 During the course of the Agreement, the parties may exchange
information, materials, and knowledge about their respective businesses,
products, programming and other techniques, methods, pricing, ideas,
experimental and other work, plans, systems, customers, clients and suppliers.
The parties agree that all such knowledge, information and materials acquired,
including but not limited to the Unique Names, ATHM user information and Data
and HI customer information, are and will be the trade secrets and confidential
and proprietary information of the party (collectively, "Confidential
Information") whether or not explicitly designated as "confidential" or
"proprietary" by the parties.
13.2 Confidential Information will not include information that: (i) is
in or enters the public domain without breach of this Agreement, (ii) either
party lawfully receives from a third party without restriction on disclosure and
without breach of a nondisclosure obligation, (iii) either party knew prior to
receiving such information form the other, or (iv) either party develops or
discovers independently of any information received from the other.
13.3 Each party agrees (i) that it will not disclose any third party or
use any Confidential Information except as expressly permitted in the Agreement,
and (ii) that it will maintain the confidentiality of all Confidential
Information in its possession or control by the measures it uses to maintain the
confidentiality of its own information of similar importance but in no event
shall the measures be less than reasonable.
7
<PAGE>
13.4 Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required by law, or
(ii) on a "need-to-know" basis under an obligation of confidentiality to its
legal counsel, accountants, potential investors or acquirers, banks and other
financing sources and their advisors.
14. GENERAL PROVISIONS:
14.1 GOVERNING LAW: This Agreement will be governed and construed in
accordance with the laws of the State of Colorado without giving effect to
principles of conflict of laws.
14.2 DISPUTES. Any dispute arising under or relating to this Agreement
or between the parties hereto shall be settled exclusively by arbitration to be
held in Denver, Colorado. Such arbitration shall be conducted in accordance with
the Rules of the American Arbitration Association ("AAA"). The arbitration shall
be before a mutually acceptable single arbitrator, except that in the event the
amount in controversy exceeds $100,000, the arbitration shall be before three
(3) arbitrators, the decision of any two of the arbitrators shall be binding.
The arbitrators shall be selected from a list, prepared by the AAA, of persons
having expertise in the subject matter of this Agreement. One arbitrator shall
be selected by ATHM, one by HI and a third by the arbitrators selected by the
parties. Judgment upon the award may be entered in any court having jurisdiction
thereof. This provision is self-executing, and in the event that either party
fails to appear at any properly noticed arbitration proceeding, an award may be
entered against such party notwithstanding said failure to appear.
14.3 INJUNCTIVE RELIEF. Notwithstanding anything in this Agreement to
the contrary, the parties hereto acknowledge that a breach of any of its
obligations relating to the restrictions on use of the Unique Names, each
party's intellectual property or Confidential Information will cause the
non-breaching party irreparable harm, and therefore the non-breaching party will
be entitled to equitable relief in addition to all other remedies provided in
this Agreement or available at law or in equity.
14.4 MISUSE. If either party is determined by the Expedited Review
Process described below to have willfully used the Unique Names in contradiction
to the rights granted to it hereunder (each such use hereinafter referred to as
a "Misuse") two or more times during any one-year period, the other party may
request that any further use by the misusing party be monitored and approved, by
a neutral third party to be agreed on by the parties, under a mutually
acceptable procedure which provides a mechanism for approvals in a reasonably
timely manner so as not to unreasonably disrupt the business of the misusing
party. If, thereafter, Misuse (which shall not include any use approved by the
neutral third party) occurs three (3) times in any one-year period, then the
misusing party shall pay to the other party [Confidential Information.
Intentionally omitted and filed separately with the Securities and Exchange
Commission]. The foregoing remedies are in addition to all other remedies
8
<PAGE>
provided in this Agreement or available at law or in equity. The parties
acknowledge and agree that the actual damages incurred by either party due to
the other party's Misuse of the Unique Names will be difficult, if not
impossible, to ascertain and that the liquidated damages payable pursuant to
this section represent the reasonable and likely amount of such damages and not
a penalty. If a party believes that the other has engaged in a Misuse, promptly
after discovery of the Misuse the accusing party shall give notice of the same
to the other party. Within ten business days the parties shall agree upon a
mutually acceptable arbitrator to review as expeditiously as possible whether a
Misuse has occurred. If agreement as to a mutually acceptable arbitrator is not
reached within such ten business day period, within such time each party shall
designate an arbitrator and within five business days thereafter the two
arbitrators shall select a third arbitrator, with a decision of a majority of
the arbitrators being binding.
14.5 SEVERABILITY; WAIVER: If any provision of the Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way. The
parties agree to replace any invalid provision with a valid provision, which
most closely approximates the intent and economic effect of the invalid
provision. The waiver by either party of a breach of any provision of the
Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
14.6 HEADINGS: Headings used in the Agreement are for reference
purposes only and in no way define, limit, construe or describe the scope or
extent of such section, or in any way affect the Agreement.
14.7 SUCCESSORS AND ASSIGNS: The Agreement, and the rights (other than
ownership rights granted or retained under this Agreement ) and obligations
herein, may not be assigned without the other partys' prior written consent;
except that either party may assign this Agreement, without consent of the other
party, to any entity that is merged or consolidated with a party or acquires all
or substantially all of the assigning party's assets; provided, however, that
neither party may assign this Agreement, or the rights and obligations herein,
without the prior consent of the other, to any direct competitor of the
non-assigning party. The parties' rights and obligations will bind and inure to
the benefit of their respective successors, heirs, executors and administrators
and permitted assigns. Either party may subcontract all or a portion of its
responsibilities hereunder to any affiliate of the party, provided that any
subcontractor shall be bound by the confidentiality and other provisions of this
Agreement.
14.8 ATTORNEYS' FEES: If any legal action is brought to construe or
enforce any provision of the Agreement, the prevailing party shall be entitled
to receive its reasonable attorneys' fees and court costs in addition to any
other relief it may receive.
14.9 FORCE MAJEURE: If the performance of the Agreement, or any
obligation hereunder, is prevented, restricted or interfered with by any act or
condition whatsoever
9
<PAGE>
beyond the reasonable control of the affected party, the party so affected, upon
giving prompt notice to the other party, shall be excused from such performance
to the extent of such prevention, restriction or interference, provided,
however, that the obligation to make any payment hereunder shall not be excused
for a period of more than five business days.
14.10 INDEPENDENT CONTRACTORS: The parties to the Agreement are
independent contractors, and no agency, partnership, joint venture or
employee-employer relationship is intended or created by the Agreement.
14.11 NOTICE: Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such other
address as the party shall specify in writing. Such notice shall be deemed
given: upon personal delivery or delivery by nationally recognized overnight
courier; if sent by telephone facsimile, upon confirmation of receipt; if sent
by electronic mail, upon confirmation of delivery; or if sent by certified or
registered mail, postage prepaid, five (5) days after the date of mailing.
14.12 COUNTERPARTS: The Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be on instrument.
14.13 ENTIRE AGREEMENT: The Agreement sets forth the entire
understanding and agreement of the parties as to the subject matter of the
Agreement and supersedes any and all oral or written agreements or
understandings between the parties related to the subject matter hereof. The
agreement may be changed only by a written amendment signed by both parties.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have executed the
Agreement as of the date first written above.
<TABLE>
<CAPTION>
AT HOME CORPORATION: HARRIS INTERACTIVE INC.:
<S> <C> <C> <C>
By: /s/ Elizabeth M. Berecz By: /s/ Gordon S. Black
---------------------------------------------- ----------------------------------------
Name: Elizabeth M. Berecz Name: Gordon S. Black
---------------------------------------------- ----------------------------------------
Title: V.P. Finance Title: Chief Executive Officer
---------------------------------------------- ----------------------------------------
Address: 1033 Church Ranch Blvd. Address: 135 Corporate Woods
-------------------------------------------- --------------------------------------
Westminster, CO 80021 Rochester, NY 14623-1457
-------------------------------------------- --------------------------------------
Fax: (303) 222-2242 Fax: (716) 272-7258
-------------------------------------------- --------------------------------------
E-Mail: E-Mail: [email protected]
-------------------------------------------- -----------------------------
--------------------------------------
</TABLE>
11
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Exhibit 10.4
STRATEGIC ALLIANCE AGREEMENT
THIS AGREEMENT is made as of April 23, 1999 between HARRIS BLACK
INTERNATIONAL, LTD., a Delaware corporation with offices at 135 Corporate Woods,
Rochester, New York 14623 ("HBI") and MARKET FACTS, INC., a Delaware corporation
with offices at 3040 West Salt Creek Lane, Arlington Heights, Illinois 60005
("MFI").
WHEREAS, MFI and HBI each are in the business of conducting marketing
and advertising research, creating research reports, conducting customer
satisfaction and loyalty retention studies, and creating, conducting, and
providing analysis of surveys and polls, and
WHEREAS, in the course of its business HBI has developed, and continues
to expand, proprietary products for the conduct of research using the internet,
including among others a database of respondents who have agreed to participate
in such research, and
WHEREAS, MFI and HBI desire to create a strategic relationship in order
to enhance their mutual capabilities to take advantage of business opportunities
related to the internet,
NOW THEREFORE, in consideration of the rights granted hereunder and the
covenants contained herein, and other good and valuable consideration, the
receipt of which is hereby acknowledged, HBI and MFI agree to enter into a
strategic alliance as follows:
ARTICLE 1 - DEFINITIONS
1.1 DEFINITIONS. Capitalized terms used herein shall have the following
meanings:
"ACCESS FEES" shall mean the fees set by HBI related to amortization of
development of the HBI Database.
"AFFILIATE" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract, or otherwise.
"AGREEMENT" shall mean this Strategic Alliance Agreement, as it may be
amended or replaced from time to time.
"ASSOCIATION" shall mean the International Research Database
Association, a not-for-profit corporation formed or to be formed under the laws
of the State of Delaware.
"ASSOCIATION DATABASE" shall mean the Association's database of Unique
Names to which HBI has access by virtue of its membership and cross-license
agreements.
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"ASSOCIATION PRICE" shall mean the List Price established from time to
time by the Association for use of the Association Database according to the
Association Rules.
"ASSOCIATION RULES" shall mean the rules, standards, operating
principles, restrictions, and agreements contained in the Certificate of
Incorporation, Bylaws, Cross-License Agreement, Guidelines, and other governing
documents and agreements of the Association in effect from time to time.
"ASSOCIATION SURVEY FEE" shall mean the Survey Fee as defined in the
Association Rules.
"ASSOCIATION USE FEE" shall mean the Use Fee as defined in the
Association Rules.
"CONFIDENTIAL INFORMATION" shall have the meaning given to it in
Section 6.1 of this Agreement.
"GUIDELINES" shall mean the Guidelines established from time to time
under the Bylaws of the Association.
"HBI DATABASE" shall mean HBI's database of Unique Names.
"HBI MULTI-CLIENT STUDY(IES)" shall have the meaning given in Section
5.1 of this Agreement.
"INTERNET TECHNOLOGIES" shall have the meaning given in Section
2.1(a)(iii) of this Agreement.
"JV MULTI-CLIENT STUDY(IES)" shall have the meaning given in Section
5.1 of this Agreement.
"MFI NAMES" shall mean the names of a natural person who (i) has agreed
to participate in a study or project for MFI or its customers or clients, (ii)
has provided his or her name, email address, post office address, and such other
demographic information as MFI and HBI mutually agree is necessary in connection
with the applicable study or project, and (iii) has not become a Participant.
"MFI MULTI-CLIENT STUDY(IES)" shall have the meaning given in Section
5.1 of this Agreement.
"MFI TECHNOLOGIES" shall have the meaning given in Section 2.6(a) of
this Agreement.
"MULTI-CLIENT STUDY(IES)" shall mean any HBI Multi-Client Study(ies),
JV Multi-Client Study(ies), and/or MFI Multi-Client Study(ies). Multi-Client
Studies shall not include custom studies done at the joint request of more than
one client.
"PARTICIPANT" shall mean a person to whom a particular Unique Name has
reference.
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"PERSON" shall mean any individual, corporation, company, partnership,
limited liability company, joint venture, trust, or other entity of any kind or
nature.
"PROMOTIONAL PURPOSES" shall mean use of the Association Database or
HBI Database for the primary purpose of advertising, marketing, or promoting any
good or service, including without limitation advertising delivery, measurement
and targeting, profiling of audiences, lead generation, cooperative marketing
programs, list rental for purposes of advertising and promotional activity,
client database enhancement and development, and the sale of branded
merchandise.
"RESEARCH PURPOSES" shall mean use of the Association Database or HBI
Database for data collection and data analysis conducted to provide research
studies, including without limitation conducting customer satisfaction and
loyalty retention studies, creating research studies and reports (including
studies on advertising effectiveness and copy testing), and conducting and
providing analysis of surveys and polls.
"RETAIL FEES" shall mean the Access Fees, Survey Fees, and Use Fees
actually charged by HBI for access and use of the HBI Database to Persons who
have not (i) entered into an exclusive relationship with HBI for online internet
research services (subject to limited exceptions such as those granted
hereunder), or (ii) made an upfront license or access fee or similar payment to,
or other equivalent financial arrangement with, HBI for use of the HBI Database.
"STANDARD RETAIL FEES" shall mean HBI standard Retail Fees for access
and use of the HBI Database for Persons who have not (i) entered into an
exclusive relationship with HBI for online internet research services (subject
to limited exceptions such as those granted hereunder), (ii) made an upfront
license or access fee or similar payment to, or other equivalent financial
arrangement with, HBI for use of the HBI Database, or (iii) qualified for volume
discounts or similar special arrangements involving use of the HBI Database on
more than a project by project by project basis.
"SURVEY FEES" shall mean the fees set by HBI related to (i) programming
necessary to format surveys for, or otherwise make surveys compatible with,
internet data collection, (ii) collection of surveys, polls, and interviews
involving hosting web sites and having other contact with Participants through
the HBI Database using HBI Internet Technologies, and (iii) amortization of
development of the Internet Technologies.
"UNIQUE NAME" shall mean the name of a natural person who (i) has
agreed to participate in the HBI Database or the International Database, (ii)
has provided his or her name, email address, and post office address, and (iii)
has been requested to provide his or her telephone number and such other
demographic information (for example, age, income, education, marital status,
employment, or ethnicity) as is determined from time to time to be appropriate
by either HBI or the Association.
"USE FEES" shall mean the fees set by HBI related to (i) distribution
of emails or other communication, (ii) monitoring content and quality of
communications with Participants, (iii)
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processing responses to such emails and other communications, and (iv) providing
equipment, servers, software, and support facilities.
ARTICLE 2 - LICENSES
2.1 HBI DATABASE/INTERNET TECHNOLOGIES.
(a) The parties acknowledge and agree that:
(i) HBI is the owner of and has proprietary rights to the HBI
Database. Notwithstanding anything to the contrary contained in this
Agreement, HBI shall continue to have exclusive control over and rights
to develop, expand, manage, and license or rent use of the HBI Database
for Research Purposes.
(ii) HBI is the owner of and has proprietary rights to the
name "Harris Poll Online". Notwithstanding anything to the contrary
contained in this Agreement, HBI shall continue to retain all ownership
rights and interests in the name "Harris Poll Online" (subject to the
grant hereby of a non-exclusive license for use of such name in
connection with use of the HBI Database by MFI under this Agreement).
(iii) HBI has developed, and/or has proprietary rights to
technologies, techniques, and capabilities for the collection of
surveys, polls, and interviews through the internet and for weighting,
sampling, projections and the like related thereto ("INTERNET
TECHNOLOGIES"). Notwithstanding anything to the contrary contained in
this Agreement, HBI shall continue to have exclusive ownership and
proprietary rights to the Internet Technologies, subject to the license
granted to MFI hereby.
(b) The HBI Database and Internet Technologies shall continue to be
held by HBI and reside on its systems. HBI shall provide, and shall retain
ownership of, the equipment, servers, software, and other support facilities
necessary to manage the HBI Database, contact the Participants, and support the
Internet Technologies. HBI may subcontract or otherwise arrange for the
performance of certain of its functions from time to time so long as such
subcontracts or arrangements are exclusively for the provision of services, and
do not include a grant of rights to the HBI Database. Unique Names held at any
time by a subcontractor or through another arrangement shall be deemed to be
held by and at the direction of, and under control of HBI, and no Person shall
have any rights to such Unique Names other than through HBI.
(c) All emails and contacts with Participants in the HBI Database shall
be made through HBI. Among other items, HBI will monitor that use of the HBI
Database conforms to standards established for such use and will provide that
communications from Participants (including requests for removal from the HBI
Database) are dealt with in a timely manner. All contacts with HBI Database
Participants shall be made under the name, "Harris Poll Online"; provided,
however, that
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at MFI's request, HBI also will identify MFI in such manner as MFI reasonably
requests in all communications with Participants made by HBI on behalf of MFI.
2.2 HBI DATABASE LICENSE. HBI hereby grants a non-exclusive license to
MFI, acting through HBI, to access and use the HBI Database provided that such
use (i) must be exclusively for Research Purposes, (ii) may not be for
Promotional Purposes, (iii) may not conflict with exclusive rights given by HBI
to third Persons for use of the HBI Database for specifically described
activities (which exclusive third party rights shall not restrict MFI's rights
to use the HBI Database for custom research projects of any nature), (iv) may
not conflict with restrictions on use of the HBI Database imposed upon HBI in
connection with the addition of Unique Names to the HBI Database, (v) must
comply with Section 2.1 and other provisions of this Agreement, (vi) must comply
with reasonable restrictions established by HBI to assure compliance with the
maintenance of the goodwill and reputation of HBI, legal requirements, privacy
standards, and the like, and (vii) is subject to payments as provided in Section
2.4 of this Agreement. Use of the HBI Database shall include, without
limitation, rights to integrate materials from use of the HBI Database with
other product offerings and rights to rent use of the HBI Database as part of
services performed by MFI for third Persons. HBI acknowledges that restrictions
in this Agreement on use of the HBI Database for Promotional Purposes are
intended to relate to contacts with Participants, and not to the promotion or
use of the HBI Database itself for Research Purposes.
2.3 INTERNET TECHNOLOGIES. HBI hereby grants a non-exclusive license to
MFI, acting through HBI, to access and use the Internet Technologies in
connection with design, development and performance of projects and products
using the HBI Database and MFI Names provided that such use (i) must be
exclusively for Research Purposes, (ii) may not be for Promotional Purposes,
(iii) may not conflict with restrictions imposed by third Persons on HBI use of
such Internet Technologies, provided that in the case of third party vendors HBI
will use reasonable efforts to secure access for MFI, (v) must comply with
Section 2.1 and other provisions of this Agreement, (vi) must comply with
reasonable restrictions established by HBI to assure compliance with the
maintenance of the goodwill and reputation of HBI, legal requirements, industry
standards or ethical guidelines, and privacy standards, and (vii) is subject to
payments as provided in Section 2.4 of this Agreement.
2.4 USE OF HBI DATABASE/INTERNET TECHNOLOGIES/FEES.
(a) [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission.]
(b) [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission.] MFI will pay HBI's fees
as further described in this Section 2.4(b). MFI will pay to HBI (i) Use Fees
and Access Fees in connection with all uses of the HBI Database (subject,
however to Section 4.3 of this Agreement), (ii) Use Fees (but not Access Fees)
in connection with use of MFI Names, and (iii) Survey Fees in connection with
all uses of the Internet Technologies whether in connection with the HBI
Database or MFI Names. HBI will
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invoice MFI for such fees promptly after the completion of each project, and MFI
will pay such fees within thirty (30) days from the date of invoice whether or
not MFI has collected any such amounts from its customers and clients and based
upon the following amounts:
(i) From time to time HBI will advise MFI of the applicable
Use Fees, Access Fees, and Survey Fees related to use of the HBI
Database. [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission.]
(ii) Upon receipt of a request from MFI to perform services
covered by this Agreement, which request provides supporting
information reasonably necessary for HBI to evaluate the request, HBI
will advise MFI of the applicable Use Fees and Survey Fees, and if MFI
Names are not being used, Access Fees, that are anticipated in
connection with such project (the "QUOTED FEES"). If the actual costs
to HBI become expected to exceed, or exceed, the Quoted Fees due to a
change in the scope of the project, HBI will advise MFI as soon as
reasonably practical and will provide an accounting for such excess to
MFI. MFI shall be responsible for the Quoted Fees and for any actual
HBI costs in excess of Quoted Fees incurred due to the change in scope
of the project. Except for costs related to changes in scope of a
project, HBI will be responsible for all costs in excess of Quoted
Fees.
The fee structure provided in this Section 2.4(b) shall not apply to projects
for which a separate fee structure is provided by Article 5 of this Agreement.
(c) From time to time MFI and HBI may mutually agree to have MFI or HBI
perform professional or other services for the other which are not within the
scope of services covered by this Agreement. The terms and conditions for such
services, and the costs or charges therefor, shall be subject to such mutual
agreement.
2.5 ASSOCIATION DATABASE. HBI is a Member of the Association and as
such has rights to use the Association Database subject to the Association
Rules. HBI agrees to access the Association Database on behalf of MFI from time
to time subject to Association Rules. In connection with each such use of the
Association Database, MFI will promptly reimburse HBI for the Association Price,
Association Survey Fees, and Association Use Fees in the same amounts as are
payable by Members of the Association in connection with such use as defined in
the Association Rules. [Confidential Information. Intentionally omitted and
filed separately with the Securities and Exchange Commission.]
2.6 MFI TECHNOLOGIES/LICENSE.
(a) MFI has developed, and/or has certain proprietary rights to
technologies, techniques, and capabilities for the collection of surveys, polls,
and interviews through the internet and for weighting, sampling, projections and
the like related thereto ("MFI TECHNOLOGIES"). Notwithstanding anything to the
contrary contained in this Agreement, MFI shall continue to have
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exclusive ownership and proprietary rights to the MFI Technologies, subject
to the license granted to HBI hereby.
(b) MFI hereby grants a non-exclusive license to HBI to access and use
the MFI Technologies in connection with design, development and performance of
projects and products using the HBI Database and MFI Names provided that such
use (i) may not conflict with restrictions imposed by third Persons on MFI use
of such MFI Technologies, provided that in the case of third party vendors MFI
will use reasonable efforts to secure access for HBI, and (ii) must comply with
reasonable restrictions established by MFI to assure compliance with the
maintenance of the goodwill and reputation of MFI, legal requirements, industry
standards or ethical guidelines, and privacy standards.
2.7 OWNERSHIP OF DATA. All surveys, questionnaires or similar materials
created in connection with a study conducted by HBI on behalf of MFI hereunder,
and all research data and other information collected as a result thereof, shall
be owned by MFI, and MFI shall have sole and exclusive rights thereto unless
otherwise expressly agreed by the parties. Per legal requirements and HBI
privacy policies, transfer of Participant-specific demographic data will not be
made unless clearly disclosed to the Participant in connection with the
particular study.
ARTICLE 3 - [CONFIDENTIAL INFORMATION - INTENTIONALLY
OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
3.1 [CONFIDENTIAL INFORMATION - INTENTIONALLY OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
(a)
(b) Notwithstanding the provisions of Section 3.1(a), MFI shall have
the right to perform internet based polling and research itself or to obtain
such services from other Person, including HBI
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Competitors, for: (i) specific projects in the event that HBI is unable to
provide the services requested by MFI in a reasonably timely manner, and (ii)
specific internet research opportunities, lines of business, or technologies
which MFI has disclosed to HBI and requested that HBI offer to MFI as part of
the internet research services provided hereunder and which HBI has determined
within a reasonable period of time that it is either unwilling or unable to
offer to MFI.
3.2 WORKING GROUPS/ADVISORY PANEL. Consistent with their joint desire
and interest in development of the business of use of the internet for Research
Purposes, (i) HBI and MFI shall each appoint representatives to an Advisory
Panel which will provide advice from time to time regarding improvements to the
HBI Database, and (ii) from time to time MFI and HBI by mutual agreement may
establish working groups to deal with issues of common concern. Among others,
immediate establishment of a Technology Working Group and a Design and Weighting
Working Group is anticipated.
3.3 OTHER HBI RELATIONSHIPS. Except as otherwise expressly provided in
this Agreement, nothing contained herein shall restrict the ability of HBI to
create relationships with, provide research and other services to, and provide
access to the HBI Database and Internet Technologies to, any other Persons
including clients who may be direct competitors of MFI.
ARTICLE 4 - ADDITION OF NAMES TO HBI DATABASE
4.1 MFI COLLECTION OF NAMES.
(a) MFI shall have the right to contribute MFI Names to the HBI
Database, subject to access and use restrictions as may be established by MFI.
Subject to the provisions of Section 4.1(b), MFI will use its commercially
reasonable efforts to offer those with which it has relationships, including
recipients of its solicitations and other communications, the opportunity to
become a Unique Name and to become part of the HBI Database. HBI and MFI will
mutually agree as to the form and content of such offers. Subject to the
provisions of Section 4.1(b), MFI will use its commercially reasonable efforts
to obtain the permission of its customers and clients to offer the opportunity
to become Unique Names to those with which it has relationships, including
recipients of its solicitations and other communications.
(b) Notwithstanding the provisions of Section 4.1(a), MFI shall not be
required to contribute MFI Names, or offer those with which it has
relationships, including recipients of its solicitations and other
communications, the opportunity to become Unique Names:
(i) if MFI reasonably determines that such contribution or
offer would not be consistent with maintenance of contractual or good
trade relationships with its customers and clients,
(ii) if MFI reasonably determines that such contribution or
offer would violate any third party contractual arrangement existing on
the date of this Agreement, or
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(iii) for participants in MFI's consumer mail panel.
4.2 MFI NAMES. MFI is the owner of and has all proprietary rights to
the MFI Names. The MFI Names shall be subject to such access and use
restrictions as may be established by MFI and the MFI Names will not become
Unique Names and part of the HBI Database unless the MFI Name participant has
expressly agreed (by active or passive opt-in) to participate in the HBI
Database. MFI shall have sole rights to the use of the MFI Names, subject to the
provisions of this Agreement pursuant to which HBI provides services to MFI in
contacting and gathering data from MFI Names exclusively on behalf of MFI.
4.3 CHARGES IN CONNECTION WITH USE OF MFI NAMES. Although MFI is
responsible for payment of Access Fees in connection with each of its uses of
the HBI Database, to the extent that Participants who respond to a particular
survey request represent Unique Names contributed by MFI under Section 4.1
hereof, the Access Fees will be proportionately waived.
ARTICLE 5 -MULTI-CLIENT STUDIES
5.1 TYPES OF STUDIES.
(a) From time to time MFI and HBI may agree to joint multi-client
studies using the internet ("JV MULTI-CLIENT STUDY(IES)").
(b) HBI may choose to do multi-client studies for its own account using
the internet ("HBI MULTI-CLIENT STUDY(IES)"). Rights of HBI to conduct HBI
Multi-Client Studies alone or with other Persons, or to license or rent use of
the HBI Database to customers or clients in connection with multi-client studies
being performed by them, are not covered by this Agreement and HBI may conduct
the same independent of and without regard to its relationship with MFI except
as otherwise expressly provided herein.
(c) MFI may choose to do multi-client studies for its own account using
the internet ("MFI MULTI-CLIENT STUDY(IES)"). MFI Multi-Client Studies may be
conducted by MFI alone or with other Persons, provided however, that MFI shall
use HBI services covered by Use Fees, Access Fees if the HBI Database is used
rather than MFI Names, and Survey Fees in connection with all such MFI
Multi-Client Studies subject to the terms of this Agreement.
5.2 EXCLUSIVITY RIGHTS.
(a) With respect any particular JV Multi-Client Study, HBI and MFI each
agree that they will not produce online research products that compete directly
with the respective JV Multi-Client Study. Research that is related to the same
industry or population but does not directly compete with the respective JV
Multi-Client Study, and research conducted after expiration of a time period
after completion of the respective JV Multi-Client Study (such period either to
be mutually agreed upon prior to commencement of the JV Multi-Client Study or,
absent such agreement, for so long as the
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JV Multi-Client Study is a commercially viable product), will be deemed not to
compete directly with the respective JV Multi-Client Study.
(b) With respect to any MFI Multi-Client Study and in consideration of
the payments to be received by it under Section 6.5 of this Agreement, HBI
agrees that it will not produce (for its own account or with or for others)
online research products that compete directly with the respective MFI
Multi-Client Study. Research that is related to the same industry or population
but does not directly compete with the respective MFI Multi-Client Study, and
research conducted after expiration of a time period after completion of the
respective MFI Multi-Client Study (such period to be mutually agreed upon prior
to commencement of the MFI Multi-Client Study or, absent such agreement, for so
long as the MFI Multi-Client Study is a commercially viable product), will be
deemed not to compete directly with the respective MFI Multi-Client Study. No
MFI Multi-Client Study shall be produced that either (i) violates exclusive
rights or other restrictions under agreements HBI has with other Persons, or
(ii) in the reasonable judgment of HBI would so restrict the use of the HBI
Database as to jeopardize HBI's membership in the Association or its ability to
use and manage the HBI Database in a manner consistent with HBI's reasonable
business objectives.
5.3 PRICING. Sale prices to customers and clients purchasing data or
other material produced in connection with any JV Multi-Client Study shall be
subject to mutual agreement of HBI and MFI. Sale prices to customers and clients
purchasing data or other material produced in connection with any MFI
Multi-Client Study shall be established by MFI.
5.4 DEVELOPMENT AND CONDUCT OF JV MULTI-CLIENT STUDIES.
(a) HBI will provide use of the HBI Database with no Use Fee, Access
Fee, or Survey Fee for the developmental phase of JV Multi-Client Studies. If
use of the Association Database is required in connection with the developmental
phase of the project, HBI will provide use of the Association Database for the
Association Price, Association Use Fee, and Association Survey Fee applicable to
such use according to Association Rules. [Confidential Information.
Intentionally omitted and filed separately with the Securities and Exchange
Commission.]
(b) HBI and MFI will mutually agree as to primary responsibility for
questionnaire design, the design of marketing materials, and the design of
research deliverables for JV Multi-Client Studies, it being the present
intention of the parties that MFI will assume a greater portion of such
responsibility in consideration of the contributions of HBI under Section
5.4(a). The production of the questionnaire, marketing materials, core
demographic questions, and deliverables will be a collaborative process between
the parties. Demographic categories shall conform to categories then in use for
the HBI Database. The final form of the survey must be approved by both parties;
provided, however, that permission to include content in the survey will not be
unreasonably withheld. Each party will bear its own professional and other costs
with respect to developmental activities covered by this Section 5.4(b).
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(c) In order to minimize the financial risk to the parties, after the
development phase of the project, no data collection efforts by HBI will
commence unless the parties have obtained commitments in writing for the
purchase of the Multi-Client Study equal to a mutually agreed upon minimum
revenue. In the event that there is insufficient minimum revenue and the JV
Multi-Client Study does not proceed, each party shall be individually
responsible for whatever costs the parties have incurred until that point.
(d) All revenue generated through the sale of a JV Multi-Client Study
shall first be allocated to cover each party's costs in the following order and
as described below: (i) sales commissions, (ii) Use Fees, Access Fees, and
Survey Fees, (iii) marketing costs, and then (iv) professional costs.
(i) In order to cover the cost of direct sales activities not
covered by subsection (d)(iii) of this Section, either party that makes
a sale will receive a commission equal to [Confidential Information.
Intentionally omitted and filed separately with the Securities and
Exchange Commission].
(ii) Use Fees, Access Fees, and Survey Fees shall include
those payable to HBI for all activities other than those covered by
Section 5.4(a) of this Agreement.
(iii) Marketing costs shall reflect those direct costs
incurred by the parties to promote the JV Multi-Client Study, including
costs for producing marketing collaterals and web-based materials, but
excluding professional time spent on developing marketing materials.
Marketing costs shall not include the costs of telemarketing, sales
calls, or other costs directly related to sales to individual customers
or clients.
(iv) Professional costs shall include the time spent by
professional personnel, which is, under normal circumstances, passed on
to clients when servicing retail research clients, but shall not
include Survey Fees and those costs covered by Section 5.4(a) of this
Agreement. Calculation of costs for professional time shall be on an
hourly basis, and shall be based upon the amounts normally charged per
hour for such time.
An accounting for all costs incurred except commissions not yet earned shall be
made by both parties prior to the commencement of data collection by HBI.
(e) [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission.]
(f) Each party will provide reasonable cooperation to the other in
areas for which the other has responsibility, and each party will make, or will
cause its Affiliates to make, all reasonable and practical efforts in the
performance of the functions for which it has responsibility.
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(g) Any data generated by a JV Multi-Client Study shall be owned
jointly by HBI and MFI. Interests in and rights to use of such data are not
transferable by either party (except to an Affiliate of such party), and all
uses of such data require approval by authorized designees of both HBI and MFI.
Neither party shall sell, rent, or otherwise use such data except as described
in this Agreement without the express written permission of the other party. Per
legal requirements and MFI and HBI privacy policies, transfer of demographic
data will not be made unless clearly disclosed to the Participant in connection
with the particular MFI Multi-Client Study. Both parties must provide their
written consent prior to and to the form and content of, any release of the JV
Multi-Client Study, marketing materials, data, or deliverables. Consent to the
form of marketing materials will not be unreasonably withheld.
5.5 DEVELOPMENT AND CONDUCT OF MFI MULTI-CLIENT STUDIES.
(a) HBI will provide use of the HBI Database for the developmental
phase of MFI Multi-Client Studies at the Use Fees, Access Fees, and/or Survey
Fees charged to MFI pursuant to section 2.4(b) hereof. If use of the Association
Database is required in connection with the developmental phase of the project,
HBI will provide use of the Association Database for the Association Price,
Association Use Fee, and Association Survey Fee applicable to such use according
to Association Rules [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission].
(b) MFI will have responsibility for, and shall bear the expenses
related to, questionnaire design, the design of marketing materials, and the
design of research deliverables for MFI Multi-Client Studies, subject to
approval of HBI which will not be unreasonably withheld. Core demographic
questions must be acceptable to HBI and demographic categories shall conform to
categories then in use for the HBI Database. The final form of the survey must
be approved by both parties; provided, however, that approval will not be
unreasonably withheld by HBI.
(c) In order to minimize the financial risk to the parties, no data
collection efforts by HBI will commence unless either (i) MFI has obtained
commitments in writing for the purchase of the MFI Multi-Client Study sufficient
to provide revenues resulting in royalties to HBI at least equal to the Use Fee,
Access Fee, and Survey Fee that would, but for Section 5.5(d), be payable in
connection with such MFI Multi-Client Study pursuant to Section 2.4(b) hereof,
or (ii) MFI has agreed to pay HBI minimum royalties, whether or not earned in
connection with revenues from the particular MFI Multi-Client Study at least
equal to the Use Fee, Access Fee, and Survey Fee that would, but for Section
5.5(d), be payable in connection with such MFI Multi-Client Study.
(d) [Confidential Information. Intentionally omitted and filed
separately with the Securities and Exchange Commission.]
(e) Any data generated by a MFI Multi-Client Study shall be owned by
MFI. All uses of such data require approval by an authorized designee of MFI.
Per legal requirements and MFI
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and HBI privacy policies, transfer of demographic data will not be made unless
clearly disclosed to the Participant in connection with the particular MFI
Multi-Client Study.
ARTICLE 6 - CONFIDENTIAL INFORMATION
6.1 CONFIDENTIAL INFORMATION. During the course of this Agreement, the
parties may exchange information, materials, and knowledge about their
respective businesses, products, programming and other techniques, methods,
pricing, ideas, experimental and other work, plans, systems, customers, clients,
suppliers, databases (including without limitation the Association Database and
the HBI Database), Participants, Unique Names, MFI Names, Internet Technologies,
and MFI Technologies. The parties agree that all such knowledge, information,
and materials acquired from or through the other are and will be the trade
secrets and confidential and proprietary information of the other party
(collectively, the "CONFIDENTIAL INFORMATION") whether or not explicitly
designated as "confidential" or "proprietary". Confidential Information does not
include information that (i) is or enters the public domain without breach of
this Agreement, (ii) either party receives from a third Person without
restriction on disclosure and without breach of a nondisclosure obligation,
(iii) either party knew, and can independently substantiate knowing, prior to
receiving the information from the other, or (iv) either party develops or
discovers, and can independently substantiate developing or discovering,
independently of any information received from the other.
6.2 AGREEMENT NOT TO DISCLOSE/USE. Each party agrees:
a) to take every reasonable precaution to safeguard and treat the other
party's Confidential Information as confidential, including without limitation
treating such Confidential Information with at least the same degree of care as
it treats similar materials of its own;
b) not to disclose the other party's Confidential Information to any
third Person except to its employees, agents, consultants or representatives
with a need to know as a necessary part of its business and after obtaining the
agreement of such third Person to be bound by the terms of this Agreement;
c) not to use the other party's Confidential Information for any
purpose other than for the purpose for which such Confidential Information has
been disclosed; and
d) not to disclose or use the other party's Confidential Information in
any manner that would not be in furtherance of the interests of the relationship
of the parties.
The parties acknowledge, however, that they compete with each other for client
and customer relationships and with respect to particular projects and products.
It is understood by the parties that nothing herein shall prevent either of the
parties from competing for relationships, projects, and products provided that
the Confidential Information of the other (such as information that a particular
project is forthcoming, pricing information and the like) is not used in
connection therewith.
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6.3 SPECIFIC ENFORCEMENT/DAMAGES. The parties agree that injury from
any breach of this Article 6 cannot be fully compensated by money damages and
that the damages for any breach of this Article 6 may not be readily
ascertainable. The parties therefore agree to specific enforcement and
injunctive relief in the event of any breach of this Article 6 in addition to
damages and any and all other remedies at law or equity. The parties further
acknowledge that the Confidential Information of each of them is critical to
their respective businesses and is among their most valuable assets, and that
any damages may include significant damages for loss of future opportunities and
profits.
ARTICLE 7 - WARRANTIES
7.1 WARRANTY DISCLAIMER. HBI and MFI each acknowledge that any
collection and compilation of Unique Names, databases, and data entails the
likelihood of inaccuracies and losses, including inadvertent loss of data or
damage to media, that may give rise to loss or damage. Both parties will
cooperate in developing reasonable systems, procedures, and processes to
minimize such inaccuracies. Except as specifically provided in this Section 7.1,
both parties, however, agree THAT THE HBI DATABASE AND THE ASSOCIATION DATABASE
EACH, THE INTERNET TECHNOLOGIES, ANY UNIQUE NAMES AND DATA, AND ALL RESEARCH AND
OTHER PRODUCTS PRODUCED THEREFROM OR RELATED THERETO OR PROVIDED HEREUNDER, ARE
PROVIDED "AS IS", AND NEITHER HBI NOR THE ASSOCIATION MAKES ANY REPRESENTATION
OR WARRANTY WITH RESPECT TO THE ACCURACY, COMPLETENESS, GENUINENESS, OR
CURRENTNESS THEREOF. BOTH PARTIES SPECIFICALLY DISCLAIM ANY OTHER WARRANTY,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. EACH PARTY AGREES THAT IN NO EVENT WILL THE
OTHER PARTY BE LIABLE IN ANY MANNER (INCLUDING WITHOUT LIMITATION LIABILITY FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES) FOR THE RESULTS OF OR WITH RESPECT TO ITS
OR ANY OF ITS CUSTOMER'S OR CLIENT'S USE OF THE HBI DATABASE, THE ASSOCIATION
DATABASE, OR THE UNIQUE NAMES OR DATA CONTAINED THEREIN, OR THE INTERNET
TECHNOLOGIES OR ANY RESEARCH OR PRODUCTS PRODUCED THEREFROM OR PROVIDED
HEREUNDER.
ARTICLE 8 - TERM/TERMINATION
8.1 TERM. Subject to the other provisions of this Article 8, this
Agreement shall have an initial term of five (5) years. The term of this
Agreement shall be automatically extended for additional one (1) year terms
thereafter unless either party provides the other with at least one (1) year's
prior notice of its election not to extend.
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8.2 EFFECT OF FAILURE TO EXTEND TERM.
(a) If, under Section 8.1, HBI elects not to extend the term of this
Agreement beyond the initial term or beyond the end of any one year extension
period, the licenses granted to MFI under Sections 2.2 and 2.3 of this Agreement
shall continue in perpetuity with respect to the HBI Database and Internet
Technologies as they exist at that time, notwithstanding HBI's termination of
this Agreement. In addition, HBI will make suitable arrangements to provide MFI
will access and use of the HBI Database on the terms provided herein or will
provide MFI with the Internet Technologies and with duplicate copies of all of
the information relating to unrestricted Unique Names contained in the HBI
Database, and all MFI Names held by HBI, in a format compatible with MFI's
hardware and software or, absent such compatibility, with hardware and software
readily obtainable on the open market.
(b) If, under Section 8.1, MFI elects not to extend the term of this
Agreement beyond the initial term or beyond the end of any one year extension
period, MFI may continue to have access to the HBI Database and Alliance
Database, and HBI will continue to perform services for MFI upon request of MFI,
on the terms otherwise applicable hereunder for a period of ninety (90) days
after the end of the term, or if longer, for the period necessary to complete
projects commenced before the end of the term, except that MFI shall pay Retail
Fees in connection with any such access.
8.3 BREACH. In the event (i) that there is a material breach of this
Agreement by the other party, which breach is not cured within thirty (30) days
after notice of the same given by the non-breaching party, or (ii) of the
insolvency of the other party, filing by or against the other party of
bankruptcy proceedings, making of any assignment for the benefit of creditors by
the other party, or other exercise by or against the other party of rights or
remedies under any statute providing for the relief of debts, then the party not
in breach, insolvent, or involved in such proceedings shall have the right to
terminate this Agreement by giving notice of same to the other. In such event,
the terminating party also shall have all of its rights and remedies at law and
equity, which shall include without limitation rights to damages (including
those related to loss of future opportunities and profits), rights under Article
6 of this Agreement, and rights to recover its costs and expenses (including
among others reasonable attorney fees) related to enforcement of its rights
hereunder or attributable to the breach hereof.
8.4 SURVIVAL. The provisions of Section 2.1, Section 4.2, Section
5.5(d), Section 5.6(b), Sections 5.7(a) and (c), Article 6, Article 7, Article
8, and Article 9 shall survive termination of this Agreement.
ARTICLE 9 - MISCELLANEOUS
9.1 AUTHORIZATION. Each of MFI and HBI respectively represents and
warrants for itself that (i) the execution, delivery, and performance of this
Agreement have been duly authorized by it, (ii) this Agreement constitutes the
valid and binding obligation of it, enforceable in accordance with its terms,
and (iii) the execution and delivery hereof by it does not (a) conflict with or
result in a
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violation of, (b) constitute a default under, (c) require any authorization,
consent, approval, exemption, or other action by or notice to, or filing with,
any court or administrative or governmental body or agency pursuant to, its
organizational documents, any law, statute, rule, or regulation to which it is
subject, or any material agreement, instrument, order, judgment, or decree to
which it is subject.
9.2 SUCCESSOR/ASSIGNS/AFFILIATES. This Agreement shall inure to the
benefit of, and shall be binding upon, the respective successors, legal
representatives, and assigns of the parties. Notwithstanding the foregoing, this
Section 9.2 is not intended to supersede any restrictions on transfer of any
interest expressly provided elsewhere in this Agreement and neither party shall
transfer or assign its rights under this Agreement to any person not an
Affiliate of such party; provided, however, that HBI may transfer its rights,
interests, and obligations hereunder to another Person as part of a transfer of
its internet related business to which this Agreement relates.
Both parties agree that their respective Affiliates shall be bound by
the provisions of this Agreement in the same manner that the parties are bound.
9.3 GOVERNING LAW. This Agreement shall be construed according to, and
governed by, the internal laws of the State of New York without reference to
principles of conflicts of laws.
9.4 ARBITRATION.
(a) The parties agree to this Section 9.4 as the exclusive manner and
means for resolution of all disputes of any kind or nature between them related
to this Agreement and/or the transactions contemplated hereby.
(b) Any dispute shall be settled by final and binding arbitration by a
panel of three arbitrators sitting in Rochester, New York, in accordance with
the rules of the American Arbitration Association. The arbitrators shall
promptly obtain such information regarding the matter as they deem necessary and
shall decide the matter and render a written decision which shall be delivered
to the parties. Each party shall pay the party's own fees and expenses in
connection with any arbitration proceedings, except that the parties shall
equally bear the fees and out-of-pocket expenses of the arbitrators. Any
decision shall be a final and non-appealable determination of the matter, shall
be binding upon each of the parties, and shall be enforceable by the courts of
the State of New York (Seventh Judicial District) and the courts of the United
States (Western District of New York).
9.5 ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and supersedes all prior communications and agreements related to
the subject matter hereof. Any modification, supplement, or amendment to this
Agreement must be in writing signed by both of the parties.
9.6 NOTICES. Any notice or demand upon any party hereto shall be deemed
to have been sufficiently given or served for all purposes hereof when delivered
in person or by nationally
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recognized overnight courier with receipt requested, or three business days
after it is mailed certified mail postage prepaid, return receipt requested,
addressed to the address shown in the preamble to this Agreement or to such
other address as may be designated by any party by notice given to the other in
the manner described in this Section 9.6.
9.7 SEVERABILITY/CONSTRUCTION. If any provision of this Agreement is
held to be invalid or unenforceable for any reason, the remaining provisions
will continue in full force without being impaired or invalidated. The parties
agree to replace any invalid provision with a valid provision which most closely
approximates the intent and economic effect of the invalid provision. The
parties agree that this Agreement has been prepared in cooperation, and that it
shall not be construed as against any particular party as drafter.
9.8 EXPENSES. Except as otherwise expressly provided herein, both
parties shall be responsible for their own costs and expenses in connection
herewith.
9.9 NO BROKERS. Each party represents and warrants to the other that it
has not involved any brokers or finders in connection with this Agreement or the
transactions contemplated hereby, and agrees to indemnify the other for any
breach of this Section 9.9 by it.
9.10 WAIVER. The waiver by either party of a breach of any provision of
the Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall be taken together and deemed to be one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
HARRIS BLACK INTERNATIONAL, LTD.
By: /S/ GORDON S. BLACK
------------------------------------
Gordon S. Black
Chief Executive Officer
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MARKET FACTS, INC.
By: /S/ SANFORD M. SCHWARTZ
------------------------------------
Sanford M. Schwartz
Executive Vice President
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Exhibit 10.10
FORM OF
LOCK-UP LETTER AGREEMENT
LEHMAN BROTHERS INC.
VOLPE BROWN WHELAN & CO.
US BANCORP PIPER JAFFRAY INC.
E*OFFERING CORP.
As Representatives of the
several underwriters
c/o LEHMAN BROTHERS INC.
Three World Financial Center
New York, NY 10285
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $0.001 per share (the "Common Stock"), of
Harris Interactive Inc. (the "Company") and that the Underwriters propose to
reoffer the Shares to the public (the "Offering").
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of Lehman
Brothers Inc., the undersigned will not, directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any transaction or
device that is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Common Stock
(including, without limitation, shares of Common Stock that may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common Stock
that may be issued upon exercise of any option or warrant) or securities
convertible into or exchangeable for Common Stock (other than the Shares) owned
by the undersigned on the date of execution of this Lock-Up Letter Agreement or
hereinafter acquired, or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, for a period of 180 days
after the date of the final Prospectus relating to the Offering.
In furtherance of the foregoing, the Company and its transfer agent are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Lock-Up Letter Agreement.
<PAGE>
It is understood that, if the Company notifies you that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, the undersigned will be released from
its obligations under this Lock-Up Letter Agreement.
The undersigned understands that the Company and the Underwriters will
proceed with the Offering in reliance on this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and that,
upon request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned.
Very truly yours,
By:
---------------------------------------
Dated:
-----------------
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of our report dated
September 1, 1999, except as to Note 16, which is as of September 7, 1999,
relating to the consolidated financial statements of Harris Interactive Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
October 5, 1999
