<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
IPRINT.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2750 77-0436465
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
1450 ODDSTAD DRIVE
REDWOOD CITY, CALIFORNIA 94063
(650) 298-8500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
ROYAL P. FARROS
CHIEF EXECUTIVE OFFICER
IPRINT.COM, INC.
1450 ODDSTAD DRIVE
REDWOOD CITY, CALIFORNIA 94063
(650) 298-8500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
MARK F. RADCLIFFE, ESQ. GREGORY C. SMITH, ESQ.
BRADLEY J. ROCK, ESQ. THOMAS J. IVEY, ESQ.
Gray Cary Ware & Freidenrich LLP Skadden, Arps, Slate, Meagher & Flom LLP
400 Hamilton Avenue 525 University Avenue
Palo Alto, California, 94301-1825 Palo Alto, California 94301
(650) 833-2000 (650) 470-4500
</TABLE>
------------------------
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 being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
<S> <C> <C>
Common Stock ($0.001 par value)............................. $ 50,000,000 $ 13,200
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
--------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 1, 1999.
Shares
[IPRINT.COM LOGO]
Common Stock
---------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our
common stock on The Nasdaq Stock Market's National Market under the symbol IPRT.
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS IPRINT.COM
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
INSIDE FRONT COVER GATEFOLD
Case Study: Designing Business Cards:
[Graphic depiction of the old way to print business cards and the iPrint.com
way. On the left side, a long series of steps employed in the traditional way to
print business cards. On the right side, graphic depiction of a series of
computer screen shots showing the design, proof and order simplicity of ordering
business cards at iPrint.com.]
INSIDE FRONT COVER
The History of Printing:
[Graphic depiction of the history of printing, starting with tablets, moving to
the printing press, and arriving at desktop publishing and the Apple Macintosh.
A large computer screen shot shows the evolution of printing to online printing
on iPrint.com.]
INSIDE BACK COVER
iPrint.com Makes Printing Easy:
[Graphic depiction of a series of personalized printed products surrounding a
computer screen shot of the iPrint.com homepage.]
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 4
RISK FACTORS......................... 8
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................. 17
USE OF PROCEEDS...................... 18
DIVIDEND POLICY...................... 18
CAPITALIZATION....................... 19
DILUTION............................. 20
SELECTED FINANCIAL DATA.............. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 22
</TABLE>
<TABLE>
BUSINESS............................. 30
MANAGEMENT........................... 41
<CAPTION>
PAGE
----
<S> <C>
RELATED PARTY TRANSACTIONS........... 49
PRINCIPAL STOCKHOLDERS............... 52
DESCRIPTION OF CAPITAL STOCK......... 55
SHARES ELIGIBLE FOR FUTURE SALE...... 59
UNDERWRITING......................... 61
NOTICE TO CANADIAN RESIDENTS......... 64
LEGAL MATTERS........................ 65
EXPERTS.............................. 65
WHERE YOU CAN FIND MORE
INFORMATION........................ 65
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 25 DAYS AFTER COMMENCEMENT OF THE OFFERING, ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER
AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE ENTIRE PROSPECTUS, INCLUDING
THE MORE DETAILED INFORMATION IN OUR FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS. IN THIS PROSPECTUS, IPRINT.COM, WE, US
AND OUR REFER TO IPRINT.COM, INC. AND NOT TO THE UNDERWRITERS.
IPRINT.COM, INC.
iPrint.com is a leading provider of online print services for small
businesses and consumers. Our online print shops offer customers a one-stop shop
for addressing their printing needs, allowing them to easily design and order
thousands of customized, short-run printed products. By automating the print
order process and electronically connecting our online print shop to carefully
selected and certified commercial print vendors, we believe that we
significantly reduce the costs and inefficiencies associated with the
traditional printing process. Our online print solution is designed to be much
more convenient and cost-effective than traditional printing alternatives
provided through traditional print channels.
Printing can be a significant area of expenditure for small businesses.
According to CAP Ventures, sales in the United States printing industry totaled
$292 billion in 1998, of which $58 billion was derived from commercial printing
operations. Short-run, customized items comprise a significant portion of these
commercial printing operations.
The traditional process of purchasing short-run print items can be time
consuming and error-prone. Small businesses and consumers often lack the
financial resources to create economies of scale when purchasing printed
products. Organizations and individuals have begun to take advantage of the
Internet to address these inefficiencies and to increase convenience, broaden
product selection and improve pricing. According to International Data
Corporation, the number of small businesses engaged in electronic commerce, or
e-commerce, will grow from 400,000 at the end of 1998 to nearly 2.8 million by
the end of 2003.
Our online print services provide our customers with the following benefits:
- superior convenience;
- simplified design and ordering process;
- streamlined fulfillment process;
- significant cost savings;
- broad range of services and professionally printed products; and
- comprehensive customer service.
We believe we are also able to significantly reduce reprint-due-to-error rates
and the associated print wastage of our commercial print vendors, while at the
same time lowering their costs and improving their capacity utilization.
In addition to providing customers with online print services directly
through the iPrint.com website, we work with a variety of online organizations,
large commercial printers and office supply chains to deliver co-labeled and
private-labeled printing solutions. These relationships allow us to efficiently
leverage our technology and effectively expand our reach across a range of
customer segments.
4
<PAGE>
Our objective is to be the leading online print shop for small businesses
and consumers, as well as the leading provider of private-labeled online
solutions for the commercial printing industry. As part of our strategy, we
intend to:
- capitalize on first-mover advantages;
- build our brand recognition;
- expand our strategic relationships;
- build our customer base and stimulate repeat usage;
- expand our co-labeled and private-labeled initiatives; and
- leverage and extend our technology platform.
Our principal offices are located at 1450 Oddstad Drive, Redwood City,
California 94063. Our telephone number is (650) 298-8500. Our website address is
www.iPrint.com, but the information on our website does not constitute a part of
this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by iPrint.com................. shares
Common stock to be outstanding..................... shares
Use of proceeds.................................... For general corporate purposes, capital
expenditures and working capital. See "Use of
Proceeds" on page 18.
Dividend policy.................................... We intend to retain all future earnings to fund
the development and growth of our business.
Therefore, we do not anticipate paying cash
dividends on our common stock in the foreseeable
future. See "Dividend Policy" on page 18.
Proposed Nasdaq National Market symbol............. IPRT
</TABLE>
The number of shares of our common stock outstanding after the offering is
based on shares outstanding as of September 30, 1999 and does not include:
- 1,146,099 shares of common stock issuable upon exercise of outstanding
stock options under our equity incentive plans as of September 30, 1999 at
a weighted average exercise price of $0.20;
- shares of common stock reserved for issuance under our equity
incentive plans; and
- warrants to purchase an aggregate of 70,500 shares of common stock at a
weighted average exercise price of $0.85.
iPrint is a registered trademark and iKiosk is a trademark of iPrint.com.
This prospectus contains other trade names, trademarks and service marks of
iPrint.com and of other companies.
This prospectus includes statistical data regarding the Internet industry.
These data are taken or derived from information published by third-party
sources, including International Data Corporation. Although we believe that
these data are generally indicative of the matters reflected in those reports,
these data are inherently imprecise, and we caution you not to place undue
reliance on these data.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES:
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
- OUR REINCORPORATION INTO DELAWARE, AND
- THE CONVERSION OF ALL OF OUR REDEEMABLE CONVERTIBLE PREFERRED STOCK ON A
ONE-FOR-ONE BASIS INTO SHARES OF COMMON STOCK UPON THE CLOSING OF THIS
OFFERING.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ 168 $ 566 $ 306 $ 1,759
Cost of sales......................................... -- 85 331 172 1,205
------- ------- -------- -------- --------
Gross profit.......................................... -- 83 235 134 554
------- ------- -------- -------- --------
Operating expenses:
Research and development............................ 171 351 901 521 2,204
Sales and marketing................................. -- 181 970 629 3,636
General and administrative.......................... 64 249 710 407 1,199
Amortization of deferred compensation............... -- -- -- -- 309
------- ------- -------- -------- --------
Total operating expenses.......................... 235 781 2,581 1,557 7,348
------- ------- -------- -------- --------
Loss from operations.................................. (235) (698) (2,346) (1,423) (6,794)
Other income (expense), net........................... -- (1) 75 56 129
------- ------- -------- -------- --------
Net loss.............................................. $ (235) $ (699) $ (2,271) $ (1,367) $ (6,665)
======= ======= ======== ======== ========
Basic and diluted net loss per share.................. $ (0.15) $ (0.11) $ (0.38) $ (0.24) $ (0.86)
======= ======= ======== ======== ========
Shares used in computation of basic and diluted net
loss per share...................................... 1,573 7,001 7,007 7,006 7,169
======= ======= ======== ======== ========
Pro forma basic and diluted net loss per share
(unaudited)......................................... $ (0.24) $ (0.38)
======== ========
Shares used to compute pro forma basic and diluted net
loss per share (unaudited).......................... 11,090 16,092
======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $14,007 $14,007 $
Working capital............................................. 20,167 20,167
Total assets................................................ 23,817 23,817
Long-term obligations, net of current portion............... 156 156 156
Redeemable convertible preferred stock...................... 30,810 -- --
Accumulated deficit......................................... (9,870) (9,870) (9,870)
Total stockholders' equity (deficit)........................ (9,425) 21,385
</TABLE>
The pro forma data give effect to the conversion of all outstanding shares
of our redeemable convertible preferred stock into common stock upon the closing
of this offering. The pro forma as adjusted data give effect to the foregoing
and to the sale of the shares of common stock that we are offering
under this prospectus at an assumed initial public offering price of $
per share and after deducting the underwriting discounts and commissions and
estimated offering expenses. See "Capitalization" on page 19.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS VERY RISKY. YOU SHOULD CAREFULLY
CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH ALL OF THE OTHER INFORMATION
IN THIS PROSPECTUS, BEFORE BUYING SHARES IN THIS OFFERING.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY. OUR EXTREMELY LIMITED OPERATING HISTORY MAKES IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.
iPrint.com was founded in August 1996, and to date we have generated limited
revenues. Our limited operating history makes an evaluation of our future
prospects very difficult. We began Internet-enabled printing services for the
short-run, mass market sector in January 1997 and, therefore, have only a
limited operating history with our technology, process, logistics and customers.
As a result, you should not consider our recent revenue growth as an indication
of our future rate of revenue growth, if any. We will encounter risks and
difficulties that early stage companies frequently encounter in new and rapidly
evolving and competitive markets. These risks include:
- obtaining a substantial number of new customers rapidly and efficiently;
- converting a large portion of our customers into repeat business
customers; and
- expanding the number of certified commercial print vendors and improving
our technological and logistical connections to these vendors.
If we do not successfully address these risks, our business will be seriously
harmed.
WE HAVE NOT BEEN PROFITABLE. WE HAVE AN ACCUMULATED DEFICIT OF $9.9 MILLION AS
OF SEPTEMBER 30, 1999 AND MAY NOT EVER BE ABLE TO ACHIEVE PROFITABILITY.
Our failure to significantly increase our revenues will seriously harm our
business and operating results. We incurred net losses of $700,000 in 1997, $2.3
million in 1998 and $6.7 million in the nine months ended September 30, 1999. As
of September 30, 1999, we had an accumulated deficit of $9.9 million. To become
profitable, we must significantly increase our revenues by obtaining new
customers and generating additional revenues from existing customers, control
our costs and improve our gross margins. Although our revenues have grown in
recent quarters, we may not be able to sustain these growth rates. To date,
shipping and handling fees and barter transactions have accounted for a
significant portion of our revenues. In fact, we may not have any revenue
growth, and our revenues could decline. Moreover, we expect to significantly
increase our operating expenses in connection with:
- increasing our advertising and special promotions; and
- continuing to develop our services and technologies.
As a result, we expect to incur significant losses for the foreseeable future.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We compete in the short-run, mass
market printing industry, which is characterized by individual orders from
relatively small customers rather than long-term contracts with relatively large
enterprises. Repeat print business depends on the customers' satisfaction with
the services provided. As a result, we cannot predict the amount and
profitability of the print services we will provide in a given period. We
believe that period-to-period comparisons of our results of operations are not
meaningful and should not be relied upon as indicators of future performance.
Our operating results will likely fall below the expectations of securities
analysts or investors in some future quarter or quarters. Our failure to meet
these expectations would likely adversely affect the market price of our common
stock.
8
<PAGE>
Our quarterly revenues also depend on successful mass emailing and direct
business promotions to increase the number of customers and on satisfactory
fulfillment of print orders that our customers place. Our operating results may
fluctuate significantly if we are unable to obtain quality email lists, develop
successful promotions or deliver quality printed products in any given quarter.
Our revenues may also fluctuate based upon the amount of promotional activity in
which we are engaged in any quarter. Large promotional events can cause
significant increases in revenues while at the same time reducing our gross
margins. To date, shipping and handling fees and barter transactions have
accounted for a significant portion of our revenues. These revenues may be
discontinued at any time or may not recur in future periods.
Furthermore, our quarterly revenues may be affected significantly by our
revenue recognition policies and procedures. These policies and procedures may
evolve or change over time based upon applicable accounting standards and how
these standards are interpreted. For example, in October 1999, the SEC asked the
Emerging Issue Task Force of the Financial Accounting Standards Board to address
accounting issues related to e-commerce companies. These issues include
accounting treatments of barter transactions, free or heavily discounted
products and shipping and handling costs. Resolution of these issues could have
a material adverse effect on the presentation of our operating results.
In addition, we have not fully developed our business model for our
private-labeled business. As this business model evolves, the potential for
fluctuations in our quarterly results could increase.
We plan to increase our operating expenses to expand our sales and marketing
operations, fund greater levels of research and development, develop new
strategic relationships, expand our facilities and increase our professional
services and support capabilities. If our revenues do not increase along with
these expenses, our business could be seriously harmed. In addition, we incur
expenses based in part on expectations of our future revenues, and if our
expenses do not generate the revenues we anticipate, our operating results will
suffer.
ANY DECLINE IN REVENUES GENERATED FROM OUR IPRINT.COM, AFFILIATE AND CO-LABELED
WEBSITES WOULD ADVERSELY AFFECT OUR OPERATING RESULTS.
The printing services we offer on our iPrint.com, affiliate and co-labeled
websites accounted for substantially all of our revenues in 1998 and for the
nine months ended September 30, 1999. We anticipate that the services we offer
on these websites will continue to generate substantially all of our revenues
for the foreseeable future. Consequently, a decline in the price of, or demand
for, the printing services we offer on those websites, or the failure of these
services to achieve broad market acceptance, would seriously harm our business.
THE MARKET FOR OUR INTERNET-BASED PRINTING SOLUTIONS IS AT AN EARLY STAGE. TO
SUCCEED, WE MUST INTRODUCE A LARGE NUMBER OF PRINT BUYING CUSTOMERS TO, AND
EDUCATE THEM ABOUT, OUR SERVICES.
Our success depends on a significant number of print buying customers
knowing about and regularly using our services. The market for Internet-enabled
printing services is at an early stage of development. Many of our customers
will be addressing issues such as quality, reliability, billing, delivery and
customer service, for the first time in a self service, Internet-based print
creation and ordering environment. We must educate these potential customers on
the use and benefits of our self service website. Educating potential customers
is a complex, time consuming and expensive process. In many cases, organizations
must change established business practices and conduct business in new ways to
use our services. If significant numbers of print buying customers are not
willing to change the method by which they use printing services, our business
may fail.
9
<PAGE>
IF WE ARE UNABLE TO ATTRACT CUSTOMERS WHO HAVE LONG-STANDING RELATIONSHIPS WITH
TRADITIONAL PRINT VENDORS TO OUR WEBSITES, OUR BUSINESS COULD BE HARMED.
To succeed, we must attract new customers, many of whom may have personal
and long-standing relationships with traditional print and design shops, catalog
vendors and office supply chain and stationery stores. If we are unable to
attract customers to our websites for their printing needs, our revenues will
not grow and our stock price will decline. Traditional print and design shops
have many advantages which we cannot offer our customers, including physical
proximity and the ability to store and maintain designs, negatives or print
plates on our premises. In addition, catalog vendors may be better able to
combine orders to achieve economies of scale and may be more convenient for
customers that also want to purchase non-printed products, such as office
furniture. Office supply chains and stationery stores may also have better brand
recognition than us.
IF OUR PROMOTIONAL EFFORTS ARE NOT SUCCESSFUL, OUR BUSINESS WILL FAIL.
Our success depends upon our ability to acquire customers through promotions
and convert them into repeat paying customers. If we cannot convert a
substantial number of these promotional customers into repeat paying customers,
our business will fail. Direct business promotions are the most important
vehicle we use to acquire customers. To date, a significant portion of our
revenues has been derived from customer orders generated from our business
promotions. These promotions may include providing a product, such as a mailing
label, to a customer for free, or only charging the customer a shipping and
handling fee, in order to introduce that customer to our products and services.
To expand our business and our customer base, we intend to continue to offer
business promotions.
Because we only recently began acquiring customers through aggressive
business promotions, we cannot assure you that our strategy of achieving
customer and revenue growth will be successful. For this strategy to succeed, we
must:
- create compelling business promotions;
- find qualified customer lists in sufficient quantities and at reasonable
prices; and
- process and fulfill orders for the products that the business promotions
generate.
We cannot predict whether using aggressive business promotions will allow us
to grow rapidly enough to recover the large investments we have made, and must
continue to make, in our promotional programs, systems and technologies. Our
business model depends on rapidly acquiring customers to grow our revenues and
achieve profitability. If our business promotions do not attract a substantial
number of new customers, our revenues may not grow and we may not be profitable.
ANY FAILURE ON THE PART OF OUR OUTSIDE COMMERCIAL PRINT VENDORS TO FULFILL OUR
ORDERS IN A TIMELY AND COST-EFFECTIVE MANNER COULD SERIOUSLY HARM OUR
BUSINESS.
We depend on outside commercial print vendors to print and fulfill our
customers' orders. Any failure on the part of these vendors to fulfill our
orders in a timely and cost-effective manner could seriously harm our business.
To date, we have only certified approximately 15 commercial print vendors to
fulfill our orders. We do not have long-term contracts with any of them. If one
or more of our commercial print vendors failed to satisfactorily fulfill our
customers' orders, or if the customer orders we receive significantly increased
and our vendors did not have the capacity to fulfill those orders, we would be
required to find and qualify additional commercial print vendors. In that event,
because it typically takes us between four and eight weeks to certify and
integrate a commercial print vendor into our business, we may be delayed in
fulfilling our customers' orders, which may cause us to lose customers and hurt
our business. In addition, for several products, for example, full color
business cards, we have only one commercial print vendor. If that vendor were to
stop printing these products and we were unable to certify a new vendor in a
timely manner, we would be unable to fulfill orders and our business would be
adversely affected. Furthermore, if our commercial print vendors increase
10
<PAGE>
the prices they charge us, our selling prices or our margins will be adversely
affected, which may make us less competitive and harm our business.
Because we do not own any inventory, we rely on our commercial print vendors
to maintain an adequate stock of raw materials needed to create our products.
Any failure of these commercial print vendors to maintain adequate inventory
could result in delays in product delivery and customer dissatisfaction. This in
turn could harm our business.
A FAILURE BY OUTSIDE DELIVERY SERVICES TO TIMELY DELIVER OUR CUSTOMERS' ORDERS
COULD SERIOUSLY HARM OUR BUSINESS.
We depend on outside delivery services, including the United States postal
service, Federal Express and U.P.S., to deliver print orders to our customers.
These delivery services have failed in the past, and may fail in the future, to
deliver print orders to our customers on a timely basis. Any failure on the part
of these outside services to deliver our orders in a timely and cost-effective
manner could seriously harm our business.
WE MUST SUCCESSFULLY ENHANCE AND SCALE OUR IPRINT.COM AND RELATED WEBSITES OR
OUR BUSINESS MAY FAIL.
If we are unable to enhance and scale our iPrint.com, affiliate, co-label or
private label websites on a timely and cost-effective basis, or if these
enhancements do not achieve widespread market acceptance, we will be unable to
grow, we will miss market opportunities and our business will be seriously
harmed. Similarly, if we do not make timely and cost-effective improvements to
our other technologies and processes, our business will suffer. The life cycles
of our enhancements and the rate at which our websites and processes must scale
are difficult to predict because we operate in a new and emerging market that is
characterized by rapid technological change, changing customer needs and
evolving industry standards. The introduction of products and services, from
both the traditional printing industry and the Internet and software commerce
sector, that employ new technologies and standards could render our existing
products or services obsolete and unmarketable.
For example, our technology that enables our customers to compose their
printed designs in electronic format is written in the software language C++. If
a new software language, such as Java, becomes standard in the printing
industry, we may need to rewrite this technology in another software language to
remain competitive. Any need to rewrite our technology would be costly and could
result in significant interruptions to our business.
To be successful, we must offer products and services that keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
broad market acceptance. In our efforts to develop these types of products and
services, we may:
- not be able to timely or cost-effectively develop and market them;
- encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services; or
- experience difficulties that could delay or prevent the successful
development, introduction and adoption of these new products and services.
IF WE FAIL TO ADEQUATELY MAINTAIN AND ENHANCE THE COMPUTER AND
TELECOMMUNICATIONS INFRASTRUCTURE REQUIRED TO SUPPORT OUR IPRINT.COM AND
RELATED WEBSITES, OUR BUSINESS WILL SUFFER.
The performance of our iPrint.com and related websites depends on the
operation of our computer and telecommunications equipment. We are responsible
for the operation of this equipment and have not retained any third-party
companies to maintain or support our equipment. All of our
11
<PAGE>
network operations equipment is located in our Redwood City, California
facility, and we do not have any backup or redundant equipment located at an
offsite or third party location. If we fail to adequately maintain and enhance
our network operations center, our iPrint.com and related websites may not be
available to our customers. Any system failure, including any network, software
or hardware failure, that interrupts or increases the response time on our
websites could decrease customer usage of our services and damage our
reputation. In addition, damage to our computer and telecommunications
infrastructure from fire, earthquakes, power loss, telecommunications failures,
computer viruses, hacker attacks, physical break-ins and similar events may
seriously disrupt our service and devastate our business, particularly since we
do not have backup facilities at another location.
OUR WEBSITES AND THE SERVICES WE OFFER MAY NOT FUNCTION IF WE ARE UNABLE TO
OBTAIN AND MAINTAIN LICENSES TO THIRD-PARTY SOFTWARE AND APPLICATIONS.
We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in our iPrint.com
and other websites to perform key functions. For example, we license server
technology from Netscape Communications. The functionality of our websites
depends upon our ability to integrate the third-party software into our
technology. We may license additional software from third parties in the future
to add functionality to our services. If our efforts to integrate this
third-party software into our websites are not successful, functionality and
response times may be limited, customers may not use our services and our
business may be seriously harmed.
We would also be seriously harmed if the providers from whom we license
software ceased to deliver and support reliable products, enhance their current
products or respond to emerging industry standards. Moreover, the third-party
software may not continue to be available to us on commercially reasonable
terms, or at all. The loss of, or inability to maintain or obtain licensed
software, could disrupt or delay our ability to offer key services and products
or force us to limit the features of our websites. Either alternative could
seriously harm our business and operating results.
OUR WEBSITES, TECHNOLOGIES AND PROCESSES MAY CONTAIN UNDETECTED ERRORS OR
DEFECTS WHICH COULD CAUSE OUR WEBSITES TO CRASH OR LIMIT THEIR CAPACITY.
Our websites, and the technologies and processes that support them, are
complex and may contain undetected errors or failures when we first introduce or
revise them. These errors or failures may cause our websites to fail and result
in loss of, or delay in, market acceptance of our products and services. We
routinely discover software errors in new releases of our technologies and
processes after their introduction. We have experienced delays in release, lost
revenues and customer frustration during the period required to correct these
errors. We may in the future discover errors, including year 2000 errors and
scalability limitations, in current or future releases after the commencement of
the commercial release. In addition, a delay in the commercial release of any
future version of the iPrint.com, affiliate, co-labeled or private-labeled
websites, technologies or processes could seriously harm our business.
FAILURE TO INCREASE BRAND AWARENESS COULD LIMIT OUR ABILITY TO COMPETE
EFFECTIVELY.
We have not yet established a nationally-known brand and we believe that
establishing and maintaining a strong brand name is crucial to the success of
our business. Not only may a strong brand attract and expand our customer base,
it also provides important competitive advantages, especially as competition
increases. We will require substantial resources to promote our brand name, and
we cannot guarantee that we will succeed or that the benefits associated with
brand creation will outweigh the risks and costs associated with brand name
establishment. In addition, we may be unable to raise the additional capital
which may be necessary to effectively establish our brand name. Any failure to
develop a strong brand name may materially hurt our chances of success.
12
<PAGE>
OUR PRIVATE-LABELED WEBSITES AND BUSINESS ARE AT AN EARLY STAGE OF DEVELOPMENT
AND ARE SUBJECT TO SIGNIFICANT RISKS WHICH MAY CAUSE THESE WEBSITES TO FAIL.
We have only recently developed our private-labeled website business
strategy. The terms of the relationships that we have entered into have been
heavily negotiated and are likely to vary significantly in the future. Our
future revenue growth from these websites depends on the success of these
efforts which are subject to a number of significant risks. These risks include
the need to:
- optimize the manageability of our private-labeled websites;
- enhance the features and offerings of our private-labeled websites to
achieve widespread commercial acceptance of our services;
- increase our internal resources to support planned growth of these
private-labeled websites; and
- rely on our private-labeled partners to promote our services on their
websites.
If we do not successfully address these risks, our private-labeled websites
may not succeed, and our revenues from that source may not grow.
WE EXPECT REVENUES FROM OUR PRIVATE-LABELED BUSINESS TO BE CONCENTRATED IN A
RELATIVELY SMALL NUMBER OF STRATEGIC RELATIONSHIPS AND THE LOSS OF ANY
SIGNIFICANT STRATEGIC RELATIONSHIP COULD HARM OUR BUSINESS.
We may attract only a small number of commercial and quick printers to
participate in our private-labeled program. In addition, our private-labeled
business may derive a significant portion of its revenues from these commercial
and quick printers' relatively small number of customers in the future. A
significant decline in revenues from any one of these printers will adversely
affect the success of our private-labeled business. The revenues we derive from
our private-labeled business may not be enough to maintain and enhance our
private-labeled program, which will cause it to fail.
PROSPECTIVE INVESTORS SHOULD NOT RELY ON RECENT PRESS ARTICLES ABOUT US AND OUR
BUSINESS.
iPrint.com and our related websites have appeared in the press recently.
Some of these articles contained information provided by or attributed to our
management that is either not contained in this prospectus or is inconsistent
with the information contained in this prospectus. In making an investment
decision, prospective investors should only rely on information that is
contained in this prospectus.
SYSTEMS ON WHICH WE RELY MAY NOT BE YEAR 2000 COMPLIANT AND MAY ADVERSELY AFFECT
OUR BUSINESS.
Despite our efforts to become year 2000 compliant, we cannot guarantee that
our websites and systems and those of the third party vendors that we use will
be year 2000 compliant. Delay or loss of revenues, interruption of services, or
litigation are possible and would damage our business.
IF WE ARE UNABLE TO RETAIN OUR CURRENT KEY PERSONNEL AND ATTRACT ADDITIONAL KEY
PERSONNEL, PARTICULARLY IN RESEARCH AND DEVELOPMENT AND PROCESS CONTROL, OUR
BUSINESS MAY BE HARMED.
Our future performance depends on the continued service of our senior
management, research and development, process control, customer support and
sales and marketing personnel, in particular Royal P. Farros, our president and
chief executive officer. The loss of the services of one or more of our key
personnel could seriously harm our business. Our future success also depends on
our continuing ability to attract, hire, train and retain a substantial number
of highly skilled managerial, technical, sales, marketing and customer support
personnel. Competition for qualified personnel in these areas is intense. In
addition, new hires frequently require extensive training before they achieve
desired levels of productivity. Many of our existing management personnel have
been employed at iPrint.com for less than a year, including our chief financial
officer and chief marketing officer. We may fail to attract and retain qualified
personnel, which could have a negative impact on our business.
13
<PAGE>
IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR COMPETITORS
MAY GAIN ACCESS TO OUR TECHNOLOGY, AND WE MAY LOSE CUSTOMERS.
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of confidentiality procedures, contractual provisions, trade
secrets, and patent, copyright and trademark laws.
When we enter into private-label relationships with strategic parties, we
enter into license agreements which impose restrictions on each party's
obligations rather than sell our iPrint.com website. In addition, we seek to
avoid disclosure of our trade secrets through a number of means, which may
include requiring persons with access to our proprietary information to execute
confidentiality agreements with us and restricting access to the language in
which our software is written. We seek to protect our software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection. Our proprietary rights with respect to our iPrint.com
and related websites may not prove viable or of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software or code exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD BE TIME CONSUMING
AND EXPENSIVE FOR US TO DEFEND.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
offer our printing services on our websites. For example, from time to time we
receive notices claiming that our technology infringes patents held by third
parties. When we receive these notices, we evaluate whether or not we believe
that we infringe a valid patent. Third parties could assert, and it may be
found, that our technologies infringe their proprietary rights. We could incur
substantial costs to defend any litigation, and intellectual property litigation
could force us to do one or more of the following:
- cease using key aspects of our technology that incorporates the challenged
intellectual property;
- obtain a license from the holder of the infringed intellectual property
right; and
- redesign some or all of our websites.
In the event of a successful claim of infringement against us and our failure or
inability to license the infringed technology, our business and operating
results would be significantly harmed.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH CAN CAUSE
DILUTION.
We may need to seek additional funding in the future. We do not know if we
will be able to obtain additional financing on favorable terms, if at all. In
addition, if we issue equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products, take advantage of
14
<PAGE>
future opportunities or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business.
RISKS RELATED TO THE PRINTING INDUSTRY AND THE INTERNET
THE PRINTING INDUSTRY IS VERY COMPETITIVE, AS IS THE NEWLY EMERGING E-COMMERCE
BUSINESS. WE FACE INTENSE COMPETITION FROM TRADITIONAL AND NEW PLAYERS IN THIS
INDUSTRY. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL FAIL.
The printing industry is intensely competitive. Competitors vary in size and
in the scope and in the breadth of the products and services they offer.
Competition in the short-run printing market is intense and we expect this
intensity of competition to dramatically increase in the future. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any one of which could seriously harm our business. If we
cannot compete successfully against our current and future competitors, our
business will fail. For more information on our competitors, please see
"Business-Competition."
ORDERING PRINTED PRODUCTS OVER THE INTERNET IS RELATIVELY NEW AND IF SMALL
BUSINESSES AND CONSUMERS DO NOT ADOPT THE INTERNET AS A COMMERCE TOOL, OUR
BUSINESS WILL FAIL.
If small businesses and consumers do not use the Internet as a commerce
tool, our revenues will not grow and our operating results will suffer. Because
print procurement on the Internet is in its infancy, it is difficult to estimate
the size and growth of this market, if any. To date, many small businesses have
been deterred from using the Internet to procure goods and services for a number
of reasons, including concerns relating to:
- security,
- quality of service,
- product quality,
- reliability,
- billing, and
- delivery of products.
Even if the Internet becomes a standard tool that small businesses and
consumers regularly use, it may not be effective or reach broad market
acceptance for obtaining printing services.
TECHNOLOGY ADVANCEMENTS COULD ADVERSELY AFFECT OR REDUCE THE DEMAND FOR OUR
PRODUCTS AND SERVICES, WHICH WOULD HARM OUR BUSINESS.
Technological innovations are common in the printing industry, especially
given the rapid advancement of computer and communications technologies. Home
printing systems are yielding more professional results which may reduce demand
for offset and thermographic professional printing. Information previously
distributed on paper is now being distributed electronically in an almost
effortless fashion. As technology further enables and enhances these alternative
communication methods, our business may suffer if we experience a corresponding
decrease in demand for our products and services.
POTENTIAL IMPOSITION OF GOVERNMENTAL REGULATION ON ELECTRONIC COMMERCE AND LEGAL
UNCERTAINTIES COULD LIMIT OUR GROWTH.
The adoption of new laws or the adaptation of existing laws to the Internet
may decrease the growth in the use of the Internet, which could in turn decrease
the demand for our services, increase
15
<PAGE>
our cost of doing business or otherwise have a material adverse effect on our
business, financial condition and operating results. Few laws or regulations
currently directly apply to access to commerce on the Internet. Federal, state,
local and foreign governments are considering a number of legislative and
regulatory proposals relating to Internet commerce. As a result, a number of
laws or regulations may be adopted regarding Internet user privacy, taxation,
pricing, quality of products and services, and intellectual property ownership.
The application of existing laws to the Internet in areas such as property
ownership, copyright, trademark, trade secret, obscenity and defamation is
uncertain. Numerous state and local representatives have expressed a desire to
impose taxes on sales over the Internet to consumers and businesses in their
jurisdictions. The Internet Tax Freedom Act of 1998 has generally imposed a
moratorium through October 2001 on the imposition of some kinds of consumer-
related taxes, other than sales or use taxes, in connection with Internet access
and Internet-related sales. After this moratorium expires and if no further
legislation is adopted by Congress, state and local taxing authorities will be
free to impose these taxes on sales of goods and services over the Internet,
which could substantially hinder the growth of Internet-based commerce,
including sales of our products and services.
RISKS RELATED TO THE OFFERING
OUR SECURITIES HAVE NO PRIOR MARKET AND OUR STOCK PRICE MAY DECLINE AFTER THE
OFFERING.
Before this offering, there has not been a public market for our common
stock and the trading price of our common stock may decline below the initial
public offering price. The initial public offering price has been determined by
negotiations between us and the representatives of the underwriters. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.
If you purchase shares of common stock, an active trading market may not
develop and you may not be able to resell those shares at or above the initial
public offering price, or at all. The trading price of our common stock may
fluctuate significantly in response to a number of factors, some of which are
beyond our control, including:
- quarterly declines in operating results;
- changes in financial estimates or recommendations by securities analysts;
- announcements by us or our competitors of financial results, new services,
significant technological innovations, contracts, acquisitions, strategic
partnerships, joint ventures, capital commitments or other events; and
- stock market price and volume fluctuations, which are particularly common
among securities of Internet-related companies.
In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
WE HAVE NO SPECIFIC PLAN FOR ANY SIGNIFICANT PORTION OF THE NET PROCEEDS AND OUR
INVESTMENT OF THE NET PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We plan to use the proceeds from this offering for working capital and other
general corporate purposes. We may use the proceeds in ways with which you do
not agree or that prove to be disadvantageous to our stockholders. We may not be
able to invest the proceeds of this offering in our operations or external
investments to yield a favorable return.
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<PAGE>
AFTER THIS OFFERING WE WILL CONTINUE TO BE CONTROLLED BY OUR EXECUTIVE OFFICERS,
DIRECTORS AND MAJOR STOCKHOLDERS WHOSE INTERESTS MAY CONFLICT WITH YOURS.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own approximately % of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, which
could have the effect of delaying or preventing a third party from acquiring
control over or merging with us. We also plan to reserve up to 5% of the shares
offered in this offering under a directed share program in which our executive
officers, directors, principal stockholders, employees, business associates and
related persons may be able to purchase shares in this offering at the initial
public offering price. This program may further increase the amount of stock
held by persons whose interests are closely aligned with management's interests.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL, WHICH COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing a change of control or changes in our
management. In addition, certain provisions of Delaware law may discourage,
delay or prevent someone from acquiring or merging with us. These provisions
could limit the price that investors might be willing to pay in the future for
shares of our common stock. For more information, see "Description of Capital
Stock."
THERE ARE A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of substantial numbers of shares of our common stock in the public
market after this offering, or the perception that sales may be made, could
cause the market price of our common stock to decline. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional equity securities. Based on shares outstanding as of September 30,
1999, following this offering, we will have shares of common stock
outstanding or shares if the underwriters' over-allotment is exercised
in full. Of these, shares will become available for sale 180 days
following the date of this prospectus upon the expiration of lock-up agreements,
subject to the restrictions imposed by the federal securities laws on sales by
affiliates. Credit Suisse First Boston Corporation, however, may waive the
lock-up restrictions at its sole discretion without notice.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus constitute forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as may,
will, should, expect, plan, intend, forecast, anticipate, believe, estimate,
predict, potential, continue or the negative of these terms or other comparable
terminology. The forward-looking statements contained in this prospectus involve
known and unknown risks, uncertainties and situations that may cause our or our
industry's actual results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include
those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
17
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering will be approximately $ million, at an
assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that our net proceeds will be approximately
$ million.
The principal purposes of this offering are to obtain additional capital, to
create a public market for our common stock, to enhance our ability to acquire
other businesses, products or technologies, and to facilitate future access to
public equity markets. We intend to use the proceeds for working capital,
capital expenditures and other general corporate purposes. We may also use a
portion of the net proceeds from this offering to acquire or invest in
businesses, technologies or products that are complementary to our business. We
currently have no commitments or agreements with respect to any acquisitions.
Pending our use of the net proceeds, we intend to invest them in cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, government and non-government debt
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and do
not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results and other factors as determined by our board of
directors. Additionally, we have entered into a loan agreement with a creditor
that restricts our ability to pay dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on the following three bases:
- On an actual basis;
- On a pro forma basis to reflect the conversion of all outstanding shares
of our redeemable convertible preferred stock into shares of common stock;
and
- On a pro forma as adjusted basis to reflect (1) the sale of
shares of common stock in this offering at an assumed initial public price
of $ per share and the application of the net proceeds, after
deducting underwriting discounts and commissions and estimated offering
expenses, and (2) the conversion of all outstanding shares of our
redeemable convertible preferred stock into shares of common stock upon
the closing of this offering.
This table should be read in conjunction with our financial statements and
the related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations.................... $ 284 $ 284 $ 284
Long-term obligations, net of current portion............... 156 156 156
Redeemable convertible preferred stock, no par value,
32,806,164 shares authorized; 16,070,581 shares issued and
outstanding, actual; no shares issued and outstanding, pro
forma and pro forma as adjusted:.......................... 30,775 -- --
Value ascribed to redeemable convertible preferred stock
warrants.................................................. 35 -- --
------- ------- -------
Total redeemable convertible preferred stock............ 30,810 -- --
Stockholders' equity (deficit):
Common stock, no par value, 30,000,000 shares authorized;
8,001,817 shares issued and outstanding, actual;
62,806,164 shares authorized, 24,072,398 shares issued
and outstanding, pro forma; shares authorized,
shares issued and outstanding, pro forma as
adjusted................................................ 1,463 32,238
Value ascribed to common stock warrants................... -- 35 35
Deferred stock compensation............................... (1,018) (1,018) (1,018)
Accumulated deficit....................................... (9,870) (9,870) (9,870)
------- ------- -------
Total stockholders' equity (deficit).................... (9,425) 21,385
------- ------- -------
Total capitalization.................................. $21,825 $21,825 $
======= ======= =======
</TABLE>
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted in an
amount equal to the difference between:
- the public offering price per share of our common stock, and
- the pro forma net tangible book value per share of our common stock after
this offering.
The pro forma net tangible book value per share after this offering equals:
- the net tangible book value, which is tangible assets less total
liabilities, divided by
- the number of outstanding shares of common stock after the offering, which
will include the conversion of all outstanding shares of redeemable
convertible preferred stock into shares of common stock.
Our pro forma net tangible book value as of September 30, 1999 was
approximately $21.4 million or $0.89 per share of common stock. The pro forma as
adjusted net tangible book value per share takes into account the estimated net
proceeds from this offering. Based upon an assumed initial public offering price
of $ per share and after deducting the estimated underwriting discounts
and commissions and estimated offering expenses, our pro forma as adjusted net
tangible book value as of September 30, 1999 would have been approximately
$ , or $ per share. This represents an immediate increase in
pro forma as adjusted net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to
investors purchasing common stock in this offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999...................................... $ 0.89
Increase per share attributable to new investors..........
--------
Pro forma as adjusted net tangible book value per share
after the offering........................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes as of September 30, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering, before deducting the underwriting discounts and commissions and
estimated offering expenses. Additionally, as detailed below, new investors
purchasing shares in this offering at the initial public offering price will
contribute % of the total consideration paid to us but will own only %
of our shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
---------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 24,072,398 % $32,237,000 % $1.34
New investors................................. % %
---------- --- ----------- ---
Total....................................... 100% $ 100%
========== === =========== ===
</TABLE>
Except as noted above, the foregoing discussion and tables assume no
exercise of any stock options or warrants outstanding at September 30, 1999. As
of September 30, 1999, there were options outstanding to purchase 1,146,099
shares of common stock at a weighted average exercise price of $0.20 and
warrants to purchase 70,500 shares of common stock at a weighted average
exercise price of $0.85. To the extent that any of these options and warrants
are exercised, there will be further dilution to investors purchasing our common
stock.
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<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Financial Statements and the Notes thereto included
elsewhere in this prospectus. The statement of operations data for the years
ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1999 and the balance sheet data at December 31, 1997 and 1998 and
at September 30, 1999 are derived from, and are qualified by reference to, the
audited financial statements and notes thereto appearing elsewhere in this
prospectus. The balance sheet data as of December 31, 1996 are derived from, and
are qualified by reference to, financial statements not appearing in this
prospectus. The statement of operations data for the nine months ended
September 30, 1998 are unaudited. In the opinion of management, all necessary
adjustments, consisting only of normal recurring adjustments, have been included
to present fairly the unaudited nine months results when read in conjunction
with the audited financial statements and the notes thereto appearing elsewhere
in this prospectus. Historical results are not necessarily indicative of results
that may be expected for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ -- $ 168 $ 566 $ 306 $ 1,759
Cost of sales.................................... -- 85 331 172 1,205
------ ------ ------- ------- -------
Gross profit..................................... -- 83 235 134 554
------ ------ ------- ------- -------
Operating expenses:
Research and development....................... 171 351 901 521 2,204
Sales and marketing............................ -- 181 970 629 3,636
General and administrative..................... 64 249 710 407 1,199
Amortization of deferred compensation.......... -- -- -- -- 309
------ ------ ------- ------- -------
Total operating expenses..................... 235 781 2,581 1,557 7,348
------ ------ ------- ------- -------
Loss from operations............................. (235) (698) (2,346) (1,423) (6,794)
Other income (expense), net...................... -- (1) 75 56 129
------ ------ ------- ------- -------
Net loss......................................... $ (235) $ (699) $(2,271) $(1,367) $(6,665)
====== ====== ======= ======= =======
Basic and diluted net loss per share............. $(0.15) $(0.11) $ (0.38) $ (0.24) $ (0.86)
====== ====== ======= ======= =======
Shares used in computation of basic and diluted
net loss per share............................. 1,573 7,001 7,007 7,006 7,169
====== ====== ======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.24) $ (0.38)
======= =======
Shares used to compute pro forma basic and
diluted net loss per share (unaudited)......... 11,090 16,092
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2 $2,322 $ 299 $14,007
Working capital (deficit)............................... (75) 2,266 (497) 20,167
Total assets............................................ 31 2,396 914 23,817
Long-term obligations, net of current portion........... 167 -- -- 156
Redeemable convertible preferred stock.................. -- 3,331 3,723 30,775
Accumulated deficit..................................... (235) (1,012) (3,675) (9,870)
Total stockholders' equity (deficit).................... (215) (992) (3,655) (9,425)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING IS A DISCUSSION OF OUR OPERATIONS AND SHOULD BE READ IN
CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of online print services for small business and
consumers, as well as a leading provider of private-labeled online solutions for
the commercial printing industry. Our online print shops offer customers a
one-stop shop for addressing their printing needs.
We were incorporated in August 1996 and we officially launched the
iPrint.com website and commenced online sales of printed products in January
1997. For the year ended December 31, 1996, we had no revenues. Our operating
activities during this period consisted of developing software and hardware
infrastructure, recruiting personnel and raising capital. Since January 1997, we
have broadened the functionality of our iPrint.com website, certified an
increasing number of commercial print vendors to fulfill orders for our
customers, increased the breadth of products we offer and attracted new
customers through a series of direct and indirect marketing campaigns. Beginning
in 1998, we entered into affiliate, co-labeled and private-labeled
relationships. In the first nine months of 1999, we experienced a substantial
increase in the number of unique visitors to our iPrint.com and related
websites, orders our customers placed, and shipments our commercial print
vendors made.
Since our inception, we have incurred significant net losses primarily as a
result of costs associated with developing our websites and our marketing
efforts. From inception through September 30, 1999, we accumulated net losses of
$9.9 million. As we seek to aggressively expand our business, we expect that our
operating expenses will significantly increase as a result of financial
commitments related to expanded advertising and promotional campaigns, the
development of additional marketing channels, strategic relationships,
enhancements to our iPrint.com and related websites and other capital
expenditures. We expect that we will incur losses and generate negative cash
flow from operations for the foreseeable future. Our ability to achieve
profitability depends upon our ability to substantially increase our sales. In
view of the rapidly changing nature of our business and our limited operating
history, we believe that period-to-period comparisons of our operating results,
including our operating expenses as a percentage of sales, are not necessarily
meaningful and should not be relied upon as an indication of our future
performance.
We generate revenues from the sale of a variety of printed products to end
user customers. Our products and services are available to our customers through
our iPrint.com website, our managed iPrint.com affiliate and co-labeled
websites, and our private-labeled websites. We certify our commercial print
vendors to perform printing services on our behalf. We do not recognize revenues
until the product has shipped, collection of the receivable is probable, and we
have fulfilled all of our contractual obligations to the customer. A significant
portion of our revenues and cost of sales are derived from shipping and handling
fees. We record sales net of discounts. We have recorded the cost of promotional
products that we give away for free as a sales and marketing expense. A
significant portion of our revenue is generated through barter transactions with
our co-labeled partners in which we sell printed products in exchange for online
advertising. Barter transaction revenues and related advertising costs are
recorded at the fair value of the goods or services provided or received,
whichever is more readily determinable in the circumstances. We derived revenues
of $211,000 from barter transactions for the nine months ended September 30,
1999. We derived no revenue from barter
22
<PAGE>
transactions in 1996, 1997 or 1998. Substantially all of our revenues are
generated from sources within the United States and all sales to date have been
in United States dollars.
Cost of sales consists primarily of direct expenses relating to printing
products, rework and reprinting charges, shipping and handling fees, royalties
on software licenses and credit card processing fees.
We categorize our operating expenses into research and development, sales
and marketing, general and administrative and amortization of deferred
compensation.
Research and development expenses consist primarily of personnel and related
costs, including costs related to consultants and outside contractors.
Sales and marketing expenses consist of the cost of free promotional
products, the cost of marketing programs including advertisements, costs to
acquire email lists, personnel and related costs for our marketing staff and
customer support groups and participation in trade shows.
General and administrative expenses consist primarily of personnel and
related costs for corporate functions, including finance, accounting, legal,
human resources, facilities and management of commercial print vendor
relationships.
Deferred compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the estimated
fair value of the underlying stock. Deferred stock-based compensation is
amortized over the vesting period of the underlying options based on an
accelerated vesting method, generally four years. Through September 30, 1999, we
had recorded unearned stock-based compensation of $1.3 million. For the nine
months ended September 30, 1999, we recorded stock-based compensation of
$309,000.
The total unearned stock-based compensation recorded for all option grants
through September 30, 1999 will be amortized as follows: $172,000 for the
remainder of the year ending December 31, 1999, $460,000 for the year ending
December 31, 2000, $244,000 for the year ending December 31, 2001, $116,000 for
the year ending December 31, 2002 and $26,000 for the year ending December 31,
2003. The amount of deferred stock compensation expense to be recorded in future
periods could decrease if options for which accrued but unvested compensation
has been recorded are forfeited.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data expressed as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ----------------------
1997 1998 1998 1999
-------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenues............................................ 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales....................................... 50.6 58.5 56.2 68.5
------- ------- -------- --------
Gross profit........................................ 49.4 41.5 43.8 31.5
------- ------- -------- --------
Operating expenses:
Research and development.......................... 208.9 159.2 170.3 125.3
Sales and marketing............................... 107.7 171.4 205.6 206.7
General and administrative........................ 148.2 125.4 133.0 68.2
Amortization of deferred compensation............. -- -- -- 17.6
------- ------- -------- --------
Total operating expenses........................ 464.8 456.0 508.9 417.8
------- ------- -------- --------
Loss from operations................................ (415.4) (414.5) (465.1) (386.3)
Other income (expense), net......................... (0.6) 13.3 18.3 7.3
------- ------- -------- --------
Net loss............................................ (416.0)% (401.2)% (446.8)% (379.0)%
======= ======= ======== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES. Revenues increased from $306,000 for the nine months ended
September 30, 1998, to $1.8 million for the nine months ended September 30,
1999. The increase was primarily due to a higher number of orders, substantially
all of which resulted from our promotional offers, as well as increased customer
activity on our co-labeled and private-labeled websites.
COST OF SALES. Cost of sales increased from $172,000 for the nine months
ended September 30, 1998 to $1.2 million for the nine months ended September 30,
1999. The increase was primarily due to increased orders that our customers
placed on our iPrint.com and related websites. Gross margins decreased from
43.8% for the nine months ended September 30, 1998 to 31.5% for the nine months
ended September 30, 1999. This decrease was primarily the result of a shift in
product mix to lower margin items, increased promotional discounts and increased
sales of promotional items at cost.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$521,000 for the nine months ended September 30, 1998 to $2.2 million for the
nine months ended September 30, 1999. The increase was primarily due to an
increase in personnel costs of $1.2 million and increases in consultant and
outside contractor costs of $147,000 as we increased the functionality of our
iPrint.com and related websites and broadened our product offerings. We continue
to invest substantially in research and development and we expect research and
development expenses to increase on an absolute dollar basis in future periods.
SALES AND MARKETING. Sales and marketing expenses increased from $629,000
for the nine months ended September 30, 1998 to $3.6 million for the nine months
ended September 30, 1999. The increase was primarily a result of an increase in
promotional spending and related costs of $1.7 million for promotional products
given away for free. Also contributing to this increase was growth in our direct
marketing, business development and customer support staffs, with
personnel-related costs increasing by
24
<PAGE>
$904,000. We expect our sales and marketing expenses to significantly increase
on an absolute dollar basis as we continue to expand our customer acquisition
and brand awareness activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $407,000 for the nine months ended September 30, 1998 to $1.2 million for
the nine months ended September 30, 1999. The increase was due primarily to
increases in personnel-related costs and professional service fees. We expect
general and administrative expenses to increase on an absolute dollar basis in
future periods, in part as we incur costs related to operating as a public
company.
AMORTIZATION OF DEFERRED COMPENSATION. We recorded unearned stock-based
compensation of $1.3 million during the nine months ended September 30, 1999,
which is being amortized over the period during which the options vest,
generally four years. Stock-based compensation expense recognized during the
nine months ended September 30, 1999 was $309,000.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased from
$56,000 for the nine months ended September 30, 1998 to $129,000 for the nine
months ended September 30, 1999. The increase was primarily due to higher
interest income earned based on higher average cash balances during 1999.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Revenues increased from $168,000 for the year ended December 31,
1997 to $566,000 for the year ended December 31, 1998. The increase was
primarily due to a higher number of orders from customers that visited our
iPrint.com website and an increase in promotional offers.
COST OF SALES. Cost of sales increased from $85,000 for the year ended
December 31, 1997 to $331,000 for the year ended December 31, 1998. The increase
was primarily due to increased orders placed by customers through all of our
distribution channels. Gross margins decreased from 49.4% for the year ended
December 31, 1997 to 41.5% for the year ended December 31, 1998. This decrease
was primarily the result of non-recurring custom engineering work for which we
charged third-party customers in 1997 but not in 1998, and an increase in
promotional items that we sold at cost.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$351,000 for the year ended December 31, 1997 to $901,000 for the year ended
December 31, 1998. The increase was primarily due to an increase in personnel
costs of $434,000 and an increase in consultant and outside contractor costs of
$105,000 to further develop the functionality of our websites and broaden our
product offerings.
SALES AND MARKETING. Sales and marketing expenses increased from $181,000
for the year ended December 31, 1997 to $970,000 for the year ended
December 31, 1998. The increase was primarily a result of an increase in
promotional spending and related costs of $385,000 for promotional products
given away for free. Also contributing to this increase was a growth in the
number of our marketing, business development and customer support staffs, with
personnel related costs increasing by $309,000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $249,000 for the year ended December 31, 1997 to $710,000 for the year
ended December 31, 1998. The increase was due partially to increases in
personnel-related costs and recruiting fees.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased from an
expense of $1,000 for the year ended December 31, 1997 to income of $75,000 for
the year ended December 31, 1998. The increase was due to higher interest income
earned based on higher average cash balances during 1998.
25
<PAGE>
INCOME TAXES. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through September 30, 1999.
As of September 30, 1999, we had $8.8 million of federal and state net operating
loss carryforwards which expire in varying amounts through the year 2019. Due to
uncertainty regarding the ultimate utilization of the net operating loss
carryforwards, we have not recorded any benefit for losses and a valuation
allowance has been recorded for the entire amount of the net deferred tax asset.
Under applicable tax regulations, sales of our stock, including shares sold in
this offering, may further restrict our ability to utilize our net operating
loss carryforwards.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our quarterly results of operations for each of
the seven quarters ended September 30, 1999, as well as the same data expressed
as a percentage of our total revenues for the periods indicated. The information
for each of these quarters is unaudited and we have prepared it on the same
basis as the audited financial statements appearing elsewhere in this
prospectus. In the opinion of management, all necessary adjustments, consisting
only of normal recurring adjustments, have been included to present fairly the
unaudited quarterly results. You should read this section in conjunction with
our audited financial statements and notes thereto appearing elsewhere in this
prospectus. These operating results are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
---------- --------- --------- --------- ---------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................... $ 103 $ 111 $ 92 $ 260 $ 286 $ 467 $ 1,006
Cost of sales...................... 51 67 54 159 188 308 709
------- ------- ------- --------- --------- --------- ---------
Gross profit....................... 52 44 38 101 98 159 297
------- ------- ------- --------- --------- --------- ---------
Operating expenses:
Research and development......... 117 154 250 380 555 677 972
Sales and marketing.............. 92 192 345 341 555 987 2,094
General and administrative....... 101 133 173 303 283 310 606
Amortization of deferred
compensation................... -- -- -- -- 21 124 164
------- ------- ------- --------- --------- --------- ---------
Total operating expenses....... 310 479 768 1,024 1,414 2,098 3,836
------- ------- ------- --------- --------- --------- ---------
Loss from operations............... (258) (435) (730) (923) (1,316) (1,939) (3,539)
Other income (expense), net........ 27 23 6 19 19 72 38
------- ------- ------- --------- --------- --------- ---------
Net loss........................... $ (231) $ (412) $ (724) $ (904) $ (1,297) $ (1,867) $ (3,501)
======= ======= ======= ========= ========= ========= =========
PERCENTAGE OF TOTAL REVENUES:
Revenues........................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales...................... 49.5 60.4 58.7 61.2 65.7 66.0 70.5
------- ------- ------- --------- --------- --------- ---------
Gross margin....................... 50.5 39.6 41.3 38.8 34.3 34.0 29.5
------- ------- ------- --------- --------- --------- ---------
Operating expenses:
Research and development......... 113.6 138.7 271.7 146.2 194.1 145.0 96.6
Sales and marketing.............. 89.3 173.0 375.0 131.2 194.1 211.3 208.2
General and administrative....... 98.1 119.8 188.0 116.5 99.0 66.4 60.2
Amortization of deferred
compensation................... -- -- -- -- 7.3 26.6 16.3
------- ------- ------- --------- --------- --------- ---------
Total operating expenses....... 301.0 431.5 834.7 393.9 494.5 449.3 381.3
------- ------- ------- --------- --------- --------- ---------
Loss from operations............... (250.5) (391.9) (794.4) (355.1) (460.2) (415.3) (351.8)
Other income (expense), net........ 26.2 20.7 6.5 7.3 6.6 15.4 3.8
------- ------- ------- --------- --------- --------- ---------
Net loss........................... (224.3)% (371.2)% (786.9)% (347.8)% (453.6)% (399.9)% (348.0)%
======= ======= ======= ========= ========= ========= =========
</TABLE>
26
<PAGE>
Revenues have increased in each consecutive quarter presented, exclusive of
the third quarter of 1998. During that quarter we commenced an aggressive
customer acquisition program and began to offer discounted products and free
promotional products to the public. The growth in revenues during the second and
third quarters of 1999 was driven by substantial increases in order growth,
predominately due to promotional offers and increased activity at our co-labeled
and private-labeled websites.
We have recorded sequential declines in gross margin since the first quarter
of 1998. The reduction in gross margin during the second quarter of 1998 was due
to a shift in the mix of products that our customers bought. The reduction in
gross margin during the third and fourth quarters of 1998 was due to our
customer acquisition programs, which include shipping a substantial number of
promotional orders at no margin. During the second and third quarters of 1999
the reduction in gross margin was due to a shift in product mix to lower margin
items and increased promotional discounts.
Our research and development expenses have increased in absolute dollars in
each quarter presented primarily as a result of increases in our
personnel-related costs. Sales and marketing expenses have increased in absolute
dollars in each quarter presented. The increase in the third and fourth quarters
of 1998 was primarily due to increased promotional spending. These expenses also
increased significantly in the second and third quarters of 1999 due to
increases in promotional spending and related cost of promotional products
shipped. Our general and administrative expenses have increased in absolute
dollars in all but one of the quarters presented primarily as a result of
increases in our personnel-related costs.
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we are unable to accurately forecast our revenue or
expenses. Our success is dependent upon our ability to enter into and maintain
strategic relationships and to develop and maintain volume usage of our products
by our customers. Our revenues have fluctuated and our quarterly operating
results will continue to fluctuate based on the timing of our promotional
activity. Our revenues historically have been dependent upon our ability to
attract additional customers to the iPrint.com and our related websites. Unless
and until we have developed a significant and recurring revenue stream from
repeat paying customers, our revenue will continue to fluctuate significantly.
We have experienced, and expect to continue to experience, fluctuations in
revenues and operating results from quarter-to-quarter for other reasons which
are more fully set forth under the caption "Risk Factors -- Our quarterly
operating results are volatile and difficult to predict. If we fail to meet the
expectations of public market analysts or investors, the market price of our
common stock may decrease significantly." As a result of these factors, we
believe that quarter-to-quarter comparisons of our revenues and operating
results are not necessarily meaningful, and that these comparisons may not be
accurate indicators of future performance. Our staffing and operating expenses
are based on anticipated growth in revenues. If we are unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall, any
significant revenue shortfall would likely have an immediate negative effect on
our operating results. Moreover, our operating results in one or more future
quarters may fail to meet the expectations of securities analysts or investors.
If this occurs, we would expect to experience an immediate and significant
decline in the trading price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
From our inception in 1996 to September 30, 1999, we funded our operations
primarily with $32.3 million raised through the sale of our equity securities.
As of September 30, 1999, we had cash and cash equivalents of $14.0 million, and
a receivable from a redeemable convertible preferred stockholders of $8.0
million, which converted to cash on October 6, 1999. As of September 30, 1999,
we also had $297,000 available under a $750,000 loan and security agreement with
Silicon Valley Bank. Amounts outstanding under this agreement bear interest at
the bank's prime rate. At September 30, 1999, $440,000 was outstanding under
this agreement. The bank has a senior security interest in
27
<PAGE>
substantially all of our assets. Our credit line with Silicon Valley Bank
expired on November 8, 1999 and we elected to repay $200,000, which was the
working capital component of the amount outstanding. The balance of $240,000
remains outstanding as a term loan payable in equal monthly installments through
May 2002.
Net cash used in operating activities was $683,000 for the year ended
December 31, 1997 and $2.0 million for the year ended December 31, 1998,
primarily the result of net losses of $699,000 for the year ended December 31,
1997 and $2.3 million for the year ended December 31, 1998. Net cash used in
operating activities was $5.0 million for the nine months ended September 30,
1999, primarily the result of net losses of $6.7 million, adjusted for
depreciation and amortization of deferred stock compensation, and an increase in
accounts payable and accrued liabilities, partially offset by an increase in
prepaid expenses and other current assets.
Net cash used in investing activities was $59,000 for the period ended
December 31, 1997, $289,000 for the year ended December 31, 1998 and $918,000
for the nine months ended September 30, 1999. The cash used in investing
activities was related to purchases of property and equipment.
Net cash provided by financing activities was $3.1 million for the period
ended December 31, 1997 and $218,000 for the year ended December 31, 1998. Net
cash provided by financing activities was $19.7 million for the nine months
ended September 30, 1999. Cash provided by financing activities was primarily
from proceeds of the sale of our preferred stock, a note payable issued to a
stockholder as well as draws against our loan and security agreement with
Silicon Valley Bank.
At September 30, 1999, we had operating lease obligations of $65,000 for the
remaining three months of 1999, $274,000 for the year ending December 31, 2000,
$245,000 for the year ending December 31, 2001, $122,000 for the year ending
December 31, 2002 and $95,000 for the year ending December 31, 2003. These
leases are for 24,100 square feet of office space for our headquarters in
Redwood City, California.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents will be sufficient to meet our anticipated
cash needs for working capital, repayment of debt and capital expenditures for
at least the next twelve months. We are evaluating the need to obtain additional
facilities if we expand our network operations center or build out a second
facility. If we build out a second facility we estimate we would spend between
$1.0 million and $3.0 million over the next 12 months. We plan to use the
remaining proceeds from this offering to fund operating activities, including
sales and marketing, research and development and general and administrative
services. After twelve months, we may need additional capital. However, we may
need to raise additional funds sooner to fund additional expansion, develop new
or enhanced services, respond to competitive pressures or make acquisitions. We
cannot be certain that additional financing will be available to us on favorable
terms, if at all. If adequate funds are not available on acceptable terms, our
business will be harmed.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish
dates before and after January 1, 2000. This could result in system failures or
miscalculations causing disruption of operations for any company using such
computer programs or hardware. As a result, many companies' computer systems may
need to be upgraded or replaced in order to avoid year 2000 issues.
The majority of software and hardware we use to manage our business has been
purchased or developed by us within the last 24 months. While this does not
completely protect us against year 2000 exposure, we believe our exposure is
limited because the technology we use to manage our business is not based upon
legacy hardware and software systems.
28
<PAGE>
We are in the process of testing our technology and systems. The testing we
have completed has primarily been performed internally and includes a
comprehensive test of system functionality by our quality assurance
organization. We also retained a consultant to test and review our desktop
systems for year 2000 compliance. Based on the testing we have performed, we
believe that our internal software, network operations center and desktop
systems are year 2000 compliant.
In addition, we rely on software and hardware developed by third parties,
which we have not independently tested to determine year 2000 compliance. We
have reviewed certifications from the providers of key software applications
that their software is year 2000 compliant. We are in the process of receiving
certification from our commercial print vendors that they have tested their
systems for year 2000 compliance. We have received compliance letters from five
of these vendors. We will work with these providers to address the year 2000
issue and continue to seek assurances from them that their products are year
2000 compliant.
To date, we have incurred less than $50,000 in costs associated with our
year 2000 remediation efforts, and anticipate that any future costs will not
exceed $100,000. However, if we, or third-party providers of hardware, software
and communications services fail to remedy any year 2000 issues, the result
could be lost revenues, increased operating expenses, the loss of customers and
other business interruptions, any of which could harm our business. The failure
to adequately address year 2000 compliance issues in the delivery of products
and services to our customers could result in claims against us of
misrepresentation or breach of contract and related litigation, any of which
could be costly and time consuming to defend.
We have not developed any specific contingency plans for year 2000 issues.
Our worst case scenario for year 2000 problems would be our inability to execute
our clients' orders and a resultant decline in order volumes and revenues.
MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk of loss. Some of the securities that we
may invest in may be subject to market risk. This means that a change in
prevailing interest rates may cause the market value of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the market value of our investment will probably decline. To minimize
this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt securities. In
general, money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate. As of
September 30, 1999, we did not have any short-term investments.
We have operated primarily in the United States and all sales to date have
been made in United States dollars. Accordingly, we have not had any material
exposure to foreign currency rate fluctuations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards, requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 is effective for fiscal years beginning
after June 30, 2000. Because we do not currently hold any derivative instruments
and do not engage in hedging activities, we do not believe that the adoption of
SFAS No. 133 will have a material impact on our financial position or results of
operations.
29
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN
THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
iPrint.com is a leading provider of online print services for small
businesses and consumers, as well as a leading provider of private-labeled
online solutions for the commercial printing industry.
Our online print shops offer customers a one-stop shop for addressing their
printing needs, allowing them to easily design and order thousands of
customized, short-run printed products. By automating the print order process
and electronically connecting our online print shop to carefully selected and
certified commercial print vendors, we believe we significantly reduce the costs
and inefficiencies associated with the traditional printing process. Our online
print solution is designed to be much more convenient and cost-effective than
traditional printing alternatives provided through traditional print channels.
INDUSTRY BACKGROUND
THE GROWTH OF INTERNET COMMERCE AND ITS IMPACT ON SMALL BUSINESSES AND CONSUMERS
The explosive growth of the Internet as a tool for global communications has
enabled millions of people to interact electronically. International Data
Corporation, or IDC, estimates that there were 142 million web users worldwide
at the end of 1998, and expects this number will grow to approximately 502
million by the end of 2003. Rapid acceptance of the Internet as a communications
platform by both businesses and consumers has created the foundation for
significant growth in business-to-business and business-to-consumer e-commerce.
IDC estimates that worldwide commerce over the Internet will increase from
approximately $50 billion in 1998 to $1.3 trillion in 2003.
The Small Business Administration estimates that more than 90% of all
businesses in the United States have fewer than 20 employees. These businesses
often lack the size and financial resources to create economies of scale. In
particular, these organizations typically do not maintain dedicated procurement
departments and often do not achieve significant purchasing leverage. The
Internet can provide small businesses and consumers with a number of advantages
when making purchases, including:
- convenience,
- wider selection of products and services, and
- competitive pricing.
Small businesses are taking advantage of the opportunities the Internet
affords. IDC estimates that the number of small businesses engaged in e-commerce
will increase 47.1% annually, from 400,000 at the end of 1998 to almost
2.8 million at the end of 2003, signaling the broad adoption of the Internet by
these small enterprises. The widespread adoption of the Internet as a purchasing
vehicle for small businesses and consumers has created a wealth of opportunities
for businesses that offer products and services to small businesses and
consumers and has, at the same time, given both small businesses and consumers a
wider variety of products from which to choose at competitive prices.
THE TRADITIONAL PRINTING INDUSTRY AND ITS LIMITATIONS
Printing can be a major area of expenditure for small businesses. Based on
data from CAP Ventures, Inc., an independent print research firm, sales in the
United States printing industry totaled $292 billion in 1998, of which
$58 billion was derived from commercial printing operations. Short-run,
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customized items, which include a wide range of business, promotional and
general office products, as well as consumer items, comprise a significant
portion of these commercial printing operations. This market is highly
fragmented, with an estimated 50,000 local and regional commercial printers in
the United States.
The process of purchasing short-run printed goods consists of two phases:
design and order fulfillment. Typically, designing and ordering is initiated at
a traditional print shop or through a catalog and involves manually completing a
text-based order form with design and order attributes, including in many
instances, chosen layout, graphic, color, typeface enhancements, and credit card
and shipping information. These order forms are often transferred via phone, fax
or courier to a commercial print vendor for fulfillment. The actual time spent
preparing the order, printing the order, and delivering the order constitutes
the fulfillment process.
Both the order and fulfillment processes contain a number of inefficiencies
and present numerous challenges for both purchasers of short-run print services
and the commercial print vendors that serve this market, including:
TIME CONSUMING. Traveling to the local print shop and possibly waiting in
line to speak with a store representative takes time. A customer ordering
through a print catalog may be put on hold for an extended period of time in
order to speak with a representative. In either case, correctly filling out the
forms and paperwork necessary to successfully complete a print order can take an
extended amount of time. If the finished product fails to satisfy the customer,
the material may be returned to the vendor to be printed again, which is
referred to as a reprint-due-to-error or a re-do, adding to the overall process
time.
LACK OF CONTROL AND GUESSWORK. A text-based order form is non-visual, which
means that a print customer usually does not see what the overall design will
look like prior to printing. Without a proof, a customer can only guess what the
final product will look like, resulting in an uncomfortable buying situation.
Due to the constraints of a form-based creative process, a customer has limited
control over creative design iterations.
ERROR-PRONE. The short-run print order and fulfillment process is typically
a manual process, which makes the potential for human error high. Some of the
factors that can affect this error rate include incorrectly completed forms,
illegible handwriting, and forms that are difficult to read because of poor-
quality fax equipment and paper. Information is typically manually entered into
the printer's systems multiple times, greatly increasing the chances for
typographic errors. Because an order is not usually accompanied by a visual
proof, aesthetic interpretations are at times necessary and can contribute to
design variations that differ from customer expectations.
COST-INEFFICIENT AND LABOR INTENSIVE. The process by which an order is
readied for printing by the commercial print vendor, known as prepress or
pre-production, is generally manually-oriented and labor intensive. Short-run
print orders are generally low dollar transactions that can require the same
amount of time, labor and service as large print orders. As such, they are less
desirable and discourage process innovation and investment. Information is
generally redundantly entered into various accounting, batching and composition
systems. As a result, manual proofing and physical movement of operating
paperwork must be repeated throughout the printing process.
INCOMPLETE PRODUCT OFFERINGS. Because traditional short-run print shops
generally offer a limited selection of customizable products, customers may have
to contact several shops or design houses to fulfill even basic printing needs.
LIMITED PRODUCT AND ORDER INFORMATION. Custom printing can be complicated,
and as a result, the traditional print shop or catalog customer representative
may lack knowledge concerning product offering, pricing, and timing of delivery.
After a short-run print order is placed, customers often have
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limited interaction with the print shop and no direct interaction with the
commercial print vendor, making it difficult to track changes in the order's
status and estimated delivery time.
We believe that small businesses and consumers seek a more efficient and
effective means to purchase short-run printing services. We similarly believe
that commercial print vendors would like to take advantage of the efficiency and
the interactivity of the Internet to improve order management and increase sales
but the vast majority have not been able to justify the resources required to
independently build and maintain their own system.
THE IPRINT.COM SOLUTION
Through our online print shop, we offer small businesses and consumers a
single place to satisfy their printing needs. We have developed an easy to use,
self-service design and ordering website for obtaining professional quality,
mass-market printed products, providing our customers with a compelling
alternative to traditional print channels. By automating the print order process
and electronically connecting our online print shop to carefully selected and
certified commercial print vendors, we believe that we significantly reduce the
costs and inefficiencies associated with the traditional printing process.
We offer small businesses and consumers the following benefits:
SUPERIOR CONVENIENCE. Our online print shop takes a user-friendly,
self-service approach to designing and printing products. iPrint.com is
available 24 hours a day, seven days a week and may be reached from any
Internet-enabled personal computer. Products can be shipped to the location the
customer selects, enabling the entire process to be managed from the comfort of
the office or home.
SIMPLIFIED DESIGN AND ORDERING PROCESS. Our technology empowers the
customer to design and view printed items prior to purchasing these products. We
believe our what-you-see-is-what-you-get, or WYSIWYG, approach is superior to
the non-visual, forms-based process traditionally used by print shops and office
supply catalogs, increases reliability and customer satisfaction, and reduces
the time it takes to complete an order. Our interactive design tools alert the
customer to common mistakes and missing information, further reducing the
possibility of an incomplete or inaccurate order.
STREAMLINED FULFILLMENT PROCESS. After an order is placed, we
electronically send a ready-to-print graphic file and a job ticket file, which
is a data file containing all of the attributes of an order including
information like paper codes, ink codes and shipping information, to one of our
certified commercial print vendors located throughout the United States. As a
result, we virtually eliminate the prepress process for our commercial print
vendors. We believe this significantly improves the accuracy of the order and
substantially reduces the amount of time and effort required for the commercial
printer to complete it.
SIGNIFICANT COST SAVINGS. Our print shop operates online and is highly
automated, enabling us to eliminate the costs of building and managing a
physical print shop or printing and distributing catalogs. Through automation
and aggregation, we are able to pass additional savings on to our customers,
offering printed goods for up to 50% less than typical traditional print shops,
design houses and office supply catalogs.
BROAD RANGE OF SERVICES AND PROFESSIONALLY PRINTED PRODUCTS. We provide a
one-stop shop for a wide range of short-run printed products, with a print
product selection superior to most traditional print shops and office supply
catalogs. We offer thousands of items in approximately 40 product categories,
including business cards, stationery, checks, business forms, labels, rubber
stamps, invitations, personalized Post-It Notes-Registered Trademark-, photo
mouse pads, t-shirts and coffee mugs. Customers can design, view and modify a
design, and either immediately place their order or save their work-in-progress
and order
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at a later date. Customers can also send free custom electronic greeting cards
and electronic stationery, and event reminders directly from our iPrint.com
website.
COMPREHENSIVE CUSTOMER SERVICE. We offer a broad range of customer services
during all phases of the ordering and fulfillment process. After each order is
placed, an email message is automatically sent to the customer that itemizes the
order and cost and reiterates the estimated delivery time. We electronically
receive order confirmation, printing and delivery information from our
commercial print vendors and make this information accessible to our customers
through a password-protected mechanism, enabling the customer to easily check an
order's status online or even cancel the order if it has not yet been printed.
An additional email is also sent after the customer's order has been shipped. We
also offer email and telephone support for customers who have questions that
cannot be answered directly on our website.
In addition to the benefits we provide to our customers, we also provide
significant advantages to our commercial print vendors. We believe by
integrating our technologies into the systems of our commercial print vendors
and utilizing our WYSIWYG approach, we significantly reduce reprint-due-
to-error rates and, therefore, print wastage. We believe our solution virtually
eliminates prepress, thus reducing the actual cost of short-run printing while
improving overall capacity utilization. All of these factors facilitate cost
savings for our commercial print vendors.
THE IPRINT.COM STRATEGY
Our objective is to be the leading, self-service online print shop for small
businesses and consumers and the leading private-labeled provider of online
printing solutions to the commercial and quick printing industry.
To achieve this objective, our strategy includes the following key elements:
CAPITALIZE ON FIRST MOVER ADVANTAGES THROUGH STRATEGIC PROMOTIONS. We are
one of the first companies to offer an easy-to-use, convenient online print shop
targeting the small business and consumer market, and we intend to aggressively
pursue existing and new promotional offerings to build on our position of market
leadership and to introduce our printing services to a growing number of small
business and consumer customers. To date, we have effectively employed a range
of direct marketing and promotional initiatives to increase the number of
website visitors and expand usage of our services.
INCREASE BRAND RECOGNITION. We aim to develop the most well-known and
trusted brand for printing services on the Internet. To expand our customer base
and to extend the iPrint.com image, we intend to aggressively promote the
iPrint.com brand through a mixture of online and traditional media advertising,
public relations and participation in trade shows. We also plan to expand our
affiliate and co-branded online website strategies through agreements with a
range of destination websites.
EXPAND OUR STRATEGIC RELATIONSHIPS. We have strategic relationships with a
number of companies, including Adobe Systems, Excite@Home and Petstore.com. We
intend to pursue strategic relationships with leading destination websites and
media companies in order to increase traffic to our website. By aggressively
pursuing new relationships, we believe we can accelerate customer acquisition
and increase usage of our online print store.
BUILD OUR CUSTOMER BASE AND STIMULATE REPEAT USAGE. We seek to build our
customer base and stimulate repeat usage by our customers. We will continue to
market directly to our existing customers and expose them to our products and
services that most closely meet their needs. In addition, since many of the
products may be routinely purchased over the lifetime of our relationship with
the customer, for example, business cards and stationery, we aim to create
lasting relationships with our customers that increase in value over time and
produce recurring revenue streams.
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EXPAND OUR PRIVATE-LABELED INITIATIVES. We have entered into
private-labeled initiatives with a variety of companies, including 3M,
OfficeMax, Inc., PostNet International Franchise Corporation and SirSpeedy.
These private-labeled initiatives enable us to expand our distribution and sales
channels, and to increase usage of our print services. Expanding our
private-labeled initiatives allows us to create revenue opportunities in
customer segments that would otherwise be difficult for us to realize because of
pre-existing relationships between these companies and their customers.
LEVERAGE AND EXTEND OUR TECHNOLOGY PLATFORM. We believe that we have a
technology advantage over current competitors and future entrants in our market
because of the flexibility and scalability of our technology platform. We intend
to enhance our website's functionality and underlying architecture to improve
order flow and reporting, expand our service offerings, facilitate more complete
integration with print vendors, expedite payment processing, and improve the
overall efficiency and throughput of our system.
PRODUCTS AND SERVICES
Through our online print shop, our customers can design, modify, proof and
order over 3,500 printed products across approximately 40 product categories.
Using our iPrint.com online Design Studio, our customers can personalize all of
these products using a wide range of graphics, fonts and other customization
options. Online design and proofing significantly enhances the print buying
experience. Our automated solution also shortens and simplifies the order
process for customers and integrates with the systems of our commercial print
vendors and virtually eliminates the costly prepress of traditional printing.
The following is a representative list of printable items that we offer:
<TABLE>
<CAPTION>
BUSINESS AND STATIONERY GIFTS AND APPAREL PROMOTIONAL
- ----------------------- -------------------- -----------------------------------
<S> <C> <C>
Announcements Baby bibs Caps
Business cards Frames Golf balls
Business checks Mugs Mousepads
Labels Sweatshirts Polo shirts
Letterhead Teddy bears Post-it Notes-Registered Trademark-
Rubber stamps Tote bags T-shirts
</TABLE>
Within a given category, there can be hundreds of different products and
product options from which a customer can choose. For example, within the labels
category customers may select from a broad range of address, shipping, business
and other types of labels. After the type of label is selected, customers can
then choose the size, design, text, fonts, layout and color of the ink to be
printed on the label. Once they have personalized their label and proofed the
exact design online, they only need to enter their payment and shipping
information to complete the order.
The following graphic represents the steps involved in the iPrint.com
ordering process:
[Graphic depiction of a series of computer screen shots showing the step-by
step process of creating a label. Empasis on designing, proofing, and ordering.]
Customers can access our print services through the following channels:
THE IPRINT.COM WEBSITE. Customers can order a wide array of short-run
printed products directly from the iPrint.com website. We generate revenues from
these orders based on the value of the products that a customer orders. To date,
we have derived a substantial portion of our revenues from orders placed through
our iPrint.com website. Using the iPrint.com Design Studio, customers can create
a design using online tools with features that are similar to basic desktop
publishing software. In-process work can be saved on our website for future
editing and ordering, and orders are saved for two
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years for future modifications and re-orders. Any design created at our online
print shop can be sent electronically to a single email address or to multiple
email addresses at no extra charge. Customers can also request special email
reminders to be sent in advance of important dates and events. We believe
providing these free event-based services enables us to offer additional
targeted promotions to our customer base.
Our website has won numerous awards and recognition, including:
- As shown below, a ranking of fifth in PC Data's October 1999 list of Top
40 electronic retailers, or e-tailers, in the United States based on order
volume:
1. Amazon.com
2. Buy.com
3. Ticketmaster.com
4. BarnesandNoble.com
5. iPRINT.COM
6. MotherNature.com
7. DrugStore.com
8. Smarterkids.com
9. PlanetRx.com
10. eToys.com
- the 3COM 1999 Retail Network Innovation Award in the category of
e-commerce. Winners are retail businesses that are considered to be the
best at creating innovative applications that help shape the future of
e-commerce;
- the Print on Demand Innovative Leadership Award for 1999. The annual
Print-on-Demand Industry Awards were established by CAP Ventures to
recognize emerging companies who make technological advances in on-demand
printing;
- an Upside Magazine 1999 Hot 100 Award in the category of e-commerce. The
Upside staff and a large group of industry advisors select companies that
they believe are the best private technology companies in their fields;
- the WebMaster 50/50 Award for 1999. CIO Web Business Magazine, targeted
for chief information officers and senior executives, named iPrint.com one
of the top 50 Internet websites for 1999. The criteria used by CIO
included innovation in design, technology, content and functionality; and
- a top 10 ranking in Netmarketing Magazine's list of top
business-to-business websites in 1999. Netmarket Magazine targets
executives in business-to-business commerce and based its rankings on
various criteria, including design, ease of navigation, e-commerce
capabilities and presentation of information.
We offer comprehensive email and telephone-based service to our customers.
Our customer service professionals use proprietary software to access a
customer's current and past order history, making customer contacts much more
efficient. We also have a comprehensive FAQ, or frequently asked questions,
facility that documents each step of our processes, enabling customers to more
easily complete their designs and orders and take advantage of our services.
AFFILIATE WEBSITES. We work with various businesses to offer our online
printing services to their existing and potential customer base. Approximately
3,000 affiliates provide links from their websites to the iPrint.com website,
enabling us to attract a broader array of potential customers. We pay a small
commission for each order shipped to a customer that entered the iPrint.com
website from the affiliate's link.
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CO-LABELED WEBSITES. We also provide our online print services to a variety
of online organizations, including the following:
Adobe Systems
CompuServe
Excite@Home
IndexStock Imagery
OneList
Petstore.com
PhotoPoint
ShopNow
Snap
Verio
These websites promote both the iPrint.com brand and the partners' brands.
Customers access these co-labeled print shops directly on the partner's website.
We provide fulfillment and customer service for orders placed through these
websites, and we maintain a secure extranet reporting environment to help these
partners monitor and manage website activity.
PRIVATE-LABELED WEBSITES. We partner with large commercial printers and
office supply chains, such as 3M, OfficeMax and SirSpeedy, to provide their
customers with our online print services. These websites run on our web servers
and utilize our technology, but each one is accessed from within the
private-labeled partner's website and displays only the private-labeled
partner's brand. We offer the same range of services and products that we
provide to our co-labeled and affiliate partners, but we also allow our
private-labeled partners to manage pricing and product selection. Depending on
the specifics of the arrangement, we may generate revenue from orders placed on
these websites based on the wholesale cost of the products sold, a fee
per-transaction or some combination of product and transaction fees. In some
circumstances, our private-labeled partners may determine who will provide print
and order fulfillment.
TECHNOLOGY
We have designed our online print shop to address the unique challenges of
selling custom printed products and to handle potentially large order volumes.
The computer software architecture of our iPrint.com and related websites and of
our design and order processing technologies integrates high-performance,
proprietary software modules with technology that we license from third parties.
We believe that the software supporting our online print shop addresses
significant challenges not typically faced by other e-commerce vendors,
including:
CUSTOMER-DRIVEN PRODUCT CREATION. Our customers do not order from a static,
pre-set electronic product catalog. Rather, customers can create sophisticated
desktop publishing design projects, requiring the ability to freely mix text,
graphic images, fonts, styles and colors on printed items.
CPU-INTENSIVE CUSTOMER INTERACTION. Our websites are also not presenting
static, or largely static, informational or content pages. Our customers are
engaged in CPU-intensive design activities which require constant system
monitoring and optimization as visitor traffic grows.
EXACTING NATURE OF TYPESETTING AND INTEGRATION WITH PROCESSES OF COMMERCIAL
PRINT VENDORS. Typesetting is a precision science. We must automatically turn a
customer's onscreen design into resolution independent electronic files that can
be successfully produced by a variety of commercial print vendors with different
printing processes and order management requirements.
POINT-OF-ORDER PRICING. Because each product created is custom designed
based on different ink, paper, design and quantity attributes, we must be able
to provide accurate, real-time pricing information to our customers calculated
instantaneously from tens of thousands of price point combinations.
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INTELLIGENT ORDER ROUTING. Each of the commercial print vendors we work
with has different capabilities and a unique set of requirements that we take
into account when determining how to fulfill an order. By taking into account
product type, pricing, geography and shipping options, we strive to route each
order individually to the vendor with the best combination of quality, delivery
time and price.
We believe the ability of our technology to address these challenges while
also scaling to handle large numbers of customer design sessions and orders
represents a competitive advantage for us.
The following diagram depicts the iPrint.com software architecture:
[Graphic flow chart depiction of the iPrint.com software architecture, starting
with customer input at the top, moving through iPrint.com internal processes,
and finishing with data flowing through to commercial print vendors.]
We designed the software supporting our online printshop as a collection of
integrated software modules, enabling us to more easily and quickly create,
maintain, modify or replace individual components. We created our proprietary
software modules using open software standards and without significant
dependencies on specific operating system, database or web server technologies.
As a result, we are able to move portions of our software between different
commercially-available database, operating system and web server products to
upgrade capacity or take advantage of price or performance improvements as they
become available.
The following is a description of the key software modules within our
iPrint.com operating website:
DESIGN STUDIO incorporates features found in desktop publishing software to
enable our customers to easily create a wide variety of custom printed products.
The Design Studio takes into account font, size, and color, paper or other
material, graphic size and positioning, and other factors to produce on-screen
images that are consistent with the final printed product. Because our customers
are able to view and proof their orders before they are printed, we believe the
percentage of orders that must be reprinted due to error is significantly
reduced.
The following illustrates how a customer would use the Design Studio to
create a customized business card:
[Graphic depiction of a series of computer screen shots showing the step-by-step
process of creating a business card. Emphasis on designing, proofing, and
ordering.]
PRODUCT AND PRICING DATABASES contain a wide range of product design,
feature and pricing information. To support the broad array of product
variations and customization options we offer, we designed these databases to be
highly flexible and to allow us to add, delete or modify product and pricing
information as market conditions change or dictate.
SECURE SHOPPING CART provides a customized order basket designed to store
and securely process orders for multiple, unique design items. Our Secure
Shopping Cart integrates with the software systems of our commercial print
vendors, removing many of the manual steps necessary to produce and fulfill a
variety of popular printed items. We believe this technology facilitates the
order and fulfillment process in a way that is more efficient and less
error-prone than traditional processes.
SYSTEM REPORTING AND DIAGNOSTICS enables us and our affiliates, co-labeled
and private-labeled partners to remotely track a wide range of customer actions
and information on our websites, providing detailed audit trails in a highly
secure, password-protected environment.
PRINT CENTER BUILDER lets our private-labeled partners customize and control
their own print shops without the need for costly and time-consuming programming
efforts. We allow these partners to directly manage product prices,
configurations and sales tax assignments which decreases customization and
maintenance expenses for us.
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We also use hardware and software components from well-established vendors,
including Cisco Systems, Dell Computers, Intel Corporation, Microsoft
Corporation, America Online/Netscape Communications and Sun Microsystems. The
software supporting our online printshop can run on a single machine or be
distributed across multiple servers, depending on capacity requirements. Servers
can be added or removed while the system continues to operate, allowing us to
adjust capacity in a controlled manner while reacting quickly to market
requirements. Currently, we physically host the servers for our iPrint.com,
affiliate, co-labeled and private-labeled websites at our headquarters in
Redwood City, California. We have initiated work to develop remote websites to
allow for the uninterrupted operation of the iPrint.com and related websites in
the event of a major system failure.
MARKETING AND DISTRIBUTION
The iPrint.com marketing group focuses on product marketing, business
development and direct marketing. Our marketing programs are designed to
introduce and extend the iPrint.com brand name to both larger and better
targeted audiences.
To attract customers to our iPrint.com and related websites, we use a
variety of electronic marketing and traditional media techniques. We generate
traffic to our websites by:
- offering printed products at special discount prices, including aggressive
promotions;
- building affiliate and co-labeled relationships with other companies so
that our websites are featured on or linked with their websites;
- directly soliciting our existing community of customers and parties who
have either saved a graphic design with us or otherwise registered with us
for our promotional activities; and
- purchasing advertising online and in traditional media.
In July 1999, we began to promote iPrint.com through a traditional
advertising program. This program initially targeted potential customers through
radio broadcasts in regional markets. We have continued our expenditures for
advertisements in traditional media during the fourth quarter of 1999 and expect
to increase them in the future. We believe our ongoing marketing program will
increase the reach of our name recognition and drive new customers to our online
print shop.
In addition, we routinely speak at industry tradeshows and seminars.
CUSTOMERS
Our target customers are predominately small businesses of less than 20
employees that make up 90% of all businesses in the United States. This segment
is sometimes referred to as the SOHO market, or small office and home office
market. To date, we have over 270,000 print customers. Our total community is in
excess of 500,000 members, including those who have not placed an order but who
have taken advantage of other iPrint.com services such as saving a graphic
design on one of our websites, sending free electronic greeting cards or
stationery or otherwise registering to receive promotional offerings from us. We
believe many of these community members who have not yet placed orders will
purchase products from us in the future. Our customers generate a high volume of
order activity at a relatively low dollar amount per order. For the nine months
ended September 30, 1999, the average order value for a promotional order was
approximately $3.00, and for a non-promotional order generated from our
iPrint.com website, approximately $60.00. No single customer accounts for a
significant portion of our revenues.
INTELLECTUAL PROPERTY
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of patent, trademark and
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copyright laws and confidentiality and/or license agreements with our employees
and others, including companies with whom we enter into strategic relationships.
In the United States, we have filed one provisional patent and may seek
other patents in the future. The patent for which we have applied has not yet
been issued. We have one registered trademark and two pending trademark
applications and five service marks and eight service mark applications. In
addition, we seek to avoid disclosure of our trade secrets by limiting access to
our propriety technology and restricting access to our source code. Despite
these precautions, it may be possible for unauthorized third parties to copy
particular portions of our technology or reverse engineer or obtain and use
information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and competing companies may independently
develop similar technology.
COMPETITION
Broadly speaking, we are an online alternative to traditional short-run mass
market print shops. We compete with these offline entities. The existing
printing market is established, mature and intensely competitive. The United
States short-run mass market printing industry is highly fragmented, with an
estimated 50,000 local and regional printers. These printers are mostly
independent but many are owned by larger consolidators, such as Taylor
Corporation. Many of these printers have long-term established relationships
with their customers and provide geographic proximity as well as a range of
services such as photocopying which are not available online.
For mass market printed items, price is generally not a principal method of
competition, primarily due to the short-run nature of small business and
consumer printing. We believe that convenience of ordering, breadth of product
offering, delivery time and product quality all play a more important part in
short-run, mass market print buying psychology.
Ultimately, we believe that the Internet will become an important source for
the procurement of printed products targeted at small businesses and consumers.
Within this area, our direct competition comes from other early stage online
print shops, some of which have products that are intended to compete directly
with our products. Selected traditional print vendors, including Taylor
Corporation and Discount Labels, have developed online websites that permit
customers to create, proof and order popularly printed items directly online.
We also compete with mail order catalog printers which may be better able to
combine orders to achieve economies of scale and may benefit from offering a
wider range of non-printed products than us or the typical traditional brick and
mortar print shop. We also face direct competition from a variety of other
organizations, including existing office supply chains, procurement brokers,
stationery houses, design houses, advertising specialty and print brokers and
photo and gift operations. Some of these are in the process of developing their
own online print solutions. We also face competition from the increasing
sophistication of desktop printers which may lessen the need for professional
offset and thermographical printing. In addition, companies with which we do not
presently directly compete may become competitors in the future, either through
the expansion of our technology and services or through their product
development in the area of online print shops or through acquisitions. These
companies could include Adobe Systems, America Online and Microsoft Corporation.
The market for online print shops is new, rapidly evolving and highly
competitive. The level of competition is likely to increase as current
competitors improve their offerings and as new participants enter the market or
as industry consolidation develops. Many of our current and potential
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources than us and may enter into strategic or commercial relationships with
larger, more established and well-financed companies. Some of our competitors
may
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be able to enter into these strategic or commercial relationships on more
favorable terms. Additionally, these competitors have research and development
capabilities that may allow them to develop new or improved services that may
compete with the services we market. New technologies and the expansion of
existing technologies may increase competitive pressures on us. Furthermore,
companies with whom we have formed a strategic relationship may offer to
end-users the choice between our services and the services of one of our
competitors, and future customers may also offer end-users a similar choice.
Increased competition may result in reduced operating margins as well as loss of
market share and brand recognition. We may be unable to compete successfully
against current and future competitors, and competitive pressures faced by us
could harm our business and prospects.
EMPLOYEES
As of October 31, 1999, we had 135 full-time employees. Of these employees,
57 were in product development, 22 in sales, marketing and business development,
30 in customer support and training and 26 in finance and administration. None
of our employees is subject to a collective bargaining agreement, and we have
never experienced a work stoppage. We believe our relations with our employees
are good. Our future success depends on our ability to attract, motivate and
retain highly qualified technical and management personnel. From time to time we
also employ independent contractors to support our product development, sales,
marketing, business development and finance and administration organizations.
FACILITIES
Our principal offices are located in leased facilities in Redwood City,
California and consist of approximately 24,100 square feet under a series of
multi-year leases that expire between September 2001 and September 2003 and 600
square feet under one month-to-month lease. We believe that our existing
facilities are adequate for our current needs or that suitable additional or
alternative space will be available in the future on commercially reasonable
terms.
LEGAL PROCEEDINGS
From time to time, we could become involved in litigation relating to claims
arising out of our ordinary course of business. We are not presently involved in
any legal proceedings.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors, and certain significant employees and
their ages as of October 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Royal P. Farros........................... 40 President, Chief Executive Officer and
Chairman of the Board of Directors
James P. McCormick........................ 40 Chief Financial Officer and Secretary
Edward J. Sanden.......................... 46 Chief Marketing Officer
Nickoletta T. Swank....................... 40 Vice President, Strategic Relationships
and Assistant Secretary
David L. Hodson........................... 32 Vice President, Technology
Gregory M. Korjeff........................ 40 Vice President, Operations
Mark Dubovoy (1)(2)....................... 53 Director
Deepak Kamra (1).......................... 43 Director
J.A. Heidi Roizen (2)..................... 41 Director
</TABLE>
- ------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
ROYAL P. FARROS founded iPrint.com in February 1996 and has served as our
president, chief executive officer and chairman of the board of directors since
our inception. From June 1994 to February 1996, Mr. Farros served as executive
vice president and general manager of the Electronic Direct division of Deluxe
Corporation, a commercial printer. From June 1983 to June 1994, Mr. Farros
served as executive vice president and from June 1986 to June 1994 as chairman
of the board of directors of T/Maker Company, a consumer software company.
Mr. Farros holds a B.S. and an M.S. in Industrial Engineering from Stanford
University.
JAMES P. MCCORMICK has served as our chief financial officer since October
1999 and as our secretary since November 1999. From June 1997 to October 1999,
Mr. McCormick served in various executive positions, most recently as the chief
financial officer, senior vice president, finance and administration and chief
operating officer for General Magic, Inc., a computer software and
telecommunications company. From July 1994 to June 1997, Mr. McCormick was
employed by UB Networks, a computer networking company, where he served in
various executive positions, most recently as vice president, finance and
administration and chief financial officer. Mr. McCormick holds a B.B.A. from
the University of Toledo and an M.B.A. in Finance from the University of
Michigan.
EDWARD J. SANDEN has served as our chief marketing officer since April 1999.
From 1987 to April 1999, Mr. Sanden served in various executive positions, most
recently as senior vice president of interactive services, for Cendant
Corporation, formerly CUC International, Inc., a business and consumer services
company. Mr. Sanden holds a B.A. in English from the University of Alberta,
Canada.
NICKOLETTA T. SWANK was on the founding team of iPrint.com and served as our
vice president, operations until September 1997. Ms. Swank has served as our
vice president, strategic relationships since September 1997 and as our
assistant secretary since November 1999. Ms. Swank also served as secretary from
our inception to November 1999 and as a director from September 1997 to February
1999. From July 1992 to July 1996, Ms. Swank was employed at T/Maker Company, a
consumer software company, where from January 1995 to July 1996, she was
director, international sales, from February 1994 to December 1994, she was
international group manager and from July 1992 to
41
<PAGE>
January 1994, she was country manager for Australia and New Zealand. Ms. Swank
holds a B.S. in Industrial Engineering from Stanford University.
DAVID L. HODSON was on the founding team of iPrint.com and has served as our
vice president, technology since May 1998. From May 1996 to May 1998,
Mr. Hodson served as our director of technology. From February 1995 to May 1996,
Mr. Hodson was a technologist at the Electronic Direct division of Deluxe
Corporation. From June 1992 to October 1994, Mr. Hodson held various technical
positions with Visa International. Mr. Hodson holds a B.S. in Management
Information Systems and an M.B.A., both from California State University, Chico.
GREGORY M. KORJEFF has served as our vice president, operations since
September 1997. From September 1995 to September 1997, Mr. Korjeff was chief
administrative officer at Accountants Inc., a staffing services company. From
January 1986 to September 1995, Mr. Korjeff was employed by the bankcards
division of Citicorp Credit Services, a commercial bank, where he served in
various management positions, most recently as vice president and division
financial officer. Mr. Korjeff holds a B.A. in Geology from Dartmouth College.
MARK DUBOVOY has been one of our directors since October 1997. Mr. Dubovoy
founded and has served as a general partner of Information Technology Ventures,
a venture capital partnership, since September 1994. Mr. Dubovoy currently
serves on the board of directors of Exodus Communications, a website and network
management company, as well the boards of directors of several private
companies. Mr. Dubovoy holds a B.S. in Physics from the National University of
Mexico, and both an M.A. and a Ph.D. in Physics from the University of
California, Berkeley.
DEEPAK KAMRA has been one of our directors since March 1999. Since October
1995, Mr. Kamra has been a general partner of Canaan Equity Partners, a venture
capital partnership. From March 1993 to October 1995, Mr. Kamra was a principal
at Canaan Equity Partners. Mr. Kamra serves on the board of directors of Concord
Communications, a computer network software company, and Saleslogix, a business
software company, as well as on the board of directors of several private
companies. Mr. Kamra holds a Bachelor of Commerce from Carleton University and
an M.B.A. from Harvard Business School.
J.A. HEIDI ROIZEN has been one of our directors since October 1999. Since
April 1999, Ms. Roizen has been a venture partner at Softbank Venture Capital.
From February 1997 to July 1999, Ms. Roizen was self-employed as a strategic
consultant to such technology companies as Intel Corporation, Microsoft
Corporation and Compaq Computer Corporation. From January 1996 to February 1997,
Ms. Roizen served as vice president of world wide developer relations for Apple
Computer. From 1983 to 1996, Ms. Roizen served as chief executive officer of
T/Maker Company. Ms. Roizen currently serves as a director of Great Plains
Software, a financial management software company, Preview Systems, a computer
network and software management company, and several private companies.
Ms. Roizen holds a B.A. in English and an M.B.A. from Stanford University.
BOARD COMPOSITION
Effective upon the closing of this offering, our certificate of
incorporation and bylaws will provide for a board of directors that is divided
into three classes:
- Class I, whose term will expire at the annual meeting of stockholders
expected to be held in May 2000;
- Class II, whose term will expire at the annual meeting of stockholders
expected to be held in May 2001; and
- Class III, whose term will expire at the annual meeting of stockholders
expected to be held in May 2002.
42
<PAGE>
As a result, only one class of directors will be elected at each annual
meeting of stockholders, with the other classes continuing for the remainder of
their terms. Effective upon the closing of this offering, the following
individuals will serve as our directors:
Royal Farros and Mark Dubovoy will be our Class I directors;
Deepak Kamra will be our Class II director; and
J.A. Heidi Roizen will be our Class III director.
There are no family relationships among any of our directors, officers or
key employees, except that Ms. Swank, vice president, strategic relationships
and assistant secretary, is the sister of Mr. Farros, president, chief executive
officer and chairman of the board of directors.
BOARD COMMITTEES
Our board of directors recently formed an audit committee and a compensation
committee.
AUDIT COMMITTEE. The audit committee will review the results and scope of
the annual audit and will meet with our independent public accountants to review
our internal accounting policies and procedures.
COMPENSATION COMMITTEE. The compensation committee reviews and makes
recommendations to our board of directors on our general and specific
compensation policies and practices and administers our 1997 stock option plan,
our 1999 employee stock purchase plan and our 1999 outside director stock option
plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been one of our officers or employees. None of our executive officers
currently serves, or in the past has served, as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our board of directors or compensation committee. Before the
creation of our compensation committee, all compensation decisions were made by
our full board of directors. Mr. Farros has not participated in discussions by
our board of directors with respect to his own compensation.
EMPLOYMENT, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
We routinely deliver written offer letters containing provisions on salary
bonuses, benefits and stock option grants to prospective members of management
and other employees. In addition, we have entered into agreements containing
employment and change-in-control provisions as described below.
In April 1999, we entered into a written employment agreement with
Edward J. Sanden, our chief marketing officer. This agreement describes
Mr. Sanden's base salary and bonuses as well as other benefits to which
Mr. Sanden is entitled. The agreement provides that if Mr. Sanden is
involuntarily terminated without cause at any time before April 29, 2000, he
will receive a lump sum severance payment equal to one week of base salary plus
a monthly bonus for each month of employment and his options will vest as if he
had completed one full year of employment with us. The agreement further
provides that if Mr. Sanden is involuntarily terminated without cause at any
time on or after April 29, 2000, he will receive a lump sum severance payment
equal to three months of base salary. In addition, one-half of his unvested
options will vest as of the date of his termination. Mr. Sanden also agreed not
to compete with us in any unfair manner at any time and for any reason following
the event of his termination.
43
<PAGE>
In September 1999, we entered into a written employment agreement with
James P. McCormick, our chief financial officer. This agreement describes
Mr. McCormick's base salary and bonuses as well as other benefits to which
Mr. McCormick is entitled. Pursuant to the agreement, we agreed to enter into a
promissory note agreement in connection with the exercise of Mr. McCormick's
stock options.
We have entered into stock option agreements with each of our executive
officers that provide for partial acceleration of vesting upon a
change-in-control event in which our outstanding stock options are not assumed
or substituted with substantially equivalent stock options, or in which an
executive officer is terminated. Partial acceleration in this event would be as
follows:
- if the change-in-control event occurs during the executive officer's first
year of employment with us, that executive officer will be entitled to
acceleration of vesting equal to the number of months employed by us; or
- if the change-in-control event occurs after the executive officer's first
year of employment with us, that officer will be entitled to acceleration
of vesting equal to 125% of the number of months employed by us.
EXECUTIVE COMPENSATION
Our directors do not receive cash compensation for their services as
directors or members of committees of the board of directors. We do reimburse
directors for their reasonable expenses incurred in attending meetings of the
board of directors.
A total of shares of common stock have been reserved for issuance
under our 1999 outside directors stock option plan, none of which have been
issued. This plan provides for the automatic grant of nonstatutory stock options
to our directors who are not employees. On the effective date of this offering,
each of our non-employee directors will automatically be granted an option to
purchase shares of common stock. Thereafter, each new non-employee
director elected after the effective date of this offering automatically will be
granted on the date of his or her initial election an option to purchase
shares of common stock. In addition, each non-employee director will
thereafter be granted automatically an option to purchase shares of
common stock at each annual meeting of the stockholders provided the
non-employee director continues to serve in that capacity following the annual
meeting. The exercise price per share of options granted under this plan will be
equal to the fair market value of a share of common stock on the date of grant.
Shares subject to initial options and annual options granted under this plan
will vest over years and years, respectively, and options
granted under this plan must be exercised within years from the date
of grant.
44
<PAGE>
The following table presents information regarding compensation paid or
earned by our chief executive officer and the other executive officer whose
total salary and bonus for the fiscal year ended December 31, 1998 exceeded
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS
- --------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Royal P. Farros............................................. 1998 $91,698 -- --
President, Chief Executive Officer and Chairman of the
Board of Directors (1)
David L. Hodson............................................. 1998 $91,985 -- 55,000
Vice President, Technology (2)
</TABLE>
- ------------------------
(1) Mr. Farros' annual salary was adjusted from $74,000 to $100,000 on May 1,
1998.
(2) Mr. Hodson's annual salary was adjusted from $90,000 to $110,000 on
August 1, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table above
during the fiscal year ended December 31, 1998. All of these options were
granted under our 1997 stock option plan. Generally, the options vest at the
rate of one quarter the total number of shares on the one year anniversary from
the date of grant and thereafter ratably on a monthly basis for thirty-six
months from and after December 31, 1998.
The following table is based on the grant of options to purchase a total of
613,063 shares of our common stock during 1998. All options were granted at the
fair market value of our common stock, as determined by the board of directors
on the date of grant. Potential realizable values are net of exercise price, but
before taxes associated with exercise. Amounts represent hypothetical gains that
could be achieved for the options if exercised at the end of the option term.
The assumed 5% and 10% rates of stock price appreciation are required by the
rules of the Securities and Exchange Commission and do not represent our
estimate or projection of the future common stock price. Unless the market price
of the common stock appreciates over the option term, no value will be realized
from the option grants made to executive officers. Actual gains, if any, on
stock option exercises will be dependent on the future performance of our common
stock. The assigned 5% and 10% rates of stock appreciation are based on an
assumed offering price of $ per share.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Royal P. Farros........................... -- -- -- -- -- --
David L. Hodson........................... 55,000 9.0% $0.08 07/15/08 $ $
</TABLE>
45
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END HOLDINGS
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to exercisable and unexercisable options held as of
December 31, 1998 by each of the executive officers named in the Summary
Compensation Table above. Also presented are values of in-the-money options,
which represent the positive difference between the exercise price of each
outstanding stock option and a fair value on December 31, 1998 of $0.72 per
share.
AGGREGATE OPTION EXERCISES IN 1998 AND VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
ACQUIRED UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT 12/31/98 12/31/98
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE INEXERCISABLE
- ---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Royal P. Farros.............. -- -- -- -- -- --
David L. Hodson.............. -- -- 55,000 -- $ --
</TABLE>
STOCK OPTION PLANS
1997 STOCK OPTION PLAN
Our 1997 stock option plan was adopted by our board of directors and
approved by our stockholders in August 1997 and has been amended from time to
time. We are authorized to issue up to 3,649,624 shares of common stock under
this plan. This number of shares will be increased on January 1, 2001 and each
subsequent January 1 during the term of the plan by the lesser of 5% of the
number of shares of common stock issued and outstanding on the immediately
preceding December 31 or . Our board of directors currently administers
the 1997 stock option plan. The plan allows grants of incentive stock options,
within the meaning of Section 422 of the Internal Revenue Code, to employees,
including officers and employee directors. In addition, it allows grants of
nonstatutory options to employees, non-employee directors, and consultants. The
plan expires in August 2007, but may be terminated sooner by the board of
directors.
The exercise price of nonstatutory stock options granted under the 1997
stock option plan must not be less than 85% of the fair market value of a share
of common stock on the date of grant. In the case of incentive stock options,
the exercise price must not be less than the fair market value of a share of
common stock on the date of grant. With respect to any optionee who owns stock
representing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive stock option must be equal to
at least 110% of the fair market value of a share of the common stock on the
date of grant, and the term of the option may not exceed five years. The terms
of all other options may not exceed ten years. The aggregate fair market value,
determined as of the date of option grant, of the common stock for which an
incentive stock option may become exercisable for the first time may not exceed
$100,000 in any calendar year.
The board of directors has discretion to determine vesting schedules and
exercise requirements, if any, of all options granted under the plan. In
addition, at the time each option is granted, our board of directors has
discretion to provide for full acceleration of vesting and exercisability in the
event that we experience a corporate change-in-control subsequent to the date of
grant.
As of September 30, 1999, 1,001,817 shares of common stock had been issued
upon exercise of options outstanding, options to purchase 1,146,099 shares of
common stock with a weighted average exercise price of $0.20 were outstanding,
and 1,501,708 shares remained available for future grants.
46
<PAGE>
1999 EMPLOYEE STOCK PURCHASE PLAN
A total of shares of common stock have been reserved for issuance
under our 1999 employee stock purchase plan, none of which have been issued.
This number of shares will be increased cumulatively by shares on January 1,
2001 and each January 1 thereafter through January 1, 2010. This plan is
intended to qualify under Section 423 of the Internal Revenue Code and our
compensation committee will be administer the plan. Employees, including
officers and employee directors, are eligible to participate in the plan if they
are employed by us for more than 20 hours per week and more than five months per
calendar year. The plan will be implemented during sequential -month
offering periods, the first of which will commence on the effective date of this
offering and will terminate on , . After the effective date of
this offering, offering periods under the plan will generally begin on
and of each year.
The 1999 employee stock purchase plan permits eligible employees to purchase
shares of our common stock through payroll deductions, which may not exceed %
of the employee's salary. Stock may be purchased under the plan at a price equal
to 85% of the fair market value of our common stock on either the first or the
last day of the offering period, whichever is lower. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of a participant's employment
with us. Participants may not purchase shares of common stock having a value,
measured at the beginning of the offering period, greater than $25,000 in any
calendar year or more than a number of shares in any offering period determined
by dividing $25,000, or $12,500 with respect to a six-month offering period, by
the fair market value of a share of our common stock determined at the beginning
of the offering period.
1999 OUTSIDE DIRECTORS STOCK OPTION PLAN
A total of shares of common stock have been reserved for issuance
under our 1999 outside directors stock option plan, none of which have been
issued. This plan provides for the automatic grant of nonstatutory stock options
to our directors who are not employees. On the effective date of this offering,
each of our non-employee directors will automatically be granted an option to
purchase shares of common stock. Thereafter, each new non-employee
director elected after the effective date of this offering will automatically be
granted on the date of his or her initial election an option to purchase
shares of common stock. In addition, each non-employee director will
thereafter be granted automatically an option to purchase shares of
common stock at each annual meeting of the stockholders provided the
non-employee director continues to serve in that capacity following the annual
meeting. The exercise price per share of options granted under this plan will be
equal to the fair market value of a share of common stock on the date of grant.
Shares subject to initial options and annual options granted under this plan
will vest over years and years, respectively, and options granted
under this plan must be exercised within years from the date of grant.
401(k) PLAN
We sponsor a tax-qualified employee savings and retirement plan intended to
qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan.
Full-time employees who are at least 21 years old and who perform at least three
months of service for us are generally eligible to participate and may enter the
plan as of the first day of any calendar quarter. Participants may make pre-tax
contributions to the plan of up to 25% of their eligible compensation, subject
to a statutorily prescribed annual limit, which was $10,000 in calendar year
1998. Each participant's contributions and investment earnings on these
contributions are fully vested at all times. The 401(k) plan does not currently
permit us to make matching contributions on behalf of participants.
Contributions by the participants or us to the plan, and the income earned on
these contributions, are generally not taxable to the participants until
withdrawn. Contributions are generally deductible by us when made. The 401(k)
plan assets are held in
47
<PAGE>
trust. The trustee of the 401(k) plan invests the assets of the plan in various
investment options as directed by the participants.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, which the
Delaware General Corporation Law permits, which provide that our directors shall
not be personally liable to us or our stockholders for monetary damages
resulting from a violation of the directors' duty to act with care and in the
best interests of the stockholders, except for liability:
- for acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal;
- under Section 174 of the Delaware General Corporation Law relating to
improper dividends or distributions; or
- for any transaction from which the director obtained an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies, including injunctive relief or rescission.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware General Corporation Law. Section
145 of the Delaware General Corporation Law empowers us to enter into
indemnification agreements with our officers, directors, employees and agents.
Before the completion of this offering, we intend to enter into separate
indemnification agreements with each of our current directors and executive
officers which may, in some cases, be broader than the specific indemnification
provisions allowed by the Delaware General Corporation Law. The indemnification
agreements will require us to indemnify the executive officers and directors
against liabilities that may arise by reason of status or service as directors
or executive officers and to advance expenses they spend as a result of any
proceeding against them for which they could be indemnified to the fully extent
permitted by the Delaware General Corporation Law.
We intend to obtain liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of iPrint.com where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling
iPrint.com, we have been informed that in the opinion of the Securities and
Exchange Commission this indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE>
RELATED PARTY TRANSACTIONS
Since our inception in August 1996, there has not been, nor is there
currently planned, any transaction or series of similar transactions to which
iPrint.com was or is a party in which the amount involved exceeds $60,000 and in
which any director, executive officer or holder of more than 5% of iPrint.com's
capital stock or any member of their immediate family had or will have a direct
or indirect material interest other than agreements which are described under
the caption "Management" and the transactions described below.
SALES OF STOCK TO INSIDERS
The following directors, executive officers, holders of more than 5% of a
class of voting securities and members of these persons' immediate families
purchased shares of our series A preferred stock, series B preferred stock,
series C preferred stock or common stock:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED COMMON
STOCKHOLDER STOCK STOCK STOCK STOCK
- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
AT&T (1).......................................... -- -- 1,272,053 --
Canaan Equity (2)................................. -- 2,420,000 795,161
Mark Dubovoy (3).................................. 2,321,875 1,600,000 892,857 --
Royal P. Farros................................... 958,594 485,497 -- 7,000,000
Information Technology Ventures (3)............... 2,321,875 1,600,000 892,857 --
Deepak Kamra (2).................................. -- 2,420,000 795,161 --
Gregory and Linda Korjeff (4)..................... -- 60,000 19,715 121,250
J.A. Heidi Roizen and David G. Mohler, M.D. (5)... 25,000 -- 2,380,952 --
Edward J. Sanden.................................. -- -- 29,762 125,000
Softbank Technology Ventures (5).................. 25,000 -- 2,380,952 --
Nickoletta T. Swank and David L. Swank III........ 50,000 80,000 42,715 275,000
</TABLE>
- ------------------------
(1) Includes:
(a) 368,895 shares held by AT&T Venture Fund II, LP.,
(b) 765,721 shares held by Special Partners Fund International, LP.; and
(c) 137,437 shares held by Special Partners Fund, LP.
(2) Includes:
(a) 2,400,000 shares of series B preferred stock and 788,589 shares of
series C preferred stock held by Canaan Equity, L.P.; and
(b) 20,000 shares of series B preferred stock and 6,572 shares of series C
preferred stock held by Deepak Kamra.
(3) Includes:
(a) 2,261,567 shares of series A preferred stock, 1,558,442 shares of series
B preferred stock and 869,666 shares of series C preferred stock held by
Information Technology Ventures, L.P.; and
(b) 60,308 shares of series A preferred stock, 41,558 shares of series B
preferred stock and 23,191 shares of series C preferred stock held by ITV
Affiliates Fund, L.P.
(4) Includes:
(a) 60,000 shares of series B preferred stock and 19,715 shares of series C
preferred stock held by Gregory M. and Linda Korjeff; and
(b) 121,250 shares of common stock held by Gregory M. Korjeff.
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<PAGE>
(5) Includes:
(a) 25,000 shares of Series A preferred stock purchased by J.A. Heidi Roizen
and David G. Mohler, M.D., and
(b) 2,380,952 shares of Series C preferred stock purchased by Softbank
Technology Ventures V, L.P.
The following is a summary of sales of our preferred and common stock that
are presented in the table above:
SERIES A FINANCING. On October 17, 1997, we sold a total of 4,083,594
shares of series A preferred stock at a price of $0.80 per share.
SERIES B FINANCING. On February 25, 1999, we sold a total of 6,033,497
shares of series B preferred stock at a price of $1.25 per share.
SERIES C FINANCING. On September 30, 1999, we sold a total of 5,953,490
shares of series C preferred stock at a price of $3.36 per share. Immediately
before the closing of this offering, all outstanding shares of series A
preferred stock, series B preferred stock and series C preferred stock will
automatically convert into shares of common stock on a one-for-one basis.
SALES OF COMMON STOCK.
In October 1996, we sold to Royal P. Farros 7,000,000 shares of common stock
at a price of $0.0029 per share.
For a description of change-in-control arrangements we have with our
executive officers, see "Management--Employment, Termination of Employment and
Change-in-Control Arrangements."
LOAN TO EXECUTIVE OFFICER
In October 1999, we received from James P. McCormick, our chief financial
officer and secretary, a full-recourse promissory note in an aggregate principal
amount of $655,400 in connection with the exercise of stock options. The note
bears interest at 5.96% per annum and is due in October 2003. We have a right to
repurchase these shares at cost in the event of the termination of
Mr. McCormick's employment with us. This right lapses ratably over four years.
LOANS FROM EXECUTIVE OFFICER
From August 1996 to September 1997, we issued to Royal P. Farros, our
president, chief executive officer and chairman of the board of directors,
promissory notes in an aggregate principal amount of $616,214. The principal and
an aggregate of $27,322 in accrued interest, along with deferred salary payments
of $123,340, were converted into 958,594 shares of series A preferred stock in
October 1997.
BUSINESS RELATIONSHIPS WITH FAMILY MEMBERS OF DIRECTORS AND EXECUTIVE OFFICERS
Since January 1998, Laurie K. Farros has served as a consultant to us on
matters involving human resources and recruiting of personnel. Ms. Farros is the
wife of Royal P. Farros, a co-founder and our president, chief executive officer
and chairman of the board of directors, and the sister-in-law of Nickoletta
Swank, our vice president, strategic relationships. Ms. Laurie K. Farros'
current six-month contract as an independent contractor became effective
September 1, 1999 and stipulates monthly compensation of $8,667. In February
1999, we granted Ms. Laurie K. Farros an immediately exercisable option to
purchase 50,000 shares of our common stock at an exercise price of $0.088 per
share. As of September 30, 1999, Ms. Farros had not exercised this option.
Since August 1996, David L. Swank III has served as one of four members of
our board of advisors. Mr. Swank is the husband of Nickoletta Swank and the
brother-in-law of Royal P. Farros. In
50
<PAGE>
May 1998, Mr. Swank was granted an immediately exercisable option to purchase
5,000 shares of our common stock at an exercise price of $0.088 per share.
Mr. Swank exercised this option in June 1999.
Since September 1998, Peter Roizen has served as an independent contractor
for us as a computer software programmer. Mr. Roizen is the brother of Ms. J.A.
Heidi Roizen, a member of our board of directors and a managing director of SBVC
V, LLC, a general partner of Softbank Technology Ventures V, L.P., which has
beneficial ownership of % of our stock after this offering. In April 1999,
Mr. Roizen was granted an immediately exercisable option to purchase 10,000
shares of our common stock at an exercise price of $0.21 per share. As of
September 30, 1999, Mr. Roizen had not exercised this option.
All of the transactions described above were approved by disinterested
directors of the board of directors. As a result, we believe those transactions
were made on terms no less favorable to us that could have been obtained from
unaffiliated third parties. We intend that all future transactions and loans
between us and our officers, directors and principal stockholders and their
affiliates, will be approved by a majority of the board of directors. In
addition, we intend that all of these future transactions will take place on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our
directors and officers. These agreements will require us to indemnify these
individuals to the fullest extent permitted by the Delaware General Corporation
Law. See "Management--Limitations of Liability and Indemnification Matters."
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information concerning the beneficial ownership
of the shares of our common stock as of September 30, 1999, and pro forma as
adjusted to reflect the sale of shares of common stock in this offering assuming
(a) shares of common stock outstanding as of and
shares outstanding immediately following the completion of this offering, (b)
conversion of all of iPrint.com's outstanding shares of convertible preferred
stock into common stock and (c) no exercise of the underwriters' over-allotment
option by:
- each person we know to be the beneficial owner of 5% of more of the
outstanding shares of common stock;
- each of our executive officers listed on the Summary Compensation Table
above under "Management";
- each of our directors; and
- all executive officers and directors of iPrint.com as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power over
securities. Except in cases where community property laws apply or as indicated
in the footnotes to this table, we believe that each stockholder identified in
the table possesses sole voting and investment power over all shares of common
stock shown as beneficially owned by the stockholder. Shares of common stock
subject to options that are currently exercisable or exercisable within 60 days
of September 30, 1999 are considered outstanding and beneficially owned by the
person holding the options for the purpose of computing the percentage ownership
of that person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person. Unless indicated below, the
address of each individual listed below is 1450 Oddstad Drive, Redwood City, CA
94063.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING
SHARES ----------------------
BENEFICIALLY PRO FORMA
NAME AND ADDRESS OWNED ACTUAL AS ADJUSTED
- ---------------- ------------ -------- -----------
<S> <C> <C> <C>
OTHER 5% STOCKHOLDERS
Entities affiliated with Information Technology Ventures 4,814,732 % %
(1).......................................................
3000 Sand Hill Road, Bldg. 1, Ste. 280
Menlo Park, CA 94025
Entities affiliated with Canaan Equity (2).................. 3,215,161
2884 Sand Hill Road, Ste. 115
Menlo Park, CA 94025
Entities affiliated with Softbank Technology Ventures (3)... 2,405,952
2000 West Evelyn Avenue, Ste. 200
Mountain View, CA 94043
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING
SHARES ----------------------
BENEFICIALLY PRO FORMA
NAME AND ADDRESS OWNED ACTUAL AS ADJUSTED
- ---------------- ------------ -------- -----------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Royal P. Farros (4)......................................... 8,702,591
David L. Hodson (5)......................................... 275,000
Mark Dubovoy (1)............................................ 4,814,732
c/o Information Technology Ventures
3000 Sand Hill Road, Bldg. 1, Ste. 280
Menlo Park, CA 94025
Deepak Kamra (2)............................................ 3,215,161
c/o Canaan Equity Partners
2884 Sand Hill Road, Ste. 115
Menlo Park, CA 94025
J.A. Heidi Roizen (3)....................................... 2,405,952
c/o Softbank Technology Ventures
2000 West Evelyn Avenue, Ste. 200
Mountain View, CA 94043
All executive officers and directors as a group (9 persons)
(6).......................................................
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes:
(a) 4,689,675 shares held by Information Technology Ventures, L.P.; and
(b) 125,057 shares held by ITV Affiliates Fund, L.P.
The general partner of both Information Technology Ventures, L.P. and ITV
Affiliates Fund, L.P. is ITV Management, LLC. In this capacity, ITV
Management, LLC, through an executive committee, exercises sole voting and
investment power with respect to all shares held of record by the named
investment partnerships; individually, no stockholder, director or officer
of ITV Management, LLC has or shares such voting or investment power.
Mr. Dubovoy disclaims beneficial ownership of all shares except for his own
pecuniary interest.
(2) Includes:
(a) 3,188,589 shares held by Canaan Equity, L.P.; and
(b) 26,572 shares held by Deepak Kamra.
The general partner of Canaan Equity, L.P. is Canaan Equity Partners, LLC.
In this capacity, Canaan Equity Partners, LLC, through an executive
committee, exercises sole voting and investment power with respect to all
shares of record by the named investment partnerships; individually, no
stockholder, director or officer of Canaan Equity Partners, LLC has or
shares such voting or investment power. Mr. Kamra disclaims beneficial
ownership for all shares except for his pecuniary interest and for the
26,572 shares which he owns in his individual capacity.
(3) Includes:
(a) 2,380,952 shares held by Softbank Technology Ventures V, L.P.; and
(b) 25,000 shares held by J.A. Heidi Roizen and David G. Mohler M.D.
The general partner of Softbank Technology Ventures V, L.P. is SBVC V, LLC.
In this capacity, SBVC V, LLC, through an executive committee, exercises
sole voting and investment power with
53
<PAGE>
respect to all shares of record by the named investment partnerships;
individually, no stockholder, director or officer of SBVC V, LLC has or
shares such voting or investment power. Ms. Roizen and Mr. Mohler disclaim
beneficial ownership for all shares except for their pecuniary interest.
(4) Includes:
(a) 958,594 shares of series A preferred stock, 485,497 shares of series B
preferred stock and 6,998,500 shares of common stock;
(b) immediately exercisable options to purchase 210,000 shares of common
stock, none of which have been exercised as of September 30, 1999. All of
the shares are subject to a right of repurchase in favor of iPrint.com
which lapses as to one-quarter of the shares after one year of vesting
and thereafter ratably on a monthly basis for thirty-six months; and
(c) immediately exercisable options to purchase 50,000 shares of common
stock held by Laurie K. Farros, none of which has been exercised. All of
the shares are subject to a right of repurchase in favor of iPrint.com
which lapses as to one quarter of the shares after one year of vesting
and thereafter ratably on a monthly basis for thirty-six months.
(5) Includes immediately exercisable options to purchase 275,000 shares of
common stock, none of which has been exercised as of November 1, 1999. All
of the shares are subject to a right of repurchase in favor of iPrint.com
which lapses as to one quarter of the shares after one year of vesting and
thereafter ratably on a monthly basis for thirty-six months.
(6) Includes an aggregate of:
(a) shares of series A preferred stock, shares of series B preferred
stock, shares of series C preferred stock and shares of common
stock; and
(b) immediately exercisable options to purchase shares of common stock,
of which have been exercised as of September 30, 1999. All of the
shares are subject to a right of repurchase in favor of iPrint.com which
lapses as to one-quarter of the shares after one year of vesting and
thereafter ratably on a monthly basis for thirty-six months.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, iPrint.com's authorized capital stock
will consist of 100,000,000 shares of common stock, $0.001 par value per share,
and 2,000,000 shares of preferred stock, $0.001 par value per share. As of
September 30, 1999, and assuming the conversion of each share of outstanding
preferred stock, there were shares of common stock outstanding.
COMMON STOCK
DIVIDEND RIGHTS. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board of directors may from time to time
determine.
VOTING RIGHTS. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
NO PREEMPTIVE OR SIMILAR RIGHTS. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
RIGHT TO RECEIVE LIQUIDATION DISTRIBUTIONS. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to our
stockholders are distributable ratably among the holders of our common stock and
any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred stock
outstanding will be converted into one share of common stock. See note 9 to our
financial statements for a description of the preferred stock.
Following the offering, we will be authorized, subject to the limits imposed
by the Delaware General Corporation Law, to issue preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each series, to fix the rights, preferences and privileges of the shares of each
wholly unissued series and any of its qualifications, limitations, restrictions.
Our board of directors can also increase or decrease the number of shares of any
series, but not below the number of shares of that series then outstanding,
without any further vote or action by the stockholders.
Our board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of our common stock. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of iPrint.com and may cause the market price of
our common stock to decline or impair the voting and other rights of the holders
of our common stock. We have no current plans to issue any shares of preferred
stock.
WARRANTS
As of September 30, 1999, warrants to purchase 70,500 shares of common stock
are outstanding. We have issued:
55
<PAGE>
- a warrant to purchase 62,500 shares of common stock at a price per share
of $0.80 which expire in March 2003; and
- a warrant to purchase 8,000 shares of common stock at a price per share of
$1.25 which expire in May 2003.
REGISTRATION RIGHTS
The holders of approximately 16,070,581 shares of preferred stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
DEMAND REGISTRATION RIGHTS
- At any time after October 15, 2002, stockholders with registration rights
can request that we file a registration statement so that they can
publicly sell their shares. The underwriters of any underwritten offering
will have the right to limit the number of shares to be included in the
filed registration statement.
- At any time six months after the closing of this offering the holders of
at least 40% of the shares having registration rights have the right to
demand that we file a registration statement on a form other than Form
S-3, as long as the aggregate amount of securities to be sold under the
registration statement exceeds $5 million.
- If we are eligible to file a registration statement on Form S-3, any
holder having registration rights has the right to demand that we file a
registration statement on Form S-3, as long as the amount of securities to
be sold under the registration statement exceeds $1 million.
PIGGYBACK REGISTRATION RIGHTS
If we register any securities for public sale, stockholders with
registration rights will have the right to include their shares in the
registration statement. The underwriters of any underwritten offering will have
the right to limit the number of shares to be included in the registration
statement.
EXPENSES OF REGISTRATION
We will pay all expenses relating to any demand or piggyback registration.
However, we will not pay for the expenses of any demand registration if the
request is subsequently withdrawn by the holders of a majority of the shares
having registration rights, subject to very limited exceptions.
EXPIRATION OF REGISTRATION RIGHTS
The registration rights described above will expire six years after this
offering is completed. The registration rights will terminate earlier for a
particular stockholder if that holder can resell all of its securities in a
three-month period under Rule 144 of the Securities Act and we are subject to
the reporting requirements of the Securities Exchange Act of 1934.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
The provisions of the Delaware General Corporation Law, our certificate of
incorporation and our bylaws described below may have the effect of delaying,
deferring or discouraging another person from acquiring control of us.
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents Delaware
corporations from engaging, under
56
<PAGE>
limited circumstances, in a business combination, which includes a merger or
sale of more than 10% of the corporation's assets, with any interested
stockholder, which is a stockholder who owns 15% or more of the corporation's
outstanding voting stock, as well as affiliates and associates of stockholders,
for three years following the date that the stockholder became an interested
stockholder unless:
- the transaction is approved by the board before the date the interested
stockholder attained that status;
- upon the closing 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; or
- on or after the date the business combination is approved by the board and
authorized at an annual or special meeting of stockholders by at least
two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. This provision of the Delaware
General Corporation Law could prohibit or delay merger or other takeover or
change-in-control attempts and may discourage attempts to acquire us.
CHARTER AND BYLAWS
CHARTER
Upon the closing of this offering, our certificate of incorporation will
provide that all stockholder actions must be effected at a duly-called annual or
special meeting and not by a consent in writing. Our certificate of
incorporation will also require the approval of our board of directors to adopt,
amend or repeal our bylaws. In addition, our certificate of incorporation will
permit the stockholders to adopt, amend or repeal our bylaws only upon the
affirmative vote of the holders of at least two-thirds of the voting power of
all then outstanding shares of stock entitled to vote.
Effective upon the closing of this offering, our certificate of
incorporation and bylaws will provide for a board of directors that is divided
into three classes. Directors will be removable for cause only by stockholders
holding a majority of the then outstanding shares of stock entitled to vote.
Vacancies on the board of directors resulting from death, resignation, removal
or other reason may be filled by a majority of the directors then in office,
even if less than a quorum. Vacancies from newly created directorships must be
filled by a majority of the directors then in office. Lastly, the provisions in
the certificate of incorporation described above and other provisions pertaining
to the limitation of liability and indemnification of directors will be able to
be amended or repealed only with the affirmative vote of the holders of at least
two-thirds of the voting power of all then outstanding shares of stock entitled
to vote.
These provisions may have the effect of deterring hostile takeovers or
delaying changes in the control or management of iPrint.com, which could have an
adverse effect on the market price of our common stock.
BYLAWS
Upon the closing of this offering, our bylaws will also contain many of the
provisions in our certificate of incorporation described above. Our bylaws will
not permit stockholders to call a special meeting. In addition, our bylaws will
establish an advance notice procedure for matters to be brought before an annual
or special meeting of our stockholders, including the election of directors.
Business
57
<PAGE>
permitted to be conducted at any annual meeting or special meeting of
stockholder will be limited to business properly brought before the meeting.
Our bylaws will also provide that we will indemnify officers and directors
against losses that they may incur in investigations and legal proceedings
resulting from their services to us, which may include services in connection
with takeover defense measures. These provisions may have the effect of
preventing changes in our management.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
our certificate of incorporation and bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. We intend to enter into separate indemnification agreements
with our directors and executive officers that provide them indemnification
protection if our certificate of incorporation is subsequently amended.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is
. The address of our transfer agent and registrar is
, and its telephone number at this
location is .
LISTING
We have applied to list our common stock on the Nasdaq National Market under
the trading name IPRT.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock, including shares
issued upon exercise outstanding options and warrants, in the public markets
after this offering could adversely affect market prices prevailing from time to
time. Furthermore, as described below, no shares currently outstanding will be
available for sale immediately after this offering due to contractual and legal
restrictions on resale. Nevertheless, future sales of substantial amounts of our
common stock in the public market after the restrictions lapse, or the
possibility of these sales, could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock, assuming the conversion of all outstanding preferred stock and
based on common stock outstanding as of September 30, 1999, and assuming no
exercise of the underwriters' over-allotment option or exercise of outstanding
options and warrants to purchase common stock. As of September 30, 1999, there
were options to purchase 1,146,099 shares of common stock and warrants to
purchase 70,500 shares of common stock outstanding. Of these shares, the shares
to be sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
by affiliates of iPrint.com, defined as persons who directly or indirectly
control or are controlled by or are under common control with iPrint.com.
The remaining 24,072,398 shares held by our existing stockholders were
issued and sold by iPrint.com in private transactions. These securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 under the Securities Act, which are
summarized below. Sales of these restricted securities in the public market, or
the availability of these shares for sale, could adversely affect the trading
price of iPrint.com's common stock. They are eligible for public sale as
follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
DATE SHARES THAT MAY BE SOLD COMMENT
- ---- ------------------------ -------
<S> <C> <C>
Date of this prospectus -- --
181 days after the date 18,118,908 A substantial number of these shares will be
of this prospectus subject to volume limitations and restrictions
under Rule 144 because they will have been
held for over one year but less than two years
or they are held by some of our officers and
directors.
September 30, 2000 5,953,490 These shares will be subject to volume
limitations and restrictions of Rule 144 at
the expiration of a one year holding period,
which will occur on September 30, 2000.
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our security
holders have signed lock-up agreements under which they agreed not to sell,
dispose of, loan, pledge or grant any rights to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Credit Suisse First Boston Corporation may choose to release some of these
shares from these restrictions before the expiration of this 180-day period
without notice.
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<PAGE>
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of 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 for the 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.
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, shares that have been held by a non-affiliate for at least two years
may be sold in the open market immediately after the lock-up agreements expire.
RULE 701
Any employee, officer of director of, or consultant to, us who purchased his
shares under a written compensatory plan or contract may be entitled to sell his
shares in reliance on Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. However, all shares issued under
Rule 701 are subject to lock-up agreements and will only become eligible for
sale when the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of common
stock, or their transferees, will have the right, exercisable under specific
circumstances, to register those shares under the Securities Act. If these
shares are registered, they will be freely tradable without restriction under
the Securities Act.
STOCK OPTIONS
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register approximately shares of common stock issued
under our stock option and employee stock purchase plans. These registration
statements are expected to be filed soon after the date of this prospectus and
will automatically become effective upon filing. Shares registered under these
registration statements will be available for sale in the open market, unless
the shares are subject to vesting restrictions with iPrint.com or the lock-up
restrictions above. Substantially all shares issuable upon the exercise of
options to purchase our shares are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as representatives,
the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
BancBoston Robertson Stephens Inc...........................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total...................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without Without Without Without
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid by us.............. $ $ $ $
Expenses payable by us.................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
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<PAGE>
We and substantially all of our other security holders have agreed that we
and they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 relating to, any
additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any such offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, subject to limited
exceptions. Credit Suisse First Boston Corporation may waive the lock-up
restrictions at its sole discretion at any time without notice.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market.
Bayview Investors, LTD, an affiliate of BancBoston Robertson Stephens Inc.,
owns 156,905 shares of our preferred stock.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
- the information included in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
62
<PAGE>
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
- In "passive" market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions, passive market
making transactions and penalty bids may cause the price of the common stock to
be higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on The Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
63
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Release
Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgement against the issuer or such person in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
64
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Various legal
matters relating to the offering will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California. As of
September 30, 1999, an investment partnership and a partner at Gray Cary Ware &
Freidenrich LLP owned an aggregate of 73,404 shares of our common stock.
EXPERTS
The audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this
offering. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us and our capital
stock. The rules and regulations of the SEC allow us to omit various information
included in the registration statement from this document.
In addition, upon completion of this offering, we will become subject to the
reporting and information requirements of the Exchange Act and, as a result,
will file periodic reports, proxy statements and other information with the SEC.
You may read and copy this information at the following public reference rooms
of the SEC:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, DC 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth Street, N.W. Room 1024, Washington, DC
20549, at prescribed rates. You may obtain information on the operation of the
public reference rooms by calling the SEC at 1-(800) SEC-0330.
The SEC also maintains an internet website that contains reports, proxy
statements and other information about issuers, like iPrint.com, who file
electronically with the SEC. The address of that website is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
financial statements, and make available to our stockholders quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
65
<PAGE>
IPRINT.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999........................................ F-3
Statements of Operations for the years ended December 31,
1996, 1997, and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999................... F-4
Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1997, and 1998 and the nine months
ended September 30, 1999.................................. F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
After the reincorporation discussed in Note 11 to iPrint.com, inc.'s financial
statements, we expect to be in a position to render the following audit report:
ARTHUR ANDERSEN LLP
San Jose, California
November 17, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of iPrint.com, inc.:
We have audited the accompanying balance sheets of iPrint.com,inc. (a Delaware
corporation) as of December 31, 1997 and 1998, and September 30, 1999, and the
related statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1998 and the nine months ended September 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of iPrint.com,inc. as of
December 31, 1997 and 1998, and September 30, 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 and the nine months ended September 30, 1999 in conformity
with generally accepted accounting principles.
San Jose, California
November 17, 1999
F-2
<PAGE>
IPRINT.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998 AND SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
1999
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------- SEPTEMBER 30, EQUITY
1997 1998 1999 (NOTE 10)
-------- -------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,322 $ 299 $ 14,007
Receivable from redeemable convertible preferred stock.... -- -- 8,000
Accounts receivable....................................... -- 18 107
Prepaid expenses and other................................ 1 32 329
------- ------- --------
Total current assets.................................. 2,323 349 22,443
------- ------- --------
PROPERTY AND EQUIPMENT, net................................. 73 565 1,374
------- ------- --------
$ 2,396 $ 914 $ 23,817
======= ======= ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Borrowings under line of credit........................... $ -- $ 218 $ 284
Software licensing........................................ -- 211 118
Accounts payable.......................................... 30 143 1,035
Accrued liabilities....................................... 27 274 839
------- ------- --------
Total current liabilities............................. 57 846 2,276
------- ------- --------
LONG-TERM DEBT, net of current portion...................... -- -- 156
------- ------- --------
COMMITMENTS (NOTE 6)
REDEEMABLE CONVERTIBLE PREFERRED STOCK, no par value
Authorized -- 32,806,164 shares
Outstanding -- 4,083,594 shares at December 31, 1997 and
1998, 16,070,581 shares at September 30, 1999 and none
pro forma; aggregate liquidation preference at
September 30, 1999 of $30,812......................... 3,331 3,723 30,775 $ --
Value ascribed to redeemable convertible preferred stock
warrants................................................ -- -- 35 --
------- ------- -------- --------
Total redeemable convertible preferred stock.......... 3,331 3,723 30,810 --
------- ------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value
Authorized -- 30,000,000 shares
Outstanding -- 7,006,000 shares at December 31, 1997,
7,010,375 share at December 31, 1998, 8,001,817 shares
at September 30, 1999 and 24,072,398 shares pro forma
at September 30, 1999................................. 20 20 1,463 32,238
Value ascribed to common stock warrants................... -- -- -- 35
Deferred stock compensation............................... -- -- (1,018) (1,018)
Accumulated deficit......................................... (1,012) (3,675) (9,870) (9,870)
------- ------- -------- --------
Total stockholders' equity (deficit).................. (992) (3,655) (9,425) $ 21,385
------- ------- -------- ========
$ 2,396 $ 914 $ 23,817
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
IPRINT.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........................................ $ -- $ 168 $ 566 $ 306 $ 1,759
COST OF SALES................................... -- 85 331 172 1,205
------ ------ ------- ------- -------
GROSS PROFIT.................................... -- 83 235 134 554
------ ------ ------- ------- -------
OPERATING EXPENSES:
Research and development...................... 171 351 901 521 2,204
Sales and marketing........................... -- 181 970 629 3,636
General and administrative.................... 64 249 710 407 1,199
Amortization of deferred compensation......... -- -- -- -- 309
------ ------ ------- ------- -------
Total operating expenses.................... 235 781 2,581 1,557 7,348
------ ------ ------- ------- -------
LOSS FROM OPERATIONS............................ (235) (698) (2,346) (1,423) (6,794)
OTHER INCOME (EXPENSE), net..................... -- (1) 75 56 129
------ ------ ------- ------- -------
NET LOSS........................................ $ (235) $ (699) $(2,271) $(1,367) $(6,665)
====== ====== ======= ======= =======
Basic and diluted net loss per share............ $(0.15) $(0.11) $ (0.38) $ (0.24) $ (0.86)
====== ====== ======= ======= =======
Shares used to compute basic and diluted net
loss per share................................ 1,573 7,001 7,007 7,006 7,169
====== ====== ======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.24) $ (0.38)
======= =======
Shares used to compute pro forma basic and
diluted net loss per share (unaudited)........ 11,090 16,092
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
IPRINT.COM, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK DEFERRED TOTAL
--------------------- -------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
---------- -------- --------- -------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996......... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock in
exchange for cash at $.0029
per share to sole
stockholder.................. -- -- 7,000,000 20 -- -- 20
Net loss....................... -- -- -- -- -- (235) (235)
---------- ------- --------- ------ ------------ ----------- ----------------
BALANCE, DECEMBER 31, 1996....... -- -- 7,000,000 20 (235) (215)
Issuance of Series A redeemable
convertible preferred stock
at $.80 per share, net of
issuance cost of $14......... 3,279,174 2,609 -- -- -- -- --
Conversion of notes payable and
accrued interest due primary
stockholder to Series A
redeemable convertible
preferred stock at $.80 per
share........................ 804,420 644 -- -- -- -- --
Accretion of redeemable
convertible preferred
stock........................ -- 78 -- -- -- (78) (78)
Exercise of stock options to
purchase common stock at $.01
per sahre.................... -- -- 6,000 -- -- -- --
Net loss....................... -- -- -- -- -- (699) (699)
---------- ------- --------- ------ ------------ ----------- ----------------
BALANCE, DECEMBER 31, 1997....... 4,083,594 3,331 7,006,000 20 -- (1,012) (992)
Accretion of redeemable
convertible preferred
stock........................ -- 392 -- -- -- (392) (392)
Exercise of stock options at
$.01 per share............... -- -- 4,375 -- -- -- --
Net loss....................... -- -- -- -- -- (2,271) (2,271)
---------- ------- --------- ------ ------------ ----------- ----------------
BALANCE, DECEMBER 31, 1998....... 4,083,594 3,723 7,010,375 20 -- (3,675) (3,655)
Issuance of Series B redeemable
convertible preferred stock
at $1.25 per share, net of
issuance costs of $10........ 6,033,497 7,532 -- -- -- -- --
Forgiveness of accretion of
preferred stock.............. -- (470) -- -- -- 470 470
Issuance of Series C redeemable
convertible preferred stock
at $3.36 per share, net of
issuance costs of $13........ 5,953,490 19,990 -- -- -- -- --
Exercise of stock options to
purchase common stock at $.01
- $.84 per share............. -- -- 991,442 116 -- -- 116
Deferred stock compensation
related to stock options..... -- -- -- 1,327 (1,327) -- --
Amortization of deferred stock
compensation................. -- -- -- -- 309 -- 309
Issuance of warrants to
purchase redeemable
convertible preferred
stock........................ -- 35 -- -- -- -- --
Net loss....................... -- -- -- -- -- (6,665) (6,665)
---------- ------- --------- ------ ------------ ----------- ----------------
BALANCE, SEPTEMBER 30, 1999...... 16,070,581 $30,810 8,001,817 $1,463 $ (1,018) $ (9,870) $ (9,425)
========== ======= ========= ====== ============ =========== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
IPRINT.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(235) $ (699) $(2,271) $(1,367) $(6,665)
Adjustments to reconcile net loss to net cash used in
operating activities:
Interest expense converted to redeemable convertible
preferred stock................................... -- 25 -- -- --
Depreciation and amortization....................... 2 13 43 22 123
Amortization of deferred stock compensation......... -- -- -- -- 309
Maintenance and training expense related to software
licensing......................................... -- -- -- -- 62
Interest and marketing expense related to issuance
of warrants....................................... -- -- -- -- 35
Changes in net assets and liabilities:
Accounts receivable............................... -- (1) (18) (11) (89)
Prepaid expenses and other........................ (1) -- (30) (6) (297)
Accounts payable.................................. 6 28 113 99 892
Accrued liabilities............................... 3 24 211 13 603
Deferred compensation............................. 73 (73) -- -- --
----- ------ ------- ------- -------
Net cash used in operating activities........... (152) (683) (1,952) (1,250) (5,027)
----- ------ ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (30) (59) (289) (172) (918)
----- ------ ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit......... -- -- 218 -- 234
Repayment of line of credit........................... -- -- -- -- (35)
Repayment of financing arrangement.................... -- -- -- -- (184)
Proceeds from note payable issued to stockholder...... 164 453 -- -- --
Proceeds from issuance of common stock................ -- -- -- -- 116
Proceeds from issuance of common stock under
restricted stock purchase plan...................... 20 -- -- -- --
Proceeds from issuance of redeemable convertible
preferred stock, net of issuance costs.............. -- 2,609 -- -- 19,522
----- ------ ------- ------- -------
Net cash provided by financing activities....... 184 3,062 218 -- 19,653
----- ------ ------- ------- -------
Net increase (decrease) in cash................. 2 2,320 (2,023) (1,422) 13,708
CASH AND CASH EQUIVALENTS, beginning of period.......... -- 2 2,322 2,322 299
===== ====== ======= ======= =======
CASH AND CASH EQUIVALENTS, end of period................ $ 2 $2,322 $ 299 $ 900 $14,007
===== ====== ======= ======= =======
NON-CASH FINANCING ACTIVITIES:
Software acquired through a financing arrangement..... $ -- $ -- $ 220 $ 220 $ 169
Receivable from redeemable convertible preferred
stock............................................... $ -- $ -- $ -- $ -- $ 8,000
Conversion of notes payable and accrued interest due
primary stockholder to redeemable convertible
preferred stock..................................... $ -- $ 644 $ -- $ -- $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Accretion of redeemable convertible preferred
stock............................................. $ -- $ 78 $ 392 $ 293 $ --
Forgiveness of accretion of redeemable convertible
preferred stock................................... $ -- $ -- $ -- $ -- $ 470
Cash paid for interest.............................. $ -- $ -- $ -- $ -- $ 29
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
IPRINT.COM, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(ALL INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
1. THE COMPANY:
iPrint.com, inc. (the "Company") was established in January 1996 as a sole
proprietorship. In August 1996, the Company was incorporated as a Subchapter S
Corporation. In October 1997, the Company changed to C corporation status. The
Company provides online print services for small businesses and consumers. Its
online print shop offers customers a one-stop shop for addressing their printing
needs, allowing them to easily design and order customized, short-run printed
products. The Company also works with a variety of online organizations, large
commercial printers and office supply chains to deliver co-labeled and
private-labeled online printing solutions.
During 1997, the Company commenced shipments of its products. The Company is
subject to a number of risks including a lack of profitability and an evolving
business model, the need to attract repeat paying customers, competition from
larger, more established companies, enhancements to and scalability of the
iPrint.com and related websites, volatility of the printing industry, rapid
technological change, ability to scale operations to support large numbers of
customers, dependence on outside commercial print vendors and delivery services,
ability to obtain adequate funding to support growth, dependence on key
employees and the ability to attract and retain additional qualified personnel
to manage the anticipated growth of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL DATA
The unaudited financial statement data as of September 30, 1998 and for the
nine months ended September 30, 1998 have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid cash investments with maturity dates of three months or less to be
cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate fair value due to the relatively short maturity period.
F-7
<PAGE>
The carrying amount of the line of credit approximates its fair value
because it has interest rates that vary with market interest rates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (3 to 5 years) of the
assets. Leasehold improvements are amortized over the shorter of the estimated
useful life or the lease term. Depreciation and amortization expense for the
years ended December 31, 1996, 1997 and 1998 was $2,000, $13,000 and $43,000.
Depreciation and amortization expense was $22,000 and $123,000 for the nine
months ended September 30, 1998 and 1999.
REVENUE RECOGNITION
The Company works with certified commercial print vendors to perform
printing services. Revenues from sales of printed materials are recognized when
all of the following conditions are met: the product has shipped, collection of
the receivable is probable and the Company has fulfilled all of its contractual
obligations to the customer. Sales discounts have been accounted for as
reductions of revenues. Shipping and handling charges billed to customers are
recognized as revenues and the related costs are expensed as cost of sales.
In 1999, the Company entered into advertising barter transactions whereby
the Company's advertisement was placed on a co-labeled partner's website in
exchange for certain of the Company's products offered to customers of the
co-labeled partner. Barter transactions are recorded at the fair value of goods
provided or advertising services received, whichever is more readily
determinable in the circumstances. Revenues from barter transactions for the
nine-month period ended September 30, 1999 amounted to $211,000.
The Company has operated primarily in the United States and all sales to
date have been made in U.S. dollars. Accordingly, the Company has not had any
material exposure to foreign currency rate fluctuations.
SALES AND MARKETING
The Company expenses advertising costs, including the fair value of barter
transactions, and promotional spending, including the costs of promotional
products given away, as incurred. Advertising costs and promotional spending for
the years ended December 31, 1996, 1997 and 1998 were approximately $0, $51,000,
and $392,000, and $159,000 and $1,993,000 for the nine months ended
September 30, 1998 and September 30, 1999.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist
primarily of payroll costs, other direct expenses and overhead. To date, the
Company has expensed all costs of developing its websites because the
realizability of the costs was uncertain.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the disclosure provisions
under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation." In accordance with the provisions of SFAS No.
123, the Company applies Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for stock
options.
F-8
<PAGE>
COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE AND PRO FORMA BASIC AND
DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share on a historical basis is computed using
the weighted average number of shares of common stock outstanding. Potential
common shares from conversion of redeemable convertible preferred stock and
exercise of stock options and warrants are excluded from diluted net loss per
share because they would be antidilutive. The total number of shares excluded
from diluted net loss per share relating to these securities was 4,893,094
shares and 5,455,470 shares for 1997 and 1998, and 5,291,157 shares and
17,287,180 shares for the nine months ended September 30, 1998 and 1999.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
98, convertible preferred stock and common stock issued or granted for nominal
consideration prior to the anticipated effective date of an initial public
offering must be included in the calculation of basic and diluted net loss per
share as if they had been outstanding for all periods presented. To date, the
Company has not had any issuances or grants for nominal consideration.
Pro forma basic and diluted net loss per share is calculated assuming the
conversion of redeemable convertible preferred stock into an equivalent number
of shares of common stock, as if the shares had converted on the dates of their
issuances.
A reconciliation of shares used in the calculation of basic and diluted and
pro forma basic and diluted net loss per share follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss........................................ $ (235) $ (699) $(2,271) $(1,367) $(6,665)
Accretion of redeemable convertible preferred
stock......................................... -- (78) (392) (293) --
Forgiveness of accretion of redeemable
convertible preferred stock (Note 9).......... -- -- -- -- 470
------ ------ ------- ------- -------
Net loss attributable to common stock........... $ (235) $ (777) $(2,663) $(1,660) $(6,195)
====== ====== ======= ======= =======
Weighted average shares of common stock
outstanding................................... 1,573 7,002 7,009 7,009 7,384
Less: weighted average shares of common stock
subject to repurchase......................... -- (1) (2) (3) (215)
------ ------ ------- ------- -------
Weighted average shares used in computing basic
and diluted net loss per share................ 1,573 7,001 7,007 7,006 7,169
====== ====== ======= ======= =======
Basic and diluted net loss per share............ $(0.15) $(0.11) $ (0.38) $ (0.24) $ (0.86)
====== ====== ======= ======= =======
Shares used in computing basic and diluted net
loss per share................................ 7,007 7,169
Adjustment to reflect the effect of the assumed
conversion of redeemable convertible preferred
stock (unaudited)............................. 4,083 8,923
------- -------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........ 11,090 16,092
======= =======
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.24) $ (0.38)
======= =======
</TABLE>
F-9
<PAGE>
COMPREHENSIVE LOSS
Comprehensive income is defined as the changes in equity of an enterprise
except those resulting from stockholder transactions. Comprehensive loss for the
each of the three years ended December 31, 1998 and the nine months ended
September 30, 1999 equaled net loss.
SEGMENT REPORTING
The Company is organized and has operated in one operating segment for all
periods represented, to provide online print services for small businesses and
consumers through its online print shop and to deliver co-labeled and
private-labeled online printing solutions. The Company operates primarily in the
United States.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards, requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133, as recently amended, is effective for
fiscal years beginning after June 30, 2000. Management believes the adoption of
SFAS No. 133 will not have a material effect on the Company's financial position
or results of operations.
In October 1999, the SEC staff asked the Emerging Issue Task Force of the
Financial Accounting Standards Board to address accounting issues related to
eletronic commerce companies. These issues include accounting treatments of
barter transactions, free or heavily discounted products and shipping and
handling costs. The ultimate resolutions to these issues could have a material
effect on the accounting policies in the future.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Furniture and office equipment............................ $ 3 $ 40 $ 110
Computer systems.......................................... 80 487 658
Computer software......................................... 6 38 614
Leasehold improvements.................................... -- 59 174
---- ----- ------
89 624 1,556
Less: Accumulated depreciation............................ (16) (59) (182)
---- ----- ------
$ 73 $ 565 $1,374
==== ===== ======
</TABLE>
4. BORROWING ARRANGEMENTS:
LINE OF CREDIT ARRANGEMENT
The Company has a line of credit arrangement with a bank which provides for
maximum borrowings of $750,000 for working capital and capital improvements,
bearing interest at the prime rate. The bank has a senior security interest in
substantially all of the Company's assets. As of September 30, 1999, $440,000
was outstanding under this agreement. The credit line portion of this
arrangement expired and the Company repaid $200,000 on November 8, 1999 which
was the working capital component of the amount then outstanding. The balance of
$240,000 remains as a term loan, of
F-10
<PAGE>
which $156,000 will be repaid in fiscal years 2001 and 2002 and accordingly, the
amount is classified as a long-term debt on the accompanying financial
statements.
In connection with this arrangement, the Company issued a warrant to
purchase 8,000 shares of the Series B redeemable convertible preferred stock at
$1.25 per share. The warrant was valued at $15,000 and the amount was expensed
as interest expense. The warrant expires on May 8, 2003.
SOFTWARE LICENSE AGREEMENT
In 1998, the Company entered into a financing agreement with a software
company for the licensing of software. The agreement bears interest at an annual
rate of 12% and the principal balance is to be paid in 5 equal quarterly
payments of approximately $60,000. The final payment will be in February 2000.
5. INCOME TAXES:
Until October 16, 1997, the Company was an S Corporation. Effective
October 17, 1997, the Company changed its tax status to a C Corporation in
conjunction with the issuance of Series A redeemable convertible preferred
stock. For an S Corporation, income taxes are generally the responsibility of
the individual stockholders. As a C Corporation, the Company recognizes deferred
income tax assets and liabilities for the expected future income tax benefits
and consequences, based on enacted tax laws, of temporary differences between
the financial reporting and tax basis of assets, liabilities and carryforwards.
The Company has not had any taxable income or related tax liabilities for any
period.
The provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income tax rate of 35% to loss before
income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Federal statutory rate................................. (35)% (35)% (35)% (35)%
State taxes, net of federal benefit.................... (6) (6) (6) (6)
Change in valuation allowance.......................... 41 41 41 41
--- --- --- ---
-- % -- % -- % -- %
=== === === ===
</TABLE>
The components of the net deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Net operating loss carryforwards........................ $ 108 $ 989 $ 3,320
Tax credit carryforwards and cumulative temporary
differences........................................... 9 102 223
----- ------- -------
117 1,091 3,543
Valuation allowance..................................... (117) (1,091) (3,543)
----- ------- -------
Net deferred income tax asset........................... $ -- $ -- $ --
===== ======= =======
</TABLE>
The Company has provided a valuation allowance for the net operating losses,
deferred tax assets and tax credit carryforwards which may expire before the
Company can use them. The Company believes sufficient uncertainty exists
regarding the realizability of these items and accordingly, has provided a
valuation allowance for them.
F-11
<PAGE>
As of September 30, 1999, the Company had $8.8 million of federal and state
net operating loss carryforwards which expire in varying amounts through the
year 2019. Due to uncertainty regarding the ultimate utilization of the net
operating loss carryforwards, the Company has not recorded any benefit for
losses and a valuation allowance has been recorded for the entire amount of the
net deferred tax asset. Under applicable tax regulations, sales of the Company's
stock, including shares sold in this offering, may further restrict its ability
to utilize its net operating loss carryforwards.
6. LEASE COMMITMENTS:
The Company leased certain equipment amounting to $16,000 under a capital
lease agreement, which expires in October 2003 and bears interest at
approximately 11% per annum as of September 30, 1999.
Future minimum payments under all noncancellable operating lease agreements
as of September 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR OPERATING LEASES
- ----------- ----------------
<S> <C>
2000........................................................ $274
2001........................................................ 245
2002........................................................ 122
2003........................................................ 95
----
$736
====
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$7,000, $18,000 and $36,000. Rent expense was $32,000 and $77,000 for the nine
months ended September 30, 1998 and 1999.
7. RELATED PARTY TRANSACTIONS:
During 1997, the Company had various notes payable to the primary
stockholder of the Company. The notes were unsecured and accrued interest at
9.25% to 9.50% per annum. During 1997, the outstanding notes and associated
accrued interest of $27,000, were converted to Series A redeemable convertible
preferred stock at $.80 per share.
8. RETIREMENT PLAN:
The Company maintains a retirement plan under Section 401(k) of the Internal
Revenue Code. Under the retirement plan, participating employees may defer a
portion of their pretax earnings up to the Internal Revenue Service annual
contribution limit. The Company may make contributions to the plan at the
discretion of the Board of Directors. To date, no such contributions have been
made by the Company.
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
DESIGNATED AND OUTSTANDING SHARES OF PREFERRED STOCK
<TABLE>
<CAPTION>
OUTSTANDING
SHARES DESIGNATED SHARES AMOUNT
----------------- ----------- -----------
<S> <C> <C> <C>
Series A redeemable convertible preferred stock..... 8,792,190 4,083,594 $ 3,253,000
Series B redeemable convertible preferred stock..... 12,106,994 6,033,497 7,532,000
Series C redeemable convertible preferred stock..... 11,906,980 5,953,490 19,990,000
---------- -----------
16,070,581 $30,775,000
========== ===========
</TABLE>
F-12
<PAGE>
RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK
- The holders of Series A, B and C redeemable convertible preferred stock
are entitled to receive non-cumulative dividends at the rate of $0.064,
$0.064, $0.0875, $0.0875, $0.2352 and $0.2352 per share per annum, when
and as declared by the Board of Directors, prior to payment of dividends
on common stock. As of September 30, 1999, no dividends have been
declared.
- Series A, B and C redeemable convertible preferred stock have a
liquidation preference of $0.80, $0.80, $1.25, $1.25, $3.36 and $3.36 per
share plus declared but unpaid dividends on each such share.
- Each share of redeemable convertible preferred stock is entitled to a
number of votes equivalent to the number of common shares into which it is
convertible.
- Each share of preferred stock is convertible at the option of the holder
into shares of common stock determined by initial conversion prices and
subject to adjustment based upon various recapitalization events. Each
share of preferred stock will automatically convert into common stock upon
the closing of a public offering resulting in proceeds of not less than
$15 million and a price to the public of at least $5.04 per share. Each
share will also automatically convert into common shares upon written
consent of the holders of not less than 66 2/3% of the then outstanding
shares of outstanding preferred stock, voting on an as-converted basis.
- At any time on or after September 30, 2005, the preferred stock is
redeemable, at the option of the holders of at least a majority of the
then outstanding preferred stock. The redemption price for each share of
preferred stock will be the original issue price as adjusted by various
recapitalization events.
Each holder of Series A redeemable convertible preferred stock was
originally entitled to a 12% per annum accretion amount calculated on the
original issue price of the preferred stock and the accretion amounted to
$470,000 as of February 1999. When Series B redeemable convertible preferred
stock was issued in February 1999, the Company's articles of incorporation were
restated and each holder of Series A redeemable convertible preferred stock
forgave the accretion right. Accordingly, the Company reversed the accretion
amount in 1999.
RECEIVABLE FROM REDEEMABLE CONVERTIBLE PREFERRED STOCKHOLDERS
As of September 30, 1999, the Company had a receivable amounting to
$8,000,000 from Series C redeemable convertible preferred stockholders. The
proceeds were collected on October 6, 1999.
WARRANT ISSUANCE IN EXCHANGE FOR MARKETING COLLABORATION ARRANGEMENT
In 1998, the Company entered into a marketing collaboration agreement with
one of the preferred stockholders in exchange for an issuance of a warrant to
purchase the Series A redeemable convertible preferred stock. The Company issued
a warrant to purchase 62,500 shares of the Company's preferred stock and is not
obligated to issue further warrants. The warrant was valued at $20,000 and the
amount was expensed as marketing expense. The warrant expires on March 16, 2003.
10. COMMON STOCK:
STOCK OPTIONS
In August 1997, the Board of Directors approved the 1997 Stock Option Plan
(the "Plan"). Under the Plan, incentive and nonqualified stock options to
purchase shares of common stock may be granted to employees, directors,
consultants and advisors to the Company. The option price per share shall not be
less than the fair value, as determined by the Board of Directors, for incentive
stock option grants,
F-13
<PAGE>
or not less than 85% of the fair value for nonqualified stock option grants. Any
options granted to a stockholder with more than 10% of the voting power (a "ten
percent owner") shall not have an option price less than 110% of the fair value.
Options become exercisable as determined by the Board of Directors, which is
generally over four years from the date of grant, and generally expire ten years
after the date of grant, or five years for those options granted to a ten
percent owner.
Option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR GRANT NUMBER EXERCISE PRICE
--------- --------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1996......................... -- -- $ --
Authorized....................................... 3,000,000 -- --
Granted.......................................... (915,000) 915,000 $.02
Exercised........................................ -- (6,000) $.01
Cancelled........................................ 99,500 (99,500) $.01
--------- ---------
Balance, December 31, 1997......................... 2,184,500 809,500 $.02
--------- ---------
Granted.......................................... (613,063) 613,063 $.08
Exercised........................................ -- (4,375) $.01
Cancelled........................................ 108,812 (108,812) $.07
--------- ---------
Balance, December 31, 1998......................... 1,680,249 1,309,376 $.04
--------- ---------
Authorized....................................... 649,624 -- --
Granted.......................................... (992,000) 992,000 $.31
Exercised........................................ -- (991,442) $.12
Cancelled........................................ 163,835 (163,835) $.13
--------- ---------
Balance, September 30, 1999........................ 1,501,708 1,146,099 $.20
========= =========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Exercisable at December 31, 1997............................ 270,355 $.01
Exercisable at December 31, 1998............................ 563,745 $.02
Exercisable at September 30, 1999........................... 431,606 $.02
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at September 30, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------------- --------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$0.01-$0.011 410,000 5.33 $0.011 348,333 $0.011
$0.08-$0.088 294,799 8.20 $0.081 83,273 $0.082
$0.21-$0.231 233,800 9.48 $0.210 -- --
$ 0.61-$0.84 207,500 9.83 $0.705 -- --
--------- -------
$ 0.01-$0.84 1,146,099 7.73 $0.195 431,606 $0.020
========= =======
</TABLE>
F-14
<PAGE>
The Company accounts for the Plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation expense for the Plan been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and basic and diluted net loss per share
would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Net loss (in thousands):
As reported.................................. $ (235) $ (669) $(2,271) $(6,665)
Pro forma.................................... $ (235) $ (700) $(2,276) $(6,694)
Basic and diluted net loss per share:
As reported.................................. $(0.15) $(0.11) $ (0.38) $ (0.86)
Pro forma.................................... $(0.15) $(0.11) $ (0.38) $ (0.87)
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and
1998 and the nine months ended September 30, 1999 was $.01, $.18 and $1.47 per
share. The fair value of each stock option grant in 1997 and 1998 and the nine
months ended September 30, 1999 was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Volatility......................... 0.01% 0.01% 0.01%
Risk-free interest rate............ 5.85% to 6.27% 4.30% to 5.67% 4.49% to 6.13%
Dividend yield..................... 0% 0% 0%
Expected lives..................... 6 years 6 years 6 years
</TABLE>
The Plan allows for the issuance of options which are immediately
exercisable through execution of a restricted stock purchase agreement. Shares
purchased pursuant to a restricted stock purchase agreement generally vest over
four years. The Company may repurchase unvested shares at a price equal to the
original issuance price upon termination of the employee. This right expires
generally over four years. As of December 31, 1997 and 1998 and September 30,
1999, 4,708, 2,864 and 612,522 shares of common stock issued and outstanding
were unvested and subject to repurchase by the Company at $.01, $.01 and $.01 to
$.84 per share.
DEFERRED STOCK COMPENSATION
Deferred compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the estimated
fair value of the underlying stock. Deferred stock-based compensation is
amortized over the vesting period of the underlying options based on an
accelerated vesting method, generally four years. Through September 30, 1999,
the Company had recorded unearned stock-based compensation of $1.3 million. For
the nine months ended September 30, 1999, the Company recorded stock-based
compensation of $309,000.
The total unearned stock-based compensation recorded for all option grants
through September 30, 1999 will be amortized as follows: $172,000 for the
remainder of the year ending December 31, 1999, $460,000 for the year ending
December 31, 2000, $244,000 for the year ending December 31, 2001, $116,000 for
the year ending December 31, 2002 and $26,000 for the year ending December 31,
2003. The amount of deferred stock compensation expense to be recorded in future
periods could decrease if options for which accrued but unvested compensation
has been recorded are forfeited.
F-15
<PAGE>
RESERVED FOR FUTURE ISSUANCE
At September 30, 1999, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A redeemable convertible preferred
stock outstanding......................................... 4,083,594
Conversion of Series B redeemable convertible preferred
stock outstanding......................................... 6,033,497
Conversion of Series C redeemable convertible preferred
stock outstanding......................................... 5,953,490
Conversion of preferred stock warrants outstanding.......... 70,500
Stock options outstanding and available for grant........... 2,647,807
----------
Total shares reserved....................................... 18,788,888
==========
</TABLE>
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
The board of directors has authorized the filing of a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed initial public offering ("IPO"). If the IPO
is consummated under the terms presently anticipated, all of the outstanding
redeemable convertible preferred stock at September 30, 1999 will be converted
into 16,070,581 shares of common stock upon the closing of the IPO. The effect
of the conversion has been reflected as unaudited pro forma stockholders' equity
in the accompanying balance sheet as of September 30, 1999.
11. SUBSEQUENT EVENTS
In October 1999, the Company granted an immediately exercisable option to
purchase 290,000 shares of common stock at an exercise price of $2.26 to an
officer. The Company also issued to the same officer a promissory note in an
aggregate principal amount of $655,400 in connection with the exercise of stock
options. The note bears interest at 5.96% per annum and is due in October 2003.
The Company has the right to repurchase these shares at cost upon termination of
the officer's employment. This right expires over four years.
In November 1999, the Board of Directors approved reincorporation into
Delaware by way of a merger with a newly formed Delaware subsidiary, and the
associated issuance of one share of common stock of the subsidiary for each one
share of common stock of the Company held by the stockholders of record.
Additionally, stockholders of record of redeemable convertible preferred stock
of the Company will exchange each of their shares for one share of redeemable
convertible preferred stock of the subsidiary.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[IPRINT.COM LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the common stock being registered. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $13,200
NASD filing fee............................................. 5,500
Nasdaq National Market application fee......................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Director and officer liability insurance....................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
-------
Total $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements (Exhibit
10.1) with its directors and officers which would require the Registrant, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from willful
misconduct of a culpable nature). The Registrant also intends to maintain
director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since our inception, iPrint.com has issued and sold the following
unregistered securities:
1. From inception through September 30, 1999, iPrint.com granted
options to purchase an aggregate of shares of common stock under
its 1997 stock option plan, of which have been exercised at prices
ranging from $0.01 to $0.84.
2. In October 1996, iPrint.com sold 7,000,000 shares of common stock to
Royal P. Farros at a purchase price of $0.0029 per share for a total
purchase price of $20,300.
II-1
<PAGE>
3. In October 1997, iPrint.com sold 4,083,594 shares of series A
preferred stock to certain investors at a purchase price of $0.80 per share
for a total purchase price of $3,266,875.20.
4. In March 1998, iPrint.com issued a warrant, which expires in
March 2003, to purchase 62,500 shares of preferred stock at a price per
share of $0.80 for a total purchase price of $50,000.
5. In May 1998, iPrint.com issued a warrant, which expires in
May 2003, to purchase 8,000 shares of preferred stock at a price per share
of $1.25 for a total purchase price of $10,000.
6. In February 1999, iPrint.com sold 6,033,497 shares of series B
preferred stock to certain investors at a purchase price of $1.25 per share,
for a total purchase price of $7,541,871.25.
7. In September 1999, iPrint.com sold 5,953,490 shares of its series C
preferred stock to certain investors at a purchase price of $3.36 per share,
for a total purchase price of $20,003,726.40.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
For additional information concerning these equity investment transactions,
see the section entitled "Related Party Transactions" in the prospectus.
The issuances described in Items 15(a)(2) through 15(a)(7) were deemed
exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act as transactions by an issuer not involving a public
offering. Certain issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) or Rule 701
promulgated thereunder as transactions pursuant to compensatory benefit plans
and contracts relating to compensation. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about iPrint.com or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of
Registrant.
*3.2 Bylaws of Registrant.
*3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering.
4.1 Second Amended and Restated Rights Agreement dated
September 30, 1999 between Registrant and certain
stockholders.
*4.2 Specimen certificate representing the common stock.
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.
*10.2 1997 Stock Option Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
*10.3 1999 Employee Stock Purchase Plan.
*10.4 1999 Outside Director Stock Option Plan.
10.5 Employment Agreement, dated April 29, 1999, between Edward
J. Sanden and the Registrant.
10.6 Employment Agreement, dated September 17, 1999, between
James P. McCormick and the Registrant.
*10.7 Loan and Security Agreement, dated May 8, 1998, between
Silicon Valley Bank and the Registrant.
*10.8 Standard Industrial Lease--Gross, dated July 30, 1998, as
amended between Hansen Management and the Registrant.
*10.9 Memorandum of Understanding regarding Sublease of 1496
Oddstad Drive, dated August 6, 1999, as amended, between
Water Sounds and the Registrant.
*10.10 Industrial Real Estate Lease, dated September 14, 1999, as
amended, between Frederick and Doris Nicolini and the
Registrant.
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
*27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon
II-3
<PAGE>
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Redwood City, State of California, on
December 1, 1999.
<TABLE>
<S> <C> <C>
IPRINT.COM, INC.
By: /s/ ROYAL P. FARROS
-----------------------------------------
Royal P. Farros
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Royal P. Farros and James P. McCormick,
and each of them acting individually, as his true and lawful attorneys-in-fact
and agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ ROYAL P. FARROS Officer and Chairman of
------------------------------------------- the Board of Directors December 1, 1999
Royal P. Farros (PRINCIPAL EXECUTIVE
OFFICER)
/s/ JAMES P. MCCORMICK Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND December 1, 1999
James P. McCormick ACCOUNTING OFFICER)
/s/ MARK DUBOVOY
------------------------------------------- Director December 1, 1999
Mark Dubovoy
/s/ DEEPAK KAMRA
------------------------------------------- Director December 1, 1999
Deepak Kamra
/s/ J.A. HEIDI ROIZEN
------------------------------------------- Director December 1, 1999
J.A. Heidi Roizen
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of
Registrant.
*3.2 Bylaws of Registrant.
*3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering.
4.1 Second Amended and Restated Rights Agreement dated
September 30, 1999 between Registrant and certain
stockholders.
*4.2 Specimen certificate representing the common stock.
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.
*10.2 1997 Stock Option Plan.
*10.3 1999 Employee Stock Purchase Plan.
*10.4 1999 Outside Director Stock Option Plan.
10.5 Employment Agreement, dated April 29, 1999, between Edward
J. Sanden and the Registrant.
10.6 Employment Agreement, dated September 17, 1999, between
James P. McCormick and the Registrant.
*10.7 Loan and Security Agreement, dated May 8, 1998, between
Silicon Valley Bank and the Registrant.
*10.8 Standard Industrial Lease--Gross, dated July 30, 1998, as
amended between Hansen Management and the Registrant.
*10.9 Memorandum of Understanding regarding Sublease of 1496
Oddstad Drive, dated August 6, 1999, as amended, between
Water Sounds and the Registrant.
*10.10 Industrial Real Estate Lease, dated September 14, 1999, as
amended, between Frederick and Doris Nicolini and the
Registrant.
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
*27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
IPRINT, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED RIGHTS AGREEMENT is entered into as of
September 30, 1999, by and among iPrint, Inc., a California corporation (the
"Company"), the undersigned purchasers of Series C Preferred Stock of the
Company (the "Purchasers"), the undersigned purchasers of Series A Preferred
Stock and the undersigned purchasers of Series B Preferred Stock (collectively,
the "Prior Purchasers") (Prior Purchasers and Purchasers may be collectively
referred to as "Preferred Purchasers") and Royal P. Farros (the "Common
Holder").
RECITALS:
A. The Prior Purchasers and the Common Holder are parties to that
certain Amended and Restated Rights Agreement dated February 25, 1999 among the
Company and such Series A Purchasers, Series B Purchasers and the Common Holder
(the "Prior Agreement").
B. Concurrently herewith, the Purchasers and the Company are entering
into a Series C Preferred Stock Purchase Agreement, dated as of the date hereof,
(the "Series C Agreement") pursuant to which the Purchasers are purchasing from
the Company shares of the Company's Series C Preferred Stock.
C. The Prior Purchasers, beneficially owning at least a majority of
the Company's outstanding shares held by all Prior Purchasers, which are subject
to the Prior Agreement wish to amend the Prior Agreement to grant registration,
information, co-sale rights and other rights to the Purchasers identical to the
registration, information, co-sale rights and other rights of the Prior
Purchasers.
D. The Purchasers desire to become a party to the Prior Agreement as
amended and restated hereby.
E. By this Agreement, the Company, the Preferred Purchasers and the
Common Holder desire to set forth certain registration and other rights of the
parties as set forth below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. REGISTRATION RIGHTS.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
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(a) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration or ordering of the effectiveness of
such registration statement.
(b) The term "Conversion Shares" means the
Common Stock issued or issuable upon conversion of the Series A, Series A-1,
Series B, Series B-1, Series C and Series C-1 Preferred Stock issued and sold by
the Company pursuant to the Series A Preferred Stock Purchase Agreement dated
October 17, 1997 among the Company and the undersigned purchasers of Series A
Preferred Stock (the "Series A Agreement"), the Series B Preferred Stock
Purchase Agreement dated February 25, 1999 among the Company and the undersigned
purchasers of Series B Preferred Stock (which shares of Series A, Series A-1,
Series B and Series B-1 Preferred Stock are referred to herein as the "Preferred
Shares"), the Series C Agreement, and securities issuable upon exercise of
Warrants issued to Intel Corporation and Silicon Valley Bank.
(c) The term "Registrable Securities" means (i)
the Conversion Shares and for purposes of Section 1.3 any and all shares of
Common Stock held by the Common Holder then employed by the Company; (ii) stock
issued in lieu of the stock referred to in subsection (i) above in any
reorganization which has not been sold to the public; or (iii) stock issued in
respect of the stock referred to in subsections (i) and (ii) above as a result
of a stock split, stock dividend, recapitalization or the like, which has not
been sold to the public.
(d) The terms "Holder" or "Holders" means any
person or persons to whom Registrable Securities were originally issued or
qualifying transferees under subsection 1.10 hereof who hold Registrable
Securities.
(e) The term "Initiating Holders" means any
Holder or Holders of 40% or greater of the aggregate of the Preferred Shares
then outstanding.
(f) The term "SEC" means the Securities and
Exchange Commission.
(g) The term "Registration Expenses" shall mean
all expenses incurred by the Company in complying with subsections 1.2, 1.3 and
1.4 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company and counsel for the Holders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company.)
(h) The term "Common Shares" shall mean all
shares of Common Stock of the Company owned or subsequently acquired by the
Common Holder and all shares of Common Stock issuable upon exercise or
conversion of any derivative securities held or subsequently acquired by the
Common Holder other than shares of Common Stock issued upon conversion of
Preferred Stock and shares held by such persons which are eligible for sale on a
registration statement on Form S-8 or S-3.
2
<PAGE>
1.2 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company
shall receive from the Initiating Holders a written request that the Company
effect any registration, qualification or compliance with respect to Registrable
Securities with an anticipated aggregate offering price before deduction of
underwriting discounts and commissions, in excess of $5,000,000, the Company
will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect all such registrations, qualifications and compliances
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Initiating
Holder's or Initiating Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
given within thirty (30) days after receipt of such written notice from the
Company; provided that the Company shall not be obligated to take any action to
effect such registration, qualification or compliance pursuant to this
subsection 1.2:
(A) at any time prior to the
earlier of October 15, 2002 or six (6) months following the effective date of
the registration statement under the Securities Act for the Company's initial
registered underwritten public offering (the "IPO") of its securities to the
general public (other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction);
(B) in any particular
jurisdiction in which the Company would be required to execute a general
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as required by the Securities Act; or
(C) after the Company has
effected two (2) such registrations pursuant to this subsection 1.2(a) and such
registrations have been declared or ordered effective.
Subject to the foregoing clauses (A) through (C), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practical, but in any event within ninety (90) days,
after receipt of the request or requests of the Initiating Holders; provided,
however, that if the Company shall furnish to such holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and its
shareholders for such registration
3
<PAGE>
statement to be filed at the date filing would be required and it is therefore
essential to defer the filing of such registration statement, the Company shall
have an additional period of not more than ninety (90) days after the expiration
of the initial ninety (90) day period within which to file such registration
statement.
(b) UNDERWRITING. If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as part of their
request made pursuant to subsection 1.2 and the Company shall include such
information in the written notice referred to in subsection 1.2(a)(i). In such
event, the underwriter shall be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. The right
of any Holder to registration pursuant to subsection 1.2 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. The Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters. Notwithstanding any other provision of this subsection 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, the Initiating
Holders shall so advise all Holders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders; provided,
however, that the number of shares of Registrable Securities, other than the
Common Shares, to be included in such underwriting shall not be reduced unless
all other securities, including the Common Shares, are first entirely excluded
from the underwriting. If any Holder of Registrable Securities disapproves of
the terms of the underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company, the underwriter and the Initiating Holders. Any
Registrable Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) COMPANY SHARES. If the managing underwriter
has not limited the number of Registrable Securities to be underwritten, the
Company may include securities for its own account or for the account of others
in such registration if the managing underwriter so agrees and if the number of
Registrable Securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
4
<PAGE>
1.3 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time
to time, the Company shall determine to register any of its securities, for its
own account or the account of any of its shareholders, other than a registration
on S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form or any successor to such forms relating to such
transactions, which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
(i) promptly give to each Holder written
notice thereof and
(ii) include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within twenty (20)
days after receipt of such written notice from the Company, by any Holder or
Holders, except as set forth in subsection 1.3(b) below.
(b) UNDERWRITING. If the registration of which
the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to subsection 1.3(a)(i). In such event the right of any
Holder to registration pursuant to subsection 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
subsection 1.3, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, and (i) if such
registration is the IPO, the underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting, or may exclude
Registrable Securities entirely from such registration and underwriting;
provided that no other securities are registered and sold in the IPO other than
those securities registered and sold by the Company, or (ii) if such
registration is other than the IPO, the underwriter may limit the amount of
securities to be included in the registration and underwriting by the Company's
shareholders; provided however, the number of Registrable Securities to be
included in such registration and underwriting under this subsection 1.3(b)(ii)
shall not be reduced to less than twenty-five percent (25%) of the aggregate
securities included in such registration without the prior consent of at least a
majority of the Holders who have requested their shares to be included in such
registration and underwriting; and provided, further, that the number of shares
of Registrable Securities, other than the Common Shares, to be included in such
underwriting shall not be reduced until all other securities, including the
Common Shares, are first entirely excluded from the underwriting. The Company
shall so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated first, to the Company; second, among the Purchasers
requesting registration in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each of such Purchasers as
of the date of
5
<PAGE>
the notice pursuant to subsection 1.3(a)(i) above; and third, among the other
Holders on a pro rata basis. If any Holder disapproves of the terms of the any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(c) REGISTRATION RIGHTS OF OFFICERS AND
DIRECTORS. Upon any sale by the Company of its securities to the public in a
firmly underwritten public offering, the then existing officers and directors of
the Company shall be entitled to include any of their securities of the Company
in any registration by the Company under this subsection 1.3 provided that such
inclusion shall not diminish the number of securities included by the Company or
the number of Registrable Securities which may be included by the Holders as set
forth in subsection 1.3(b) above in the event that the underwriters determine
that marketing factors require a limitation on the number of shares included in
the registration and underwriting.
1.4 FORM S-3. In addition to the rights and obligations
set forth in subsection 1.2 above, if any Holder requests that the Company file
a registration statement on Form S-3 (or any successor to Form S-3) for a public
offering of shares of Registrable Securities, the reasonably anticipated
aggregate price to the public of which (net of underwriting discounts and
commissions) would exceed $1,000,000 and the Company is then a registrant
entitled to use Form S-3 to register the shares for such an offering, the
Company shall use its best efforts to cause such shares to be registered for the
offering as soon as practicable on Form S-3 (or any successor form to Form S-3);
provided, however the Company shall not be required to effect a registration
pursuant to this subsection 1.4:
(a) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(b) if the Company, within ten (10) days of the
receipt of the request of such Holder(s), gives notice of its bona fide
intention to effect the filing of a registration statement with the SEC within
forty-five (45) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Registrable Securities);
(c) during a period of ninety (90) days
following the effective date of a registration statement;
(d) if the Company shall furnish to such
Initiating Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be detrimental to the Company and its shareholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the filing of such registration statement, in which
case the Company shall have the right to defer such filing for a period of not
more than sixty (60) days after the furnishing of
6
<PAGE>
such a certificate of deferral, provided that the Company may not defer such
filing pursuant to this subsection 1.4 more than once in any twelve (12) month
period.
In the event such Holders propose to offer the shares of Registrable
Securities pursuant to this subsection 1.4 by means of an underwriting, the
proposed underwriter(s) shall be selected by a majority in interest of the such
Holders and shall be reasonably acceptable to the Company, provided, however,
that in the event such underwriter(s) is (are) not reasonably acceptable to the
Company, the Company shall be required to furnish to the Holders, within twenty
(20) days of the receipt of the request for registration from Holders pursuant
to this subsection 1.4, the names of at least 2 underwriters acceptable to the
Company, who agree to act as underwriter for the proposed offering on terms no
less favorable to the Holders than those terms proposed in writing by the
underwriter(s) selected by the Holders. The Company shall give written notice to
all Holders of the receipt of a request for registration pursuant to this
subsection 1.4 and shall provide a reasonable opportunity for other Holders to
participate in the registration, provided that if the registration is for an
underwritten offering, the terms of subsection 1.2(b), including without
limitation the provisions relating to the exclusion of other securities
(including the Common Shares) prior to any reduction of Registrable Securities
in any Underwriting, shall apply to all participants in such offering.
1.5 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section 1 shall be borne by the Company except as follows:
(a) The Company shall not be required to pay for
expenses of any registration proceeding begun pursuant to subsection 1.2, the
request for which has been subsequently withdrawn by the Initiating Holders, and
such withdrawal is not the result of an adverse change in the condition or the
business of the Company, in which latter such case, such expenses shall be borne
pro rata by the Holders requesting such withdrawal.
(b) The Company shall only be required to pay up
to a maximum of $30,000 in fees and/or disbursements of legal counsels for the
Holders.
(c) The Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities.
1.6 REGISTRATION PROCEDURES. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Rights Agreement, the Company will keep each Holder participating therein
advised in writing as to the initiation of each registration, qualification and
compliance and as to the completion thereof. Except as otherwise provided in
subsection 1.5, at its expense the Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one year.
7
<PAGE>
(b) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(c) Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act with respect to the disposition of all
securities covered by such registration statement for a period set forth in
1.6(a).
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make statements therein not misleading in the light of the circumstances
therein.
(f) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
1.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder of
Registrable Securities and each of its officers, directors and partners, and
each person controlling such Holder, with respect to which such registration,
qualification or compliance has been effected pursuant to this Rights Agreement,
and each underwriter, if any, and each person who controls any underwriter of
the Registrable Securities held by or issuable to such Holder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in or incorporated by reference into any
registration statement, prospectus, offering circular, prospectus supplement,
abbreviated term sheet or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, or any violation or alleged violation by
the Company of the Securities Act, the Securities Exchange Act of 1934, as
amended, ("Exchange Act"), the Trust Indenture Act of 1939, as amended, or any
state securities law applicable to the Company or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any such state law and
relating to action or inaction required
8
<PAGE>
of the Company in connection with any such registration, qualification of
compliance, and will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, within a reasonable amount of
time after incurred for any reasonable legal and any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.7(a) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld); and provided further, that the Company will not
be liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder specifically for use therein. This obligation shall be in
addition to all other rights and remedies available to a Holder.
(b) Each Holder will, if Registrable Securities
held by or issuable to such Holder are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company and each of its directors and officers, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereof) (collectively
"Damages") arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in or incorporated by reference into any
such registration statement, prospectus, offering circular, prospectus
supplement or abbreviated term sheet or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company, such
directors and officers, for any reasonable legal or any other expenses incurred
in connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, each underwriter, if any, of
the Company's securities covered by such a registration statement or prospectus
in reliance upon and in conformity with written information furnished to the
Company by the Holder in an instrument duly executed by such Holder specifically
for use therein; provided, however, that the indemnity agreement contained in
this subsection 1.7(b) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected without
the consent of the Holder (which consent shall not be unreasonably withheld);
and provided further, that the total amount for which any Holder shall be liable
under this subsection 1.7(b) shall not in any event exceed the lesser of the
aggregate proceeds received by such Holder from the sale of Registrable
Securities held by such Holder in such registration or its pro rata amount of
the Damages based on the number of securities sold by each such Holder. No
holder of Registrable Securities will be required to indemnify any person
against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency was
corrected in the final prospectus or for any liability which arises out of the
failure of any person to deliver a prospectus as required by the Securities Act.
(c) Each party entitled to indemnification under
this subsection 1.7 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume
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the defense of any such claim or any litigation resulting therefrom; provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense; and provided further, that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
prejudice to the Indemnifying Party; and provided further, that an Indemnified
Party (together with all other Indemnified Parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
(d) If the indemnification provided for in this
Section 1.7 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any losses, claims, damages or liabilities
referred to herein, the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering by such Holder.
(e) The obligations of the Company and Holders
under this Section 1.7 shall survive completion of any offering of Registrable
Securities and the termination of this Agreement. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(f) No Holder shall be obligated to enter into
an underwriting agreement that contains any provisions more onerous to such
Holder than the provisions in this Section 1.7 and such failure to enter into
such agreement shall not adversely affect such Holder's rights set forth herein.
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1.8 INFORMATION BY HOLDER. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.9 RULE 144 REPORTING. With a view to making available
to Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees at all times to:
(a) make and keep public information available,
as those terms are understood and defined in SEC Rule 144, after ninety (90)
days after the effective date of the first registration filed by the Company for
an offering of its securities to the general public;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) so long as a Holder owns any Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Holder may reasonably request in
complying with any rule or regulation of the SEC allowing the Holder to sell any
such securities without registration.
1.10 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to
cause the Company to register their securities and keep information available,
granted to them by the Company under subsections 1.2, 1.3, 1.4 and 1.9, may be
assigned to a transferee or assignee of at least twenty percent (20%) of such
Holder's original number of Preferred Shares (and equivalent number of Common
Shares) (as adjusted for stock splits, stock dividends, recapitalization and
like events), provided, that the Company is given written notice by such Holder
at the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
reasonably prohibit the transfer of any Holders' rights under this subsection
1.10 to any proposed transferee or assignee who the Company reasonably believes
is a competitor of the Company. Notwithstanding anything else in this subsection
1.10, any Holder may transfer rights to a transferee if such transferee is a
partner, a retired partner, affiliate or family member of such Holder.
1.11 "MARKET STAND-OFF" AGREEMENT. Each Holder and the
Common Holder hereby agree that, during the period of duration (not to exceed
one hundred eighty (180) days) specified by the Company and an underwriter of
common stock or other securities of the Company following the effective date of
a registration statement of the Company filed under the
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Securities Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase,
pledge or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided however,
that:
(a) such agreement shall be applicable only to
the first such registration statement of the Company which covers common stock
(or other securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) such agreement shall not be required unless
all officers, directors and five percent (5%) shareholders of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) or purchasing common stock of the Company enter into similar
agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
1.12 TERMINATION OF REGISTRATION RIGHTS. The obligations
of the Company pursuant to this Section 1 ("Registration Rights") shall
terminate with respect to any Holder on the earlier of (i) five (5) years after
the IPO, or (ii) the date on which the Holder can sell all of his/her/its
remaining Registrable Securities under Rule 144 during any three (3) month
period.
2. AFFIRMATIVE COVENANTS OF THE COMPANY AND THE HOLDERS. The Company
hereby covenants and agrees as follows:
2.1 INFORMATION RIGHTS. So long as a Holder holds a
number of Preferred Shares and Conversion Shares which together equal at least
ten percent (10%) of the outstanding Preferred Shares and Conversion Shares (or
in the case of Intel Corporation ("Intel") any Preferred Shares or Conversion
Shares) (each a "Qualified Holder" and collectively the "Qualified Holders"),
the Company shall deliver to each Qualified Holder (i) audited annual financial
statements within 90 days after the end of each fiscal year; (ii) unaudited
quarterly financial statements within 30 days of the end of each fiscal quarter;
(iii) unaudited monthly financial statements within 30 days of the end of each
month; and (iv) an annual budget within 45 days prior to the end of each fiscal
year. In addition, Qualified Holders shall have standard inspection rights to
inspect the Company's books and records and make other investigations at their
own expense; provided, however, that the Company shall not be obligated pursuant
to this Section 2.1 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information. These
information and inspection rights shall terminate upon the IPO. For a period of
three (3) years following the IPO, the Company shall deliver to each Qualified
Holder copies of the Company's 10-K's, 10-Q's, 8-K's and Annual Reports to
Shareholders promptly after such documents are filed with the Securities and
Exchange Commission.
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2.2 CONFIDENTIALITY OF COMPANY INFORMATION. Each
Qualified Holder agrees that it will keep confidential and will not disclose or
divulge any confidential, proprietary or secret information which such Qualified
Holder may obtain from the Company, and which the Company has prominently marked
"confidential", "proprietary" or "secret" or has otherwise identified as being
such, pursuant to financial statements, reports and other materials submitted by
the Company as required hereunder, unless such information is or becomes known
to the Qualified Holder from a source other than the Company without violation
of any rights of the Company, or is or becomes publicly known, or unless the
Company gives its written consent to the Qualified Holder's release of such
information, except that no such written consent shall be required (and the
Qualified Holder shall be free to release such information to such recipient) if
such information is to be provided to a Qualified Holder's counsel or accountant
(and the provision of such information is directly necessary in order for such
recipient to provide services to Qualified Holder), or to an officer, director
or partner of a Qualified Holder, provided that the Qualified Holder shall
inform the recipient of the confidential nature of such information, and such
recipient agrees in writing in advance of disclosure to treat the information as
confidential.
2.3 ASSIGNMENT OF RIGHTS OF INFORMATION. The rights
granted pursuant to subsection 2.1 may be assigned by each Qualified Holder upon
sale or transfer by such Holder of a number of Preferred Shares and Conversion
Shares which together equal at least ten percent (10%) of the outstanding
Preferred Shares and Conversion Shares. Notwithstanding anything else in this
subsection 2.3, rights may not be assigned to a transferee which the Company
reasonably believes is a competitor or intends to become a competitor of the
Company and provided further that any transferee shall agree to become subject
to the obligations of the transferring party hereunder.
2.4 KEY MAN INSURANCE. The Company has obtained and
agrees to use its best efforts to maintain a $2,000,000 renewable term life
insurance policy with a three year term (renewable at the request of the Board
of Directors) for Royal P. Farros naming the Company as sole beneficiary (the
"Key Man Insurance Policy").
2.5 FUTURE EMPLOYEE ISSUANCES AND AGREEMENTS. All future
issuances of securities of the Company to employees, officers and consultants
shall be made pursuant to stock grant, stock purchase and/or stock option plan
or any other stock incentive program, agreement or arrangement shall be approved
by the Board of Directors and shall provide for (i) ratable vesting over four
years, with no vesting until the end of the first year, (ii) no transfer of
unvested shares, and (iii) a right of first refusal in favor of the Company in
the event of certain transfers of shares to third parties which shall expire on
the initial public offering of the Company's securities, and including a "market
stand-off" provision substantially similar to that set forth in Section 1.11 of
the Rights Agreement, or such other terms as the Board of Directors may from
time to time approve. The Company will require that all current and future
employees of the Company enter into Employee Inventions and Proprietary Rights
Assignment and Confidentiality Agreements in substantially the form provided to
the Holders, with such amendments thereto or deviations therefrom as the Board
of Directors may from time to time approve.
2.6 CONFIDENTIALITY OF INVESTOR INFORMATION. Neither the
Company nor any Holder or Common Holder (other than Intel), without the prior
written consent of Intel, shall use
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Intel or its affiliates' names or refer to Intel or its affiliates directly or
indirectly in connection with Intel or its affiliates' relationship with the
Company in any advertisement, news release or professional or trade publication,
or in any other manner, unless required by law. The parties agree that without
the prior written consent of Intel, there will be no press release or other
public statement (an "Announcement") issued by any party which refers directly
or indirectly to Intel's participation as a party to this Agreement or Intel's
participation in the transactions contemplated hereby. The parties further agree
that, apart from an Announcement, the parties will keep the terms and conditions
of this Agreement, the Series A Agreement, the Series B Agreement and the Series
C Agreement and any other agreements related to or entered into in connection
with these agreements (collectively, the "Financing Agreements") in strictest
confidence. These restrictions shall not prohibit disclosure to the parties'
counsel, accountants and professional advisors. If any of the parties determines
that it is required by law to disclose the terms and conditions of any or all of
the Financing Agreements, or to file any or all of the Financing Agreements with
the SEC, such party or parties shall, a reasonable time before making any such
disclosure or filing, consult with Intel regarding such filing and seek
confidential treatment for such portions of those agreements as may be requested
by Intel. Notwithstanding the foregoing, the Company may disclose the existence
of any or all of the Financing Agreements to bona fide potential investors or
its general or limited partners or investors (in the case of a venture capital
fund only) who are under obligations of nondisclosure, similar to those
contained herein and which the Company believes in good faith are seriously
considering investing in the Company.
2.7 OBSERVATION RIGHTS. For so long as Intel holds any
shares Series A or Series A-1 Preferred Stock, Intel shall have the right, at
Intel's expense, to designate a representative to attend all meetings of
Company's Board of Directors in a non-voting observer capacity, and, in this
respect, the Company shall give Intel copies of all notices, minutes, consents
and other materials that it provides to its directors; provided, however, that
Intel and its representative shall agree to hold in confidence and trust all
information so provided. Meetings to be held by telephone conference and actions
to be taken by consent shall not be prohibited provided notice and an
opportunity to participate is given to Intel.
2.8 RIGHT OF FIRST REFUSAL ON NEW ISSUANCES.
(a) If, at any time prior to the termination of
this right of first refusal pursuant to subsection 2.8(f), the Company should
desire to issue in a transaction not registered under the Securities Act in
reliance upon a claimed exemption thereunder, any Equity Securities (as
hereinafter defined), it shall give each Holder the first right to purchase such
Holder's pro rata share (or any part thereof) of all of such privately offered
Equity Securities on the same terms as the Company is willing to sell such
Equity Securities to any other person. Each Holder's pro rata share of the
Equity Securities shall be equal to that percentage of the outstanding Common
Stock of the Company held by such Holder on the date hereof. For purposes of
this subsection 2.8, the outstanding Common Stock of the Company shall consist
of (i) outstanding shares of Common Stock, and (ii) shares of Common Stock
issued or issuable upon conversion of any then outstanding Preferred Stock of
the Company.
(b) Prior to any sale or issuance by the Company
of any Equity Securities, the Company shall notify each Holder in writing of its
intention to sell and issue such
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securities, setting forth the terms under which it proposes to make such sale.
Within thirty (30) days after receipt of such notice, each Holder shall notify
the Company whether such Holder desires to exercise the option to purchase such
Holder's pro rata share (or any part thereof) of the Equity Securities so
offered. If a Holder elects to purchase such Holder's pro rata share, then such
Holder shall have a right of over-allotment such that if any other Holder fails
to purchase such Holder's pro rata share of the Equity Securities, such
Holder(s) who have elected to purchase their pro rata shares may purchase, on a
pro rata basis, that portion of the Equity Securities which such other Holders
elected not to purchase.
(c) After termination of the thirty (30) day
period specified in subsection 2.8(b) above, the Company may, during a period of
sixty (60) days following the end of such thirty (30) day period, sell and issue
such Equity Securities as to which the Holders do not indicate a desire to
purchase to another person as well as those additional shares of Equity
Securities it originally intended to issue to other persons, upon the same terms
and conditions as those set forth in the notice to the Holders. In the event the
Company has not sold the Equity Securities, or has not entered into an agreement
to sell the Equity Securities, within said sixty (60) day period, the Company
shall not thereafter issue or sell any Equity Securities without first offering
such securities to the Holders in the manner provided above.
(d) If a Holder gives the Company notice that
such Holder desires to purchase any of the Equity Securities offered by the
Company, payment for the Equity Securities shall be by check, or wire transfer,
against delivery of the Equity Securities at the executive offices of the
Company within ten (10) days after giving the Company such notice, or, if later,
the closing date for the sale of such Equity Securities. The Company shall take
all such action as may be required by any regulatory authority in connection
with the exercise by a Holder of the right to purchase Equity Securities as set
forth in this subsection 2.8.
(e) The right of first refusal contained in this
Section 2 shall not apply to the issuance by the Company of Equity Securities
(i) of up to 2,647,807 shares of Common Stock reserved for issuance to
employees, consultants, directors or officers of the Company pursuant to stock
grant, stock purchase and/or stock option plans or any other stock incentive
program, agreement or arrangement approved by the Board of Directors (including
approval by the Series A, Series B and Series C Preferred designees), (ii) as
part of an acquisition by the Company of all or substantially all of the assets
or shares of another company or entity whether through a merger, exchange,
reorganization or the like approved by Board of Directors (including approval by
the Series A, Series B and Series C Preferred designees), (iii) pursuant to
equipment financing or leasing arrangements or in connection with strategic
partnering transactions approved by the Company's Board of Directors (including
approval by the Series A, Series B and Series C Preferred designees), (iv)
shares of Series C Preferred Stock sold pursuant to the Series C Agreement after
the Initial Closing (as defined therein), (v) issued upon conversion of the
Preferred Shares, (vi) issued in connection with any stock split, stock
dividend, recapitalization or similar event approved by Board of Directors
(including approval by the Series A, Series B and Series C Preferred designees)
or (vii) issued in connection with the IPO (as defined in subsection 1.2 above)
approved by Board of Directors.
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(f) The right of first refusal contained in this
subsection 2.8 shall terminate upon the closing of the IPO (as defined in
subsection 1.2 above).
(g) The term "Equity Securities" shall mean (i)
Common Stock, rights, options or warrants to purchase Common Stock; (ii) any
security other than Common Stock having voting rights in the election of the
Board of Directors, not contingent upon a failure to pay dividends; (iii) any
security convertible into or exchangeable for any of the foregoing; and (iv) any
agreement or commitment to issue any of the foregoing.
(h) A Holder's right to purchase any Equity
Securities pursuant to this subsection 2.8 may be assigned by a Holder to an
affiliate of a Holder. For the purposes of this subsection 2.8, an "affiliate"
shall mean any partner or shareholder of a Holder or any person or entity that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with a Holder.
3. AGREEMENTS BETWEEN COMMON HOLDER AND HOLDERS.
3.1 HOLDERS' RIGHT OF FIRST REFUSAL UPON SECONDARY SALE
OF COMMON STOCK.
(a) In the event the Company is unable to or
elects not to exercise its right of first refusal to repurchase shares of Common
Stock issued to the Common Holder, Holders shall have a right of first refusal
as described in this Section 3.1, subordinate to the Company's right, to
purchase any shares of Common Stock proposed to be sold by the Common Holder at
any time prior to the Company's initial public offering. This right of first
refusal shall be shared pro rata among the Holders. A pro rata share, for
purposes of this section, is the ratio of the number of shares of capital stock
then held by each Holder to the sum of the total number of shares of Common
Stock then outstanding each on an as converted to Common Stock basis held by all
Holders.
(b) With respect to any proposed transfer by the
Common Holder (a "Transferring Shareholder") of any shares of Common Stock (the
"Offered Shares"), the Transferring Shareholder shall first provide the Holders
a right to purchase such Offered Shares by delivery of an offer notice (an
"Offer Notice") to all Holders. The Offer Notice shall disclose in reasonable
detail the identity of the prospective transferee(s), the proposed number of
Offered Shares to be transferred and the proposed terms and conditions of the
transfer. The purchase price specified in the Offer Notice shall be payable
solely in cash or marketable securities at the closing of the transaction or in
installments over time. Each Holder may elect to purchase that Holder's pro rata
share of such Offered Shares specified in the Offer Notice at the price and on
the terms specified therein by delivering written notice of such election to the
Transferring Shareholder within thirty (30) days after delivery of the Offer
Notice. Any Offered Shares not elected to be purchased by the end of such thirty
(30) day period will be reoffered for an additional fifteen (15) day period by
the Transferring Shareholder on a pro rata basis to the Holders who have elected
to purchase Offered Shares. So long as any Offered Shares remain to be acquired
pursuant to this Section 3.1, comparable pro rata offers shall be made to those
Holders who continue to be eligible pursuant to this Section 3.1 until no such
Holders desires to acquire any more Offered Shares. If any Holders have elected
to purchase Offered Shares from the Transferring Shareholder, the transfer of
such Offered Shares shall be consummated within
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ninety (90) days after the delivery of the Offer Notice. To the extent that the
Holders have not elected to purchase all of the Transferring Shareholder's
Offered Shares being offered, the Transferring Shareholder may, within sixty
(60) days after the delivery of the Offer Notice and subject to the provisions
of Section 3, if applicable, transfer any remaining Offered Shares to the
transferee(s) identified in the Offer Notice at a price not less than the price
per share specified in the Offer Notice and on other terms no more favorable to
such transferee(s) than offered to the Holders in the Offer Notice.
(c) The right of first refusal granted under
this Section 3.1 shall expire upon the closing of the first firm commitment
underwritten offering of the Company's securities to the public pursuant to an
effective registration statement under the Securities Act.
(d) The right of first refusal granted under
this Section 3.1 may be assigned by a Holder to a transferee or assignee
reasonably acceptable to the Company in connection with any transfer or
assignment of Preferred Shares or securities issuable upon conversion thereof,
or in exchange therefor, by a Holder provided that (i) such transfer may
otherwise be effected in accordance with applicable securities laws, and (ii)
such assignee or transferee acquires at least 100,000 Preferred Shares (or
shares of Common Stock issued upon conversion thereof) (appropriately adjusted
for stock splits, stock dividends, recapitalizations or the like).
Notwithstanding the foregoing, such rights of first refusal may be assigned to
another Holder or any constituent partner or affiliate of a Holder, without
compliance with item (ii) above, provided written notice thereof is promptly
given to the Company.
(e) PERMITTED TRANSFERS. The restrictions
contained in this Section 3.1 shall not apply with respect to any transfer of
shares to or among the Common Holder's immediate family and trusts for the
benefit of such individual or such individual or such individual's family;
provided that the restrictions contained in this Section 3 shall continue to be
applicable to the Common Stock after any such transfer; and further provided
that the transferees of such shares shall have agreed in writing to be bound by
the provisions of this Agreement affecting the shares so transferred.
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3.2 RIGHT OF CO-SALE.
(a) THE RIGHT. If at any time the Common Holder
proposes to sell or otherwise transfer any Common Shares to parties in a
transaction (the "Transaction") and to the extent that the Company and the
Holders waive any rights of first refusal they may have with respect to such
shares then any Holder (a "Selling Holder" for purposes of this Section 3.2)
which notifies such Common Holder in writing within 30 days after receipt of the
notification from such Common Holder referred to in subsection 3.2(c), shall
have the opportunity to sell up to a pro rata portion of the Common Shares which
the Common Holder proposes to sell to such third party in the Transaction (which
are not purchased by the Company, the Holders or their respective assigns). In
such instance, the Common Holder shall assign so much of his interest in the
proposed agreement of sale as the Selling Holder shall be entitled to and shall
request hereunder, and the Selling Holder shall assume such part of the
obligations of the Common Holder under such agreement as shall relate to the
sale of the securities by the Selling Holder. For the purposes of this Section
3.2, the "pro rata portion" which the Selling Holder shall be entitled to sell
shall be an amount of Common Shares equal to a fraction of the total amount of
Common Shares proposed to be sold to such third party. The numerator of such
fraction shall be the number of Equity Securities (assuming the conversion of
all such securities to Common Stock) owned by a Selling Holder and the
denominator shall be the total number of Equity Securities (assuming the
conversion of all such securities to Common Stock) owned by all participating
Selling Holders and the Common Holder proposing to sell shares in the
Transaction. Each Selling Holder shall notify the Common Holder whether it
elects to sell an amount equal to or less than its pro rata share of the Common
Shares so offered. Each Selling Holder shall be entitled to apportion Common
Shares to be sold among its partners and affiliates (as defined in subsection
2.8 above), provided that such Selling Holder notifies the Common Holder of such
allocation, and provided that such allocation does not threaten the Company's
reliance on any exemption from the registration provisions of the Securities Act
or the applicable qualifications provisions.
(b) NOTICE. Prior to any sale by the Common
Holder of any Common Shares, the Common Holder shall notify each Holder, in
writing, of his, her or its intention to sell and issue such securities (the
"Offered Securities"), setting forth in reasonable detail the general terms
under which he proposed to make such sale including the number of Common Shares
to be sold or transferred, the nature of the sale or transfer, the consideration
to be paid and the identity of the Holder. Within thirty (30) days after receipt
of such notice, any Holder who desires to exercise his, her or its rights under
this Section 3.2 shall notify the Common Holder that it desires to sell its pro
rata share of the Offered Securities. Any securities which Holders would
otherwise have been entitled to sell under this Section 3.2 but which Holders
have not elected to sell by the end of such thirty (30) day period will be
available for sale on a pro rata basis to the Selling Holders for an additional
ten (10) day period. So long as any Offered Securities remain to be sold
pursuant to this Section 3.2, comparable pro rata sales may be made by those
Selling Holders who continue to be eligible pursuant to this Section 3.2 until
no Selling Holders desire to sell any more securities. Each Selling Holder shall
be entitled to apportion Offered Securities to be sold among its partners and
affiliates (as defined in subsection 2.8 above), provided that such Selling
Holder notifies the Common Holder of such allocation.
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(c) WAIVER OF RIGHT. If within 30 days after the
Common Holder gives his aforesaid notice to the Holders, the Holders do not
notify the Common Holder that they desire to sell their pro rata portions of the
Common Shares described in such notice for the price and on the terms and
conditions set forth therein, then the Common Holder may sell such Common Shares
as to which the Holders do not elect to sell, provided such sale occurs not
later than ninety (90) days following delivery of notice to the Holders. Any
such sale shall be made only to persons identified in the Common Holder's notice
and at the same price and upon the same terms and conditions as those set forth
in the notice. In the event the Common Holder has not sold the Common Shares or
entered into an agreement to sell the Common Shares within ninety (90) days
after delivering notice to the Holders, the Common Holder shall not thereafter
sell any Common Shares without first notifying the Holders in the manner
provided above.
(d) LIMITATIONS TO RIGHTS OF CO-SALE. Without
regard and not subject to the provisions of this Section 3.2;
(i) The Common Holder may sell or
otherwise assign, without consideration, Common Shares to any or all of his
ancestors, descendants, spouse, or members of his immediate family, or to a
custodian, trustee (including a trustee of a voting trust), executor, or other
fiduciary for the account of his ancestors, descendants, spouse, or members of
his immediate family without compliance with this Section 3.2, provided that
each such transferee or assignee, prior to the completion of the sale, transfer,
or assignment, shall have executed documents assuming the obligations of such
Common Holder under this Agreement with respect to the transferred securities;
(ii) The Common Holder may sell, transfer
or pledge up to five percent (5%), in the aggregate, of the Common Stock of the
Company held by such Common Holder as of the date hereof without compliance with
this Section 3.2; or
(iii) The Common Holder may sell the
Common Stock of the Company held by such Common Holder in connection with the
IPO without compliance with this Section 3.2.
3.3 CONDITION TO TRANSFER. All transferees of Common
Shares or any interest therein other than the Company shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that they will receive and hold such shares of Common Shares or
interests subject to the provisions of the Common Holder's original stock
purchase agreement, including "Market Stand-Off" provisions.
3.4 LEGENDS. All instruments evidencing Common Shares
held by the Common Holder shall be legended, describing the obligations of the
Common Holder under this Section 3.
3.5 ADJUSTMENTS. For purposes of this Section 3, the
stock of the Company shall be arithmetically adjusted for stock dividends, stock
splits, recapitalizations and the like.
19
<PAGE>
3.6 DURATION. Notwithstanding anything in this Section 3
to the contrary, for the period of time between sixty (60) and ninety (90) days
following delivery of notice to the Holders, the Common Holder shall be entitled
to sell any and all Common Shares which such Common Holder included in his or
her notice to Holders and for which the Company and the Holders have not
exercised their rights of first refusal and the Holders have not exercised their
right of co-sale.
3.7 TERMINATION. The obligations of the Common Holder
under this Section 3 shall terminate and be of no further force and effect upon
the closing of the registration statement relating to the IPO (as defined in
subsection 1.2 above).
3.8 NO WAIVER. The exercise or non-exercise of the rights
of a Holder hereunder to participate in one or more sales of Common Shares made
by the Common Holder shall not adversely affect their rights to participate in
subsequent sales of Common Shares subject to Section 3.
4. VOTING AGREEMENT.
4.1 BOARD OF DIRECTORS.
(a) From and after the date of this Agreement
and until the provisions of this Section 4 cease to be effective, each Common
Holder and Preferred Stockholder shall vote all shares of Common Stock and
Preferred Stock of the Company over which such shareholder has voting control,
and will take all other necessary or desirable actions within his or its control
(whether in his or its capacity as a shareholder, director or officer of the
Company or otherwise), and the Company will take all necessary and desirable
actions within its control, in order to cause:
(i) the election to the Board of
Directors of the Company of
(A) One (1) representative
designated by Information Technology Ventures, who initially shall be Mark
Dubovoy;
(B) One (1) representative
designated by Canaan Partners, who initially shall be Deepak Kamra;
(C) One (1) representative
designated by Softbank Technology Ventures V, L.P., who shall initially be Heidi
Roizen;
(D) One (1) representative
designated by the holders of Common Stock or their assignees, who shall
initially be Royal Farros;
(E) Three (3) representatives
who are not employed by the Company and who are industry experts designated by
mutual agreement of the Common Holder and the Preferred Purchasers (determined
on the basis of a vote of a majority of the then outstanding shares of Preferred
Stock), voting on an as-converted basis;
20
<PAGE>
(ii) in the event that any representative
designated hereunder for any reason ceases to serve as a member of the Board of
Directors during his or her term of office, the resulting vacancy on the Board
of Directors to be filled by a representative designated as provided in clause
(i) above by the person or persons entitled to designate such representative
under clause (i) above.
(b) The Company shall pay the reasonable out-of-
pocket expenses incurred by each director in connection with attending the
meetings of the Board of Directors and any committee thereof and in connection
with any projects assigned to such director by the Board of Directors and any
committee thereof.
4.2 LEGENDS ON STOCK CERTIFICATES. In addition to the
legend in Sections 4.2(a) and 4.2(c) of the Series A Agreement, the Series B
Agreement and the Series C Agreement, the certificates representing shares held
by the Founders and the Preferred Stockholders shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VOTING LIMITATIONS AND RESTRICTIONS AND RESTRICTIONS ON TRANSFER SET
FORTH IN A RIGHTS AGREEMENT AMONG THE COMPANY, THE HOLDER HEREOF AND
CERTAIN OTHER SHAREHOLDERS OF THE COMPANY, A COPY OF WHICH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY.
4.3 APPLICATION OF AGREEMENT TO AFTER-ACQUIRED-SHARES.
All of the provisions of this Section 4 shall apply to all of the shares of
Common Stock and Preferred Stock of the Company, whether issued before or after
the Closing Date, and all securities issued as a replacement for the shares or
with respect to the shares as a result of any stock dividend, stock split or
other similar event.
4.4 TERM OF THE VOTING AGREEMENT. This voting agreement
shall terminate on the earlier of (a) the consummation by the Company of any
underwritten public offering of the Company's securities having an aggregate
value of at least $10,000,000, (b) the sale of the Company (through a merger,
consolidation, sale of all or substantially all of its assets or stock), or (c)
the effective time of the liquidation of the Company.
4.5 BINDING EFFECT ON TRANSFEREES. This Section 4 and all
of the terms, covenants, and conditions herein contained shall be binding upon
and inure to the benefit of all of the parties hereto and their respective
transferees, successors, heirs, executors, administrators and assigns. A
condition precedent to the transfer of any of the Common Stock or Preferred
Stock of the Company to any third party by the Common Holder or Purchaser is
that the transferee shall become a party to this voting agreement and shall
execute any and all instruments, and take all other actions, necessary to carry
out the purposes of this voting agreement.
4.6 INTERPRETATION. The terms of this Section 4 shall
supersede Section 5 of Article III of the Company's Third Amended and Restated
Articles of Incorporation.
5. GENERAL.
21
<PAGE>
5.1 WAIVERS AND AMENDMENTS. With the written consent of
the record or beneficial holders of at least a majority of the Registrable
Securities, the obligations of the Company and the rights of the parties under
this agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), and with the same consent the Company, when authorized by
resolution of its Board of Directors, may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement; provided, however, that no
such modification, amendment or waiver shall reduce the aforesaid percentage of
Registrable Securities without the consent of all of the Holders of the
Registrable Securities. Upon the effectuation of each such waiver, consent,
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this subsection 5.1.
5.2 GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
5.4 ENTIRE AGREEMENT. Except as set forth below, this
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and this Agreement shall supersede and cancel all
prior agreements between the parties hereto with regard to the subject matter
hereof.
5.5 REMEDIES. The rights of the parties under this
Agreement are unique and, accordingly, the parties intend that in addition to
all other legal or equitable remedies available, injunctive relief and the
remedy of specific performance may be utilized in the event of the breach or
threatened breach of this Agreement.
5.6 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be delivered by
overnight courier service of mailed by first class mail, postage prepaid,
certified or registered mail, return receipt requested, addressed (a) if to any
Purchaser, at such party's address as set forth in the Company's records, or at
such other address as such party shall have furnished to the Company in writing,
or (b) if to the Company, at Veterans Square, 1450 Oddstad Drive, Redwood City,
California 94063, or at such other address as the Company shall have furnished
to the Purchaser in writing.
5.7 SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of
22
<PAGE>
this Agreement or any provision of the other Agreements shall not in any way be
affected or impaired thereby.
5.8 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Rights
Agreement as of the date first above written.
"COMPANY"
iPrint, Inc., a California corporation
By:/s/ Royal P. Farros
----------------------------------------
Royal P. Farros, President
<PAGE>
In consideration of the execution and delivery of this Rights Agreement and the
transactions contemplated hereby, the undersigned hereby have executed this
Rights Agreement as of the date first above written.
"COMMON HOLDER"
/s/ Royal P. Farros
-------------------------------------------
Royal P. Farros
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
CANAAN EQUITY, L.P.
/s/ Deepak Kamra
-------------------------------------------
By: Canaan Equity Partners L.L.C.
Name: Deepak Kamra
Title: Member/Manager
DEEPAK KAMRA
/s/ Deepak Kamra
-------------------------------------------
Deepak Kamra
DAWNTREADER FUND I LP
By: /s/ Andrew Weissman
------------------------------------
Name: Andrew Weissman
------------------------------------
Title: Managing Director
------------------------------------
BAYVIEW INVESTORS, LTD.
By: /s/ Dana Welch
------------------------------------
Name: Dana Welch
------------------------------------
Title: Authorized Signatory
-------------------------------------
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
SAMUEL JERROLD KAPLAN AND
MICHELLE PETTIGREW KAPLAN,
HUSBAND AND WIFE AS COMMUNITY PROPERTY
/s/ Samuel Jerrold Kaplan
-------------------------------------------
Samuel Jerrold Kaplan
/s/ Michelle Pettigrew Kaplan
-------------------------------------------
Michelle Pettigrew Kaplan
ALFRED MANDEL
/s/ Alfred Mandel
-------------------------------------------
Alfred Mandel
MARK F. RADCLIFFE
/s/ Mark F. Radcliffe
-------------------------------------------
Mark F. Radcliffe
BUSH HELZBERG
/s/ Bush Helzberg
-------------------------------------------
Bush Helzberg
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
AT&T VENTURE FUND II, LP
By: Venture Management, LLC,
its General Partner
By: /s/ Neal Douglas
----------------------------------------
Name: Neal Douglas
Title: Manager
SPECIAL PARTNERS FUND, LP
By: Venture Management III, LLC,
its General Partner
By: /s/ Neal Douglas
----------------------------------------
Name: Neal Douglas
Title: Manager
SPECIAL PARTNERS FUND INTERNATIONAL, LP
By: Venture Management III, LLC,
its Investment General Partner
By: /s/ Neal Douglas
----------------------------------------
Name: Neal Douglas
Title: Manager
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
GCWF INVESTMENT PARTNERS
By: Gray Ware Corporation, Managing
Partner
By: /s/ Gregory M. Gallo
----------------------------------------
Name: Gregory M. Gallo
Title: President and Chief Financial
Officer
ANDREW CHASE AND LAURA CHASE TRUSTEES OF
THE CHASE 1991 REVOCABLE TRUST DATED
04/02/91
By: /s/ Andrew Chase
----------------------------------------
Andrew Chase
By: /s/ Laura Chase
----------------------------------------
Laura Chase
ROYAL P. FARROS
/s/ Royal P. Farros
-------------------------------------------
Royal P. Farros
MICHAEL S. RUBIN
/s/ Michael S. Rubin
-------------------------------------------
Michael S. Rubin
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
GREGORY AND LINDA KORJEFF
/s/ Gregory Korjeff
-------------------------------------------
Gregory Korjeff
/s/ Linda Korjeff
-------------------------------------------
Linda Korjeff
INFORMATION TECHNOLOGY VENTURES L.P.,
a California limited partnership
By: ITV Management, LLC,
a California limited liability
company
Title: General Partner
/s/ Sam Lee
-----------------------------------
Name: Sam Lee
Title: Principal Member
ITV AFFILIATES FUND, L.P.,
a California limited partnership
By: ITV Management, LLC,
a California limited liability
company
Title: General Partner
/s/ Sam Lee
-----------------------------------
Name: Sam Lee
Title: Principal Member
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
NICKOLETTA T. FARROS AND DAVID L. SWANK III
/s/ Nickoletta T. Farros
-------------------------------------------
Nickoletta T. Farros
/s/ David L. Swank III
-------------------------------------------
David L. Swank III
(By Nickoletta T. Farros, Attorney-
in-Fact)
DELAWARE CHARTER GUARANTEE AND TRUST COMPANY
CUST FOR WALTER GORDON KRUBERG, MD SEP IRA
By:
----------------------------------------
W. Gordon Kruberg, M.D.
JO ANN HEIDI ROIZEN AND DAVID G. MOHLER,
M.D. COMM PROP
/s/ Jo Ann Heidi Roizen
-------------------------------------------
Jo Ann Heidi Roizen
/s/ David G. Mohler
-------------------------------------------
David G. Mohler
INTEL CORPORATION
By: /s/ Arvind Sodhani
----------------------------------------
Name: Arvind Sodhani
--------------------------------------
Title: Vice President and Treasurer
-------------------------------------
<PAGE>
PURCHASER'S COUNTERPART SIGNATURE PAGE
IPRINT, INC. SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
ED SANDEN
/s/ Ed Sanden
-------------------------------------------
Ed Sanden
SOFTBANK TECHNOLOGY
VENTURES V, L.P.
By: /s/ Heidi Roizen
----------------------------------------
Name: Heidi Roizen
--------------------------------------
Title: Managing Director
-------------------------------------
<PAGE>
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, _____, is made by and
between iPrint.com, inc., a Delaware corporation (the "Company"), and (the
"Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons
are increasingly reluctant to serve as directors, officers or agents of
corporations unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the
costs of litigation may be so enormous (whether or not the case is meritorious),
that the defense and/or settlement of such litigation is often beyond the
personal resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors,
officers and agents and the directors, officers and agents of its subsidiaries
to assume the risk of huge judgments and other expenses which may occur in cases
in which the director, officer or agent received no personal profit and in cases
where the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in
litigation against a director, officer or agent of a corporation such as the
Company or its subsidiaries are often related to the knowledge, motives and
intent of such director, officer or agent, that he is usually the only witness
with knowledge of the essential facts and exculpating circumstances regarding
such matters, and that the long period of time which usually elapses before the
trial or other disposition of such litigation often extends beyond the time that
the director, officer or agent can reasonably recall such matters; and may
extend beyond the normal time for retirement for such director, officer or agent
with the result that he, after retirement or in the event of his death, his
spouse, heirs, executors or administrators, may be faced with limited ability
and undue hardship in maintaining an adequate defense, which may discourage such
a director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors,
1
<PAGE>
officers and agents of its subsidiaries, and to assume for itself maximum
liability for expenses and damages in connection with claims against such
directors, officers and agents in connection with their service to the Company
and its subsidiaries, and has further concluded that the failure to provide such
contractual indemnification could result in great harm to the Company and its
subsidiaries and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under
which the Company is organized ("Section 145"), empowers the Company to
indemnify its directors, officers, employees and agents by agreement and to
indemnify persons who serve, at the request of the Company, as the directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 145 is not
exclusive.
H. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director, officer or agent of the Company and/or one
or more subsidiaries of the Company free from undue concern for claims for
damages arising out of or related to such services to the Company and/or one or
more subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
(a) AGENT. For the purposes of this Agreement, "agent" of
the Company means any person who is or was a director, officer, employee or
other agent of the Company or a subsidiary of the Company; or is or was serving
at the request of, for the convenience of, or to represent the interests of the
Company or a subsidiary of the Company as a director, officer, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) EXPENSES. For purposes of this Agreement, "expenses"
include all out of pocket expenses costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements),
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding or
establishing or enforcing a right to indemnification under this Agreement or
Section 145 or otherwise; provided,
2
<PAGE>
however, that "expenses" shall not include any judgments, fines, ERISA excise
taxes or penalties, or amounts paid in settlement of a proceeding.
(c) PROCEEDING. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, or investigative.
(d) SUBSIDIARY. For purposes of this Agreement,
"subsidiary" means any corporation of which more than 50% of the outstanding
voting securities is owned directly or indirectly by the Company, by the Company
and one or more other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or
continue to serve as agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing; provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
3. LIABILITY INSURANCE.
(a) MAINTENANCE OF D&O INSURANCE. The Company hereby
covenants and agrees that, so long as the Indemnitee shall continue to serve as
an agent of the Company and thereafter so long as the Indemnitee shall be
subject to any possible proceeding by reason of the fact that the Indemnitee was
an agent of the Company, the Company, subject to Section 3(c), shall promptly
obtain and maintain in full force and effect directors' and officers' liability
insurance ("D&O Insurance") in reasonable amounts from established and reputable
insurers.
(b) RIGHTS AND BENEFITS. In all policies of D&O Insurance,
the Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) LIMITATION ON REQUIRED MAINTENANCE OF D&O INSURANCE.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the
Company shall indemnify the Indemnitee as follows:
3
<PAGE>
(a) SUCCESSFUL DEFENSE. To the extent the Indemnitee has
been successful on the merits or otherwise in defense of any proceeding
(including, without limitation, an action by or in the right of the Company) to
which the Indemnitee was a party by reason of the fact that he is or was an
Agent of the Company at any time, against all expenses of any type whatsoever
actually and reasonably incurred by him in connection with the investigation,
defense or appeal of such proceeding.
(b) THIRD PARTY ACTIONS. If the Indemnitee is a person who
was or is a party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the Company) by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, the Company shall indemnify the Indemnitee against any
and all expenses and liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) DERIVATIVE ACTIONS. If the Indemnitee is a person who
was or is a party or is threatened to be made a party to any proceeding by or in
the right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) ACTIONS WHERE INDEMNITEE IS DECEASED. If the Indemnitee
is a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement)
4
<PAGE>
for which payment is actually made to Indemnitee under a valid and collectible
insurance policy of D&O Insurance, or under a valid and enforceable indemnity
clause, by-law or agreement.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 8(a)
below, the Company shall advance all expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall be determined ultimately that the Indemnitee is
not entitled to be indemnified by the Company as authorized hereby. The advances
to be made hereunder shall be paid by the Company to the Indemnitee within
twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of
the commencement of or the threat of commencement of any proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with respect
thereto may be sought from the Company under this Agreement, notify the Company
of the commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of
5
<PAGE>
interest between the Company and the Indemnitee in the conduct of any such
defense; or (C) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) LACK OF GOOD FAITH. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding unless
the Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
10. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
Indemnitee, in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under this
Agreement (other than an action brought to enforce a claim for expenses pursuant
to Section 6 hereof, provided that the required undertaking has been tendered to
the Company) that Indemnitee is not entitled to indemnification because of the
limitations set forth in Sections 4 and 8 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have made
a determination prior to the
6
<PAGE>
commencement of such enforcement action that indemnification of Indemnitee is
proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders) that such indemnification
is improper, shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.
11. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. SURVIVAL OF RIGHTS.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
7
<PAGE>
16. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
17. GOVERNING LAW. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
18. CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby consent to the jurisdiction of the courts of the State of Delaware with
respect to any action or proceeding which arises out of or relates to this
Agreement.
8
<PAGE>
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
iPrint.com, inc.
By
------------------------------
Its
-----------------------------
Address: 1450 Oddstad Road
Redwood City, California 94063
Indemnitee:
--------------------------------
[NAME]
Address:
--------------------------------
--------------------------------
<PAGE>
Ex. 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
iPrint, inc. (the "Company") and Ed Sanden ("Employee") as of April 29, 1999
(the "Effective Date").
1. POSITION AND DUTIES: Employee shall be employed by the Company
as its Chief Marketing Officer, reporting to the Company's Chief Executive
Officer. As its Chief Marketing Officer, Employee agrees to devote his full
business time, energy and skill to his duties at the Company. These duties
shall include all those duties customarily performed by the Chief Marketing
Officer.
2. TERM OF EMPLOYMENT: Employee's employment with the Company will
be for no specified term, and may be terminated by Employee or the Company at
any time, with or without cause. Employee is requested to give Company two
(2) months advanced notice of departure. Upon the termination of Employee's
employment with the Company, for any reason, neither Employee nor the Company
shall have any further obligation or liability under this Agreement to the
other, except as set forth in paragraphs 6, 7, 8, 9, 10 14 and 15 below.
3. COMPENSATION: Employee shall be compensated by the Company,
while an employee, for his services as follows:
(a) BASE SALARY: As Chief Marketing Officer, Employee shall
be paid a monthly Base Salary of $12,500 per month ($150,000 on an annualized
basis), subject to applicable withholding, in accordance with the Company's
normal payroll procedures. The Base Salary may be reviewed and modified
periodically.
(b) BENEFITS: Employee shall have the right, on the same
basis as other members of senior management of the Company, to participate in
and to receive benefits under any of the Company's employee benefit plans, as
such plans may be modified from time to time. In addition, Employee shall be
entitled to the benefits afforded to other members of senior management under
the Company's vacation, holiday and business expense reimbursement policies.
(c) PERFORMANCE BONUSES. Employee shall have the
opportunity to earn a Performance Bonus. This Performance Bonus shall be
based upon the achievement of certain fiscal and performance-based objectives
as agreed to by Employee and the CEO. The Target Bonus for the first 12
fiscal months of Employee's employment shall be $50,000 (less applicable
withholdings). This Performance Bonus is guaranteed for the first year of
Employee's employment, and will be paid on a monthly basis ($4,166.67 per
month) so long as Employee remains employed by the Company.
(d) STOCK OPTIONS: Employee shall be granted the option to
purchase 250,000 shares of the Common Stock of the Company (the "Options"). The
Options shall vest over a four-year period as follows: 25% upon the first
anniversary of the Effective Date of this agreement and 2.0833% per month during
the succeeding thirty-six (36) month period. Except as
<PAGE>
otherwise provided in this Agreement, such options shall be subject to the
terms of the Company's Stock Option Plan and the standard option agreements
provided pursuant to the plan. Options will be granted at .21 cents per share.
(e) RELOCATION EXPENSES. Employee will be reimbursed for
the following expenses incurred in connection with his relocation from
Connecticut to the San Francisco Bay Area:
(1) Reasonable travel expenses up to $2,400,
including airline flights, for bona fida travel between your Connecticut home
and the Bay Area through August 1, 1999;
(2) Temporary housing expenses up to $5,000 based
on rental receipts for lodging in the Bay Area through August 1, 1999; and
(3) Reasonable moving expenses based on bona fida
moving company receipts as of August 31, 1999. Three estimates must be
obtained, including one from a moving company recommended by Company. The
Company will reimburse expenses in an amount equivalent to the lowest
estimate obtained.
If, during the six months following the Effective Date of this
Agreement, either: (i) Employee voluntarily terminates his employment
relationship with the Company; or (ii) the Company terminates Employee's
employment relationship for "Cause" as defined in paragraph 5(a) of the
Agreement, Employee will reimburse the Company for all of the expenses paid
pursuant to this paragraph 3(e).
4. BENEFITS UPON TERMINATION: In the event of Employee's voluntary
termination from employment with the Company, or in the event that Employee's
employment terminates as a result of his death or disability (defined as the
inability to perform the essential functions of Employee's position for a
period of at least 180 days), Employee shall be entitled to no compensation
or benefits from the Company other than those earned under paragraph 3 above
through the date of his termination or in the case of any stock options,
vested through the date of his termination.
5. BENEFITS UPON OTHER TERMINATION. Employee agrees that his
employment may be terminated by the Company at any time, with or without
cause. In the event of the termination of Employee's employment by the
Company for the reasons set forth below, he shall be entitled to the
following:
(a) TERMINATION FOR CAUSE: If Employee's employment is
terminated by the Company for cause as defined below, Employee shall be
entitled to no compensation or benefits from the Company other than those
earned under paragraph 3, or in the case of any stock options, vested through
the date of his termination.
For purposes of this Agreement, a termination "for cause" occurs if
Employee is terminated for, but not limited to, any of the following reasons:
<PAGE>
(1) theft, dishonesty, or falsification
of any employment or Company records;
(2) conviction of a felony or any act
involving moral turpitude;
(3) poor performance, as determined by
the Board in its sole discretion, based on reasonable business objectives,
after written notice from Company and a reasonable opportunity to correct
such poor performance.
(4) improper disclosure of the Company's
confidential or proprietary information;
(5) any intentional act by Employee that
has a material detrimental effect on the Company's reputation or business; or
(6) any material breach of this
Agreement, which breach, if curable, is not cured within thirty (30) days
following written notice of such breach from the Company.
(b) TERMINATION WITHOUT CAUSE: If Employee's employment is
terminated by the Company for any reason other than for cause, Employee shall
be entitled to the following separation benefits:
(i) all accrued compensation (including pro-rated
Performance Bonus) and benefits through the date of termination; and
(ii) in the event that Employee's employment is
terminated within one year following the Effective Date, Employee shall
receive:
(a) vesting in the Options described in
paragraph 3(d), above, as if Employee had remained employed by the Company
for one full year; and
(b) a lump sum payment equivalent to one
(1) week of Base Salary plus Monthly Bonus for each month of employment, less
applicable withholding; or
(iii) in the event that Employee's employment is
terminated on or after one year following the Effective Date, Employee shall
receive:
(a) additional vesting in the Options
described in paragraph 3(d), above, in the total amount of one-half of the
Options that were unvested as of the date of the termination; and
(b) a lump sum payment equivalent to
three (3) months of Base Salary, less applicable withholding.
<PAGE>
6. EMPLOYEE NON-DISCLOSURE AND PROPRIETARY RIGHTS ASSIGNMENT
AGREEMENT: Employee agrees to abide by the terms and conditions of the
Company's standard Employee Non-Disclosure and Proprietary Rights Assignment
Agreement as executed by Employee and attached hereto as EXHIBIT A.
7. AGREEMENT NOT TO COMPETE UNFAIRLY: Employee agrees that in the
event of his termination at any time and for any reason, he shall not compete
with the Company in any unfair manner, including, without limitation, using
any confidential or proprietary information of the Company to compete with
the Company in any way.
8. NON-SOLICITATION: Employee agrees that for a period of two
years after the date of the termination of his employment for any reason, he
shall not, either directly or indirectly, solicit the services, or attempt to
solicit the services, of any employee of the Company to any other person or
entity.
9. DISPUTE RESOLUTION: In the event of any dispute or claim
relating to or arising out of this Agreement (including, but not limited to,
any claims of breach of contract, termination under Section 5.a.(3), wrongful
termination or age, sex, race or other discrimination), Employee and the
Company agree that all such disputes shall be fully and finally resolved by
binding arbitration conducted by the American Arbitration Association in San
Francisco, California in accordance with its National Employment Dispute
Resolution rules, as those rules are currently in effect (and not as they may
be modified in the future). Employee acknowledges that by accepting this
arbitration provision he is waiving any right to a jury trial in the event of
such dispute. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of trade secrets or proprietary information.
10. ATTORNEYS' FEES: The prevailing party shall be entitled to
recover from the losing party its attorneys' fees and costs incurred in any
action brought to enforce any right arising out of this Agreement.
11. INTERPRETATION: Employee and the Company agree that this
Agreement shall be interpreted in accordance with and governed by the laws of
the State of California.
12. SUCCESSORS AND ASSIGNS: This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns. In
view of the personal nature of the services to be performed under this
Agreement by Employee, he shall not have the right to assign or transfer any
of his rights, obligations or benefits under this Agreement, except as
otherwise noted herein.
13. ENTIRE AGREEMENT: This Agreement constitutes the entire
employment agreement between Employee and the Company regarding the terms and
conditions of his employment, with the exception of (i) the agreement
described in paragraph 6 and (ii) any stock option agreements between
<PAGE>
Employee and the Company. This Agreement (including the documents described
in (i) and (ii) herein) supersedes all prior negotiations, representations or
agreements between Employee and the Company, whether written or oral,
concerning Employee's employment by the Company.
14. VALIDITY: If any one or more of the provisions (or any part
thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
15. MODIFICATION: This Agreement may only be modified or amended by
a supplemental written agreement signed by Employee and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year written below.
iPrint, inc.
Date: 26 APRIL 1999 By: /S/ ROYAL FARROS
------------------------------------------ ---------------------
Its: CEO
---------------------
Date: 4/26/99 /S/ ED SANDEN
------------------------------------------ ------------------------
Ed Sanden
<PAGE>
EXHIBIT 10.6
[iPrint.com LETTERHEAD]
August 26, 1999
James McCormick
117 Madera Court
Los Gatos, CA 95032
Dear James,
We are pleased to offer you a position with iPrint, Inc (the "Company) as Chief
Financial Officer (CFO) commencing October 1, 1999 (or sooner).
We are proposing the following compensation package.
-------------------------------------- ------------------------------------
Annual Base Salary Stock Options
$150,000 290,000
-------------------------------------- ------------------------------------
(Your annual base salary will be paid in accordance with the Company's normal
bimonthly payroll procedures.)
GUARANTEED BONUS (FIRST YEAR)- to be paid over 12 months as a part of
normal payroll.
$50,000
SIGNING BONUS- to be paid Jan 2, 2000 (1 year of employment or full
refund)
$40,000
OPTION PURCHASE- Company to structure a promissory note allowing James
McCormick to purchase options (upon employment commencement). Term to
be four (4) years, plus interest to be determined.
You will receive stock options at fair market value, which will vest over a
four-year period. Please note the attached ACCELERATION CLAUSE which will be
include as a part of your Option Agreement.
1
<PAGE>
OTHER CONSIDERATIONS:
- - As a company employee, you will be eligible for full health coverage,
including dental and vision benefits, assuming you meet the insurance
underwriter's requirements for insurability. This would be effective on the
lst of the month following 30 days employment.
- - As a company employee, you will be eligible to participate in the
company's 401K plan, after 3 months with the company.
This offer is subject to you signing and returning Exhibit A (At Will Agreement)
of this offer letter and the Non-disclosure Agreement and Proprietary Rights
Assignment, a copy of which is attached as Exhibit B.
Sincerely,
iPrint, inc.
By: /s/ Gregory Korjeff
-----------------------------------
Title: VP Operations
--------------------------------
ACCEPTED:
Signature: /s/ James McCormick
----------------------------
Dated: 9/17/99
--------------------------------
2
<PAGE>
IPRINT, INC.
PROMISSORY NOTE
AND PLEDGE AGREEMENT
$ 655,400 October 13, 1999
Redwood City, California
FOR VALUE RECEIVED, the undersigned promises to pay to iPrint, Inc., a
California corporation (the "Company"), or order, at its principal office (now
located in Redwood City, California) the principal sum of six hundred fifty-five
thousand four hundred dollars ($655,400) on October 13, 2003 (the "Maturity
Date"). Unpaid principal shall bear interest from the date hereof at a rate of
Five and Ninety-Six percent (5.96%) per annum, compounded annually. Accrued but
unpaid interest shall be payable on each anniversary of the date hereof and on
the Maturity Date. The entire outstanding balance of principal and accrued but
unpaid interest shall be due and payable on the Maturity Date.
Each payment shall be credited first to interest then due and the
remainder to principal. Should interest not be paid when due hereunder, it shall
be added to the principal and thereafter bear like interest as the principal,
provided such unpaid interest so compounded shall not exceed an amount equal to
simple interest on the unpaid principal at the maximum rate permitted by law.
The Company may at its option accelerate, in whole or in part, the
maturity of the outstanding principal balance due on this Note and any accrued
interest thereon upon the occurrence of any of the following events:
(1) The termination of the undersigned's employment with the Company
(or any present or future parent and/or subsidiary corporations of the Company)
for any reason, or no reason, with or without cause.
(2) A default in the payment of any installment of principal and/or
interest when due.
(3) A sale of the Pledged Stock (as defined below).
(4) Such acceleration is reasonably necessary for the Company to comply
with any regulations promulgated by the Board of Governors of the Federal
Reserve System affecting the extension of credit in connection with the
Company's securities.
The undersigned waives demand, presentment, notice of protest, notice
of demand, dishonor, diligence in collection and notices of intention to
accelerate maturity. Any such acceleration may be automatically effectuated by
the Company by making an entry to such effect in its records, in which event the
unpaid balance on this Note shall become immediately due and payable without
demand or notice.
1
<PAGE>
Principal and interest are payable in lawful money of the United States
of America. The undersigned may prepay any amount due hereunder, without premium
or penalty.
In the event the Company incurs any costs or fees in order to enforce
payment of this Note or any portion thereof, the undersigned agrees to pay to
the Company, in addition to such amounts as are owed pursuant to this Note, such
costs and fees, including, without limitation, a reasonable sum for attorneys'
fees.
The undersigned hereby waives to the full extent permitted by law all
rights to plead any statute of limitations as a defense to any action hereunder.
As security for the full and timely payment of this Note, the
undersigned hereunder pledges and grants to the Company a security interest in
two hundred ninety thousand (290,000) shares of the Company's common stock (the
"Pledged Stock") purchased by the undersigned pursuant to the terms of the
Company's 1997 Stock Option Exercise Form attached hereto as Exhibit A. The
undersigned shall, upon execution of this Note, deliver all certificates
representing the Pledged Stock to the agent for the Company (the "Agent")
pursuant to the Joint Escrow Instructions of even date herewith between the
Company and the maker of this Note. The Agent shall hold the Pledged Stock
solely for the benefit of the Company to perfect the security interest granted
hereunder.
Notwithstanding the foregoing, the undersigned acknowledges that this
Note is a full recourse note and that the undersigned is liable for full payment
of this Note without regard to the value at any time or from time to time of the
Pledged Stock. In the event of any default in the payment of this Note, the
Company shall have and may exercise any and all remedies of a secured party
under the California Commercial Code, and any other remedies available at law or
in equity, with respect to the Pledged Stock. The undersigned (i) acknowledges
that state or federal securities laws may restrict the public sale of
securities, and may require private sales at prices or on terms less favorable
to the seller than public sales and (ii) agrees that where the Company, in its
sole discretion, determines that a private sale is appropriate, such sale shall
be deemed to have been made in a commercially reasonable manner.
In the event the undersigned desires to obtain a release from the
Company's security interest in some or all of the Pledged Stock, the undersigned
shall pay that portion of the principal balance of this Note equal to the
purchase price of the Pledged Stock being released plus accrued interest
thereon. The Company shall thereafter instruct the Agent to effect such release,
provided that the fair market value of the Pledged Stock to remain subject to
the Company's security interest (as determined by the Board of Directors of the
Company or by the closing price of the Company's common stock on the NASDAQ
National Market System, or any successor listing, on the date of such notice)
shall satisfy the conditions of Regulation G, as promulgated by the Board of
Governors of the Federal Reserve System, or other comparable law or regulation.
The failure of the Company to exercise any of the rights created
hereby, or to promptly enforce any of the provisions of this Note, shall not
constitute a waiver of the right to exercise such rights or to enforce any such
provisions.
2
<PAGE>
As used herein, the undersigned includes the successors, assigns and
distributees of the undersigned.
As used herein, the Company includes the successors, assigns and
distributees of the Company, as well as a holder in due course of this Note.
This Note is made under and shall be construed in accordance with the
laws of the State of California, without regard to the conflict of law
provisions thereof.
/s/ James P. McCormick
-------------------------------------
Signature
James P. McCormick
-------------------------------------
James McCormick
iPrint, Inc., a California corporation, hereby approves the terms of
the above promissory note (the "Note") executed by Mr. James McCormick effective
as of October 13, 1999.
Dated: 10/13/99 iPrint, Inc.
------------------ a California corporation
/s/ Nickoletta T. Farros-Swank
-------------------------------------
Secretary
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
November 24, 1999
