As filed with the Securities and Exchange Commission on December
8, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
LANTE CORPORATION
(Exact name of registrant as specified in its
charter)
| Delaware
(State or other jurisdiction of
incorporation or organization)
|
|
7379
(Primary Standard Industrial
Classification Code No.)
|
|
36-3322393
(I.R.S. Employer
Identification No.)
|
|
161 North Clark Street, Suite 4900, Chicago, Illinois 60601, (312)
696-5000
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive offices)
C. Rudy Puryear
President and Chief Executive Officer
161 North Clark Street, Suite 4900, Chicago, Illinois 60601, (312)
696-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
| Howard S.
Lanznar, Esq.
Jeffrey R. Patt, Esq.
Katten Muchin Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
(312) 902-5200
|
|
William J.
Whelan, III, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
|
|
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.
If any of
the securities being registered on this form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. ¨
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective
registration statement for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering: ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: ¨
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered |
|
Proposed
Maximum
Aggregate
Offering Price(1) |
|
Amount of
Registration Fee |
|
| Common Stock, $.01 par
value |
|
$50,000,000 |
|
$13,200 |
|
(1)
|
Estimated solely for
purposes of calculating the registration fee pursuant to Rule 457(o) of
Regulation C under the Securities Act of 1933.
|
The
registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1999
Shares
[LOGO OF LANTE]
Lante Corporation
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 “LNTE
”.
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 4.
|
| |
|
Price to
Public
|
|
Underwriting
Discounts and
Commissions
|
|
Proceeds to
Lante
|
| Per Share |
|
$ |
|
$ |
|
$ |
| Total |
|
$
|
|
$
|
|
$
|
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
|
Deutsche Banc Alex.
Brown
|
|
Thomas Weisel Partners
LLC
|
Friedman Billings Ramsey
The
date of this prospectus is
, 2000.
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 an offer to buy
these securities in any state where the offer or sale is not permitted.
[graphic consisting of 11 spheres organized in a semi-circle,
each containing the name of a client]
[Lante Building high-impact .com businesses for our clients that
unleash e-markets for the new economy]
[High-Impact .com Business Builders]
TABLE OF CONTENTS
|
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
different information. 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. Our business, financial condition, results of
operations and prospects may have changed since that date.
Dealer Prospectus Delivery Obligation
Until
, 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus.
This delivery requirement is in addition to the dealer’s obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
This
summary highlights selected information from this document and does not
contain all of the information that may be important to you. To understand
the risks involved in your investment decision, you should read carefully
this entire document and the documents to which we refer
you.
In this
prospectus, “Lante,” “we,” “us,” “our
” and “the Company” refer to Lante Corporation. Unless
otherwise indicated, all share amounts and financial information presented
in this prospectus:
|
Ÿ
|
assume the underwriters
’ over-allotment option is not exercised;
|
|
Ÿ
|
assume the initial public
offering price will be $
per share, the midpoint of the range disclosed on the cover of this
prospectus; and
|
|
Ÿ
|
give effect to a 2-for-1
stock split of our common stock, which occurred on October 22,
1999.
|
Our Business
Lante
Corporation is an Internet services company that develops sophisticated
technology-based solutions that enable emerging electronic markets. These
markets, which we refer to as e-markets, are dynamic Internet based business
networks that allow multiple buyers and sellers to conduct business
efficiently online. We believe e-markets are the next stage in the evolution
of e-commerce and will be the predominant business model of the digital
economy. To date, most of our e-market engagements have been with Internet
startup companies. Our clients include companies such as beautyjungle.com,
Chempoint.com, eppraisals.com, Etera, IntraLinks, Microsoft Corporation,
SciQuest.com and ZixIt Corporation. We believe our success with these early
adopters of e-markets and our focus on e-market solutions positions us to
obtain engagements with other Internet startup companies as well as with
larger, more traditional companies as they progress from their existing
business models toward e-markets.
Since our
inception in 1984, we have been innovators in applying emerging technologies
to businesses, evolving from personal computer networks to database
applications to distributed client-server architectures to our current
exclusive focus on Internet services. Today, we employ more than 300 people
who serve our clients from offices in Chicago, Seattle, San Francisco, New
York, Los Angeles, Dallas, Boston and Charlotte. We have an experienced
management team led by Rudy Puryear and a distinguished advisory group of
investors including industry luminaries such as Michael Dell, John Landry,
Michael Maples and Morton Meyerson.
In
December 1999, we entered into a strategic relationship with Dell Computer
Corporation. As part of this relationship, Dell has agreed to purchase 2.0
million shares of our common stock, of which 1.0 million shares will be
purchased from us, and we have entered into a master services agreement that
contemplates Dell providing us with at least $40.0 million of total revenues
over a five-year period.
International Data Corporation estimates that the worldwide e-commerce
market will grow from approximately $64.8 billion in 1999 to more than
$978.4 billion in 2003, representing a compound annual growth rate of 97%.
We believe this growth in the worldwide e-commerce market will lead to a
significant increase in demand for Internet services. International Data
Corporation also forecasts that the worldwide market for Internet services
will grow from $12.9 billion in 1999 to $78.5 billion in 2003, representing
a compound annual growth rate of 57%.
We
believe the next stage of growth for Internet services will involve building
systems that have a high degree of security, scalability and reliability and
are integrated with multiple back-end systems. We believe that we are well
positioned to benefit from this market opportunity because of our early
focus on e-markets, our experience and expertise in building complex
solutions and our strong legacy system integration skills.
Our
professionals possess the vision and understanding of e-markets necessary to
help our clients build innovative Internet based business models. We help
our clients think big, start smart, scale fast and realize the potential of
their e-market opportunities. Our professionals develop solutions that are
designed to provide a secure computing environment, enhance functionality
with increasing usage, process extremely large volumes of information
reliably, integrate with multiple back-end systems and adapt to the
ever-changing needs of the markets they serve.
We
utilize an iterative development process and integrated, multi-disciplinary
teams to help our clients rapidly launch their solutions. Our
multi-disciplinary teams integrate strategy, user experience and technology
competencies within a delivery management discipline. We believe our
approach strikes a healthy balance between the desire for a structured
process and the dynamic nature of our clients’ needs.
Our
objective is to be one of the recognized leaders in the Internet services
industry by continuing to:
|
Ÿ
|
focus on building
solutions for e-markets;
|
|
Ÿ
|
maintain our technological
leadership and know-how;
|
|
Ÿ
|
attract and retain
talented professionals;
|
|
Ÿ
|
invest in strengthening
our brand; and
|
|
Ÿ
|
expand into new
geographical markets.
|
Lante
Corporation was originally incorporated in Illinois in 1984, and
reincorporated in Delaware on October 1, 1999. Our principal executive
offices are located at 161 North Clark Street, Suite 4900, Chicago, Illinois
60601 and our telephone number is (312) 696-5000. Our World Wide Web address
is www.lante.com. The information on our web site is not incorporated by
reference into this prospectus.
The Offering
Common stock offered by Lante Corporation...
Common stock to be outstanding after this offering...
|
shares or
shares if the
underwriters exercise their over-allotment option in full. These shares do
not include 13,495,001 additional shares reserved as of December 8, 1999
for issuance pursuant to our 1998 stock option plan and our stock purchase
plan and upon exercise of outstanding warrants.
|
Use of proceeds...
|
We intend to use the
proceeds of this offering for general corporate purposes, including
working capital, marketing, recruiting and hiring additional personnel,
upgrading our infrastructure, including internal information systems, and
expanding into new geographical markets.
|
Proposed Nasdaq National Market symbol...
Risk factors...
|
See “Risk Factors,
” beginning on page 4 for a discussion of factors you should
carefully consider before deciding to buy our common stock.
|
Lante and
Lante Corporation are trademarks or service marks and in some jurisdictions
(including the United States) registered trademarks or service marks of
Lante. Other trademarks appearing in this prospectus are the property of
their respective owners.
Summary Financial Information
The
following table presents our summary consolidated financial information and
has been derived from our audited consolidated financial statements for the
three-year period ended December 31, 1998, from our audited consolidated
interim financial statements for the nine-month period ended September 30,
1999 and from our unaudited interim financial statements for the nine-month
period ended September 30, 1998, all of which are included in this
prospectus. Pro forma net income (loss) reflects an adjustment to show
assumed federal and state income taxes based on statutory (federal and
state) tax rates for the periods presented, during which we were treated as
an S-corporation for income tax purposes. The pro forma consolidated balance
sheet data give effect to the conversion of all of our preferred stock into
our common stock. The subsequent transaction balance sheet data give further
effect to the common stock issuances to Dell Computer Corporation, certain
preferred and common stockholders and key management in December 1999. The
as adjusted consolidated balance sheet data give further effect to our
issuance and sale of shares of common stock
in this offering. The information below should be read in conjunction with
“Selected Consolidated Financial Data,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations
” and our consolidated financial statements and the related notes, each
of which is included in this prospectus.
| |
|
Year ended December
31,
|
|
Nine months ended
September 30,
|
| |
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
| |
|
(In thousands, except
per share data) |
| Statement of operations
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ 8,640 |
|
|
$11,134 |
|
|
$15,369 |
|
|
$11,128 |
|
|
$21,343 |
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services |
|
4,381 |
|
|
6,175 |
|
|
7,001 |
|
|
5,170 |
|
|
11,263 |
|
|
Selling, general and
administrative |
|
4,019 |
|
|
4,722 |
|
|
6,803 |
|
|
4,893 |
|
|
10,984 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating
expenses |
|
8,400 |
|
|
10,897 |
|
|
13,804 |
|
|
10,063 |
|
|
22,247 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from
operations |
|
240 |
|
|
237 |
|
|
1,565 |
|
|
1,065 |
|
|
(904 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expense),
net |
|
(19 |
) |
|
(20 |
) |
|
(1 |
) |
|
(12 |
) |
|
353 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) before
income taxes |
|
221 |
|
|
217 |
|
|
1,564 |
|
|
1,053 |
|
|
(551 |
) |
| Income tax (provision)
benefit |
|
(1 |
) |
|
(4 |
) |
|
(8 |
) |
|
(5 |
) |
|
579 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ 220 |
|
|
$ 213 |
|
|
$ 1,556 |
|
|
$ 1,048 |
|
|
$
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
available to common
stockholders(1) |
|
$ 220 |
|
|
$ 213 |
|
|
$ 1,556 |
|
|
$ 1,048 |
|
|
$ (493 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.08 |
|
|
$
0.05 |
|
|
$ (0.02 |
) |
|
Diluted |
|
0.01 |
|
|
0.01 |
|
|
0.08 |
|
|
0.05 |
|
|
0.00 |
|
|
|
Pro forma net income
(loss) available to common
stockholders |
|
$
157 |
|
|
$
153 |
|
|
$
881 |
|
|
$
571 |
|
|
$(1,060 |
) |
| Pro forma net income
(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.04 |
|
|
$
0.03 |
|
|
$ (0.05 |
) |
|
Diluted |
|
0.01 |
|
|
0.01 |
|
|
0.04 |
|
|
0.03 |
|
|
(0.02 |
) |
|
|
| Weighted average
number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
22,113 |
|
|
Diluted |
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
27,490 |
|
| |
|
September 30,
1999
|
| |
|
Actual
|
|
Pro
forma
|
|
Subsequent
transaction
|
|
As
adjusted
|
| |
|
(In
thousands) |
| Balance sheet
data: |
|
|
|
|
|
|
|
|
|
| Cash and cash
equivalents |
|
$13,206 |
|
|
$13,206 |
|
$29,818 |
|
|
| Working
capital |
|
14,017 |
|
|
14,017 |
|
30,629 |
|
|
| Total
assets |
|
27,158 |
|
|
27,158 |
|
43,770 |
|
|
Long-term debt and
redeemable preferred stock, net of current
portion |
|
27,339 |
|
|
2,005 |
|
2,005 |
|
|
| Total stockholders
’ (deficit) equity |
|
(7,655 |
) |
|
17,679 |
|
34,291 |
|
|
(1)
|
Net loss
available to common stockholders for the nine-month period ended
September 30, 1999 gives effect to $521 of dividends and accretion
related to our Series A convertible preferred stock.
|
This offering involves a high degree of risk. You should
carefully consider the following risks as well as all of the other
information contained in this prospectus before purchasing any of our
common stock. If any of the following risks actually occurs, our
business, financial condition and operating results could be adversely
affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your
investment.
This prospectus contains “forward-looking statements
” within the meaning of the Private Securities Litigation Reform
Act of 1995, as amended. All forward-looking statements involve risk
and uncertainty, and you should not place undue reliance on such
forward-looking statements. Our actual results could differ materially
from those mentioned in the forward-looking statements contained in
this prospectus for a variety of reasons, including the risks described
below and elsewhere in this prospectus.
Risks Relating to Our Business
We expect to report an operating loss in 1999 and
2000
Although Lante was incorporated in 1984, our business strategy
has been constantly evolving and, since 1996, we have primarily focused
on competing in the Internet services market. In 1999, we expect to
report an operating loss, and we anticipate incurring losses in 2000 as
well. As we strive to grow our business, we expect to spend significant
funds for general corporate purposes, including working capital,
marketing, recruiting and hiring additional personnel, upgrading our
infrastructure, including internal information systems, and expanding
into new geographical markets. To the extent that revenues do not
increase at a rate commensurate with these costs and expenditures, our
results of operations and liquidity could be materially and adversely
affected. In particular, we expect that our plans for increases in
expenses and capital expenditures over the next year to support our
expected growth will adversely affect our operating results. If we
achieve profitability in the future, it may or may not be sustainable.
Although our revenues have increased in recent periods, we cannot
assure you that we will sustain these historical growth
rates.
If we lose a major client or complete an engagement for a
major client, our revenues could decline and our operating results
could be adversely affected to the extent we are unable to quickly
redeploy our billable professionals
Since we began shifting our focus to Internet based businesses in
1996, our client base has been concentrated among a few companies.
ZixIt Corporation and Microsoft Corporation accounted for 37% and 16%
of our revenues, respectively, for the nine-month period ended
September 30, 1999, and our five largest clients accounted for 69% of
our revenues during this period. In 1998, Microsoft and IntraLinks,
Inc. accounted for 21% and 12% of our revenues, respectively, and our
five largest clients accounted for 60% of our revenues. These clients
also have utilized a significant portion of our resources during these
periods. We expect a relatively high level of client concentration to
continue, although not necessarily involving the same clients from
period to period. For example, we substantially completed our
engagement with ZixIt in November 1999, and we do not anticipate
material revenues from ZixIt in the near future. To the extent that any
significant client uses less of our services or terminates its
relationship with us, our revenues in the relevant fiscal period could
substantially decline and our operating results could be adversely
affected to the extent we are unable to quickly redeploy our billable
professionals to other client engagements.
The loss of executive management personnel or regional
managing directors may harm our ability to obtain and retain client
engagements, maintain a cohesive culture and compete
effectively
We
believe that our success will depend on the continued employment of our
executive management personnel and regional managing directors because
personal relationships are critical to obtaining and retaining client
engagements and maintaining a cohesive culture. If one or more members
of our executive management personnel or any of our regional managing
directors were unable or unwilling to continue in their present
positions, such persons would be very difficult to replace. In addition,
if any of these key employees joined a competitor or formed a competing
company, some of our clients might choose to use the services of that
competitor or new company instead of our own. Furthermore, clients or
other companies seeking management talent may hire away some of our
executive management personnel or regional managing directors. This
would not only result in the loss of key employees but could also
result in the loss of client relationships or new business
opportunities. Many of our key employees have entered into agreements
with us that contain covenants not to solicit business from our clients
for periods of up to two years following termination. To date, we have
not sought judicial enforcement of these restrictive covenants. The
enforceability of restrictive covenants of these types is difficult to
predict because a court would have the authority to consider a variety
of equitable factors. If a court were to view the scope or duration of
the restrictive covenants as excessive, the covenants may not be
enforceable.
The loss of our professionals, or inability to hire new
qualified professionals, could hinder our ability to grow and serve our
clients
The
Internet services market is labor intensive. Currently, companies in
our industry and similar industries face a shortage of qualified
personnel, and we do not foresee any improvement in this situation. We
compete intensively with other companies to hire and retain qualified
labor from the available pool of talent. However, we cannot assure you
that we will be successful in hiring and retaining qualified personnel.
If we cannot hire, train and retain qualified personnel or if a
significant number of our current employees depart, we may be unable to
complete or retain existing engagements or bid for new engagements of
similar scope and revenues.
Our business may be harmed if we fail to accurately estimate
the cost, scope or duration of an engagement or fail to communicate
changes to these specifications to our clients
Approximately 70% of our revenues were derived from fixed-fee
engagements during the nine-month period ended September 30, 1999.
Because of the complexity of many of our client engagements, accurately
estimating the cost, scope and duration of a particular engagement can
be a difficult task. If we fail to accurately estimate the cost, scope
or duration of one or more engagements, we could be forced to devote
additional resources to these engagements for which we will not receive
additional compensation. To the extent that such expenditure of
additional resources is required on an engagement, this could reduce
the profitability of, or result in a loss on, the engagement. In the
past, we have, on occasion, engaged in significant negotiations with
clients regarding changes to the cost, scope or duration of specific
engagements. To the extent we do not sufficiently communicate to our
clients, or our clients fail to adequately appreciate, the nature and
extent of any of these types of changes to an engagement, our
reputation may be harmed and we may be subject to losses on such
engagement.
Our revenues are difficult to predict because they are
derived from project-based client engagements
Our
revenues are primarily derived from project-based client engagements,
which vary in size and scope. As a result, our revenues are difficult
to predict from period to period, as any client that accounts for a
significant portion of our revenues in a given period may not generate
a similar amount of revenues, if any, in subsequent periods. After
completion of an engagement, we have no assurance that a client will
retain us in the future. For example, we substantially completed our
engagement with ZixIt in November 1999, and we do not anticipate
material revenues from ZixIt in the near future. In addition, since
several of our client engagements involve sequential stages, each of
which represents a separate contractual commitment, there is a risk
that a client may choose not to retain us for additional stages of an
engagement. Furthermore, our existing clients can generally reduce the
scope of an engagement or cancel their use of our services without
penalty and with little or no notice. If clients terminate existing
engagements or if we are unable to enter into new engagements, our
revenues in the relevant fiscal period could substantially decline and
we may underutilize existing resources that cannot be quickly
redeployed to other client engagements.
Our quarterly financial results are subject to significant
fluctuations due to many factors, any of which could adversely affect
our stock price
Our
financial results will vary from quarter to quarter. It is possible
that in some future periods our operating results may be below the
expectations of public market analysts and investors. In this event,
the price of our common stock may fall. Our revenues and operating
results may vary significantly from quarter to quarter due to a number
of factors, some of which are not in our control. These factors
include:
|
Ÿ
|
the number,
size and scope of our client engagements;
|
|
Ÿ
|
unanticipated delays, deferrals or cancellations of major
client engagements;
|
|
Ÿ
|
unanticipated changes in the scope of major client
engagements;
|
|
Ÿ
|
the
efficiency with which we utilize our billable professionals, plan and
manage our existing and new client engagements and manage future
growth;
|
|
Ÿ
|
the extent
to which we use subcontractors or hire new billable professionals
whom we may not be able to immediately utilize on client
engagements;
|
|
Ÿ
|
variability
in market demand for Internet services;
|
|
Ÿ
|
our ability
to attract qualified professionals in a timely and effective
manner;
|
|
Ÿ
|
our ability
to complete fixed-fee engagements on budget;
|
|
Ÿ
|
changes in
pricing policies by us or our competitors; and
|
|
Ÿ
|
general
economic conditions.
|
In
addition, because a certain percentage of our expenses, particularly
labor costs, are fixed in amount, these factors may cause our operating
income and operating margins to vary significantly from quarter to
quarter. Any decline in revenues or earnings or a greater than expected
loss for any quarter could have a material adverse effect on the market
price of our common stock.
If we are unable to manage our growth, it will adversely
affect our business, the quality of our solutions and our ability to
retain key personnel
Although we have grown rapidly in recent years, it is not certain
that we will continue to grow at a similar pace or that we will be able
to manage our growth. Our growth has placed significant demands on our
management and other resources and will continue to do so in the
future. Our revenues increased 91.8% for the nine-month period ended
September 30, 1999 compared to the same period in 1998. Our number of
employees increased from 94 on January 1, 1997 to 317 on November 30,
1999. Managing our growth effectively will involve:
|
Ÿ
|
accurately
estimating time and resources for engagements;
|
|
Ÿ
|
improving
our business development capabilities;
|
|
Ÿ
|
continuing
to retain, motivate and manage our existing employees and attract and
integrate new employees;
|
|
Ÿ
|
maintaining
the quality of our solutions;
|
|
Ÿ
|
maintaining
acceptable utilization rates for our billable
professionals;
|
|
Ÿ
|
opening and
staffing offices in new geographic areas; and
|
|
Ÿ
|
developing
and improving our operational, financial, accounting and other
internal systems and controls.
|
If
we are unable to manage our growth effectively, it could have a
material adverse effect on our business, the quality of the solutions
we provide and our ability to retain key personnel.
Our executive management team has limited experience working
together
Our
president and chief executive officer has only been employed by us
since June 30, 1999, our chief financial officer has only been employed
by us since November 15, 1999 and our chief technology officer has only
been employed by us since November 22, 1999. Therefore, there has been
little or no opportunity to evaluate the effectiveness of our executive
management team as a combined unit. The failure of executive management
to function effectively as a team may have an adverse effect on our
ability to obtain and execute client engagements, maintain a cohesive
culture and compete effectively.
We compete in a new and highly competitive market that has
low barriers to entry
The
Internet services market is relatively new and highly competitive. We
expect competition to intensify even further as this market evolves.
Some of our competitors have longer operating histories, larger client
bases, longer relationships with their clients, greater brand or name
recognition and significantly greater financial, technical and
marketing resources than we do. As a result, our competitors may be in
a stronger position to respond more quickly to new or emerging
technologies and changes in client requirements and to devote greater
resources than we can to the development, promotion and sale of their
services. Competitors could lower their prices, potentially forcing us
to lower our prices and reducing our operating margins. We face
competition from the following companies:
|
Ÿ
|
Internet
services firms, such as Scient Corporation, Viant Corporation,
Razorfish, Inc., Proxicom Inc., Sapient Corporation and
USWeb;
|
|
Ÿ
|
technology
consulting firms and integrators, such as Andersen Consulting, the
major accounting firms, Diamond Technology Partners, Inc., EDS and
IBM;
|
|
Ÿ
|
strategy
consulting firms, such as Bain & Company, Booz Allen &
Hamilton Inc., The Boston Consulting Group, Inc. and McKinsey &
Company; and
|
|
Ÿ
|
in-house
information technology, marketing and design service departments of
our current and potential clients.
|
In
addition, there are relatively low barriers to entry into the Internet
services market. We do not own any patented technology that would stop
competitors from entering this market and providing services similar to
ours. As a result, the emergence of new competitors may pose a threat
to our business. Existing or future competitors may develop and offer
services that are superior to or have greater market acceptance than
ours, which could significantly decrease our revenues and the value of
your investment.
We may need additional capital in the future, which may not
be available to us; the raising of additional capital would dilute your
ownership in Lante
In
the future, it may be necessary to raise additional funds, either
through public or private debt or through equity financing, to take
advantage of expansion or acquisition opportunities, develop new
solutions or compete effectively in the marketplace. Any additional
capital raised through the sale of equity or equity-linked securities
would dilute your ownership percentage in us. Furthermore, there is no
assurance that additional financing will be available on favorable
terms or at all. If additional financing is not available on favorable
terms or at all, this may adversely affect our business, financial
condition or results of operations.
Our business may suffer if growth in Internet usage does not
continue to increase
The
future of our business is dependent upon continued growth in Internet
usage by our clients, prospective clients and their customers and
suppliers. Growth in Internet usage has caused capacity constraints
which may potentially impede further growth if left unresolved. If the
usage and volume of commercial transactions on the Internet does not
continue to increase, demand for our services may decrease and our
business and results of operations could materially suffer. Factors
which may affect Internet usage or e-commerce adoption
include:
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Ÿ
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actual or
perceived lack of security of information;
|
|
Ÿ
|
congestion
of Internet traffic or other usage delays;
|
|
Ÿ
|
inconsistent
quality of service;
|
|
Ÿ
|
increases in
Internet access costs;
|
|
Ÿ
|
increases in
government regulation;
|
|
Ÿ
|
uncertainty
regarding intellectual property ownership;
|
|
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|
reluctance
to adopt new business methods;
|
|
Ÿ
|
costs
associated with the obsolescence of existing infrastructure;
and
|
|
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|
economic
viability of e-commerce models.
|
It is possible that other parties may assert that we have
infringed on their intellectual property rights or that our employees
have misappropriated their proprietary information, which could result
in substantial costs and diversion of management’s
attention
It
is possible that other parties may assert infringement claims against
us in the future or claim that we have violated their intellectual
property rights. While we know of no basis for any such claims,
authorship of intellectual property rights can be difficult to verify.
Competitors could assert, for example, that former employees of theirs
whom we have hired have misappropriated their proprietary information
for our benefit. Regardless of the merits, infringement or
misappropriation claims by third parties could result in significant
legal and other costs as well as diverting an undue amount of management
’s time.
Our business may suffer if we have disputes over our right to
reuse intellectual property developed for specific
clients
Part
of our business involves the development of software applications for
discrete client engagements. Ownership of client-specific software is
generally retained by the client, although we typically retain the
right to reuse some of the applications, processes and other
intellectual property developed in connection with client engagements.
Issues relating to the rights to intellectual property can be
complicated, and we cannot give any assurances that disputes will not
arise that would adversely affect our ability to reuse these
applications, processes and other intellectual property. Such disputes
could damage our relationships with our clients and our business
reputation, divert our management’s attention and have a material
adverse effect on our ability to grow our business.
Our business could be adversely affected by year 2000
issues
There are year 2000 risks due to the potential of system or
related processing failures as computer- controlled systems may not be
able to recognize date-related data arising from the use of two digits
rather than four digits to define the applicable year. The year 2000
problem is not limited to information technology systems but may also
impact computer technology embedded in other systems, such as those
that control elevators, alarm systems and many other
devices.
As
of the date of this prospectus, our systems have functioned properly
with respect to dates starting in the year 2000. However, year 2000
problems of our clients could still affect our systems or operations,
and may decrease demand for our services if clients expend resources
upgrading their computer systems thus reducing the available funding
for the services we offer.
It
is also possible that the year 2000 problem will affect solutions we
have developed for third party software products incorporated into the
solutions we create for our clients. Any failure on our part to provide
year 2000 compliant applications to our clients could adversely affect
our business due to financial loss and liability to our clients and
could damage our business reputation.
We may not be able to keep pace with the latest
technological changes and client preferences
Our
business and the Internet services market are characterized by rapid
technological change. We must keep pace with technological advancements
to remain competitive and serve our clients effectively. We must
possess the ability to offer solutions that readily evolve with changes
in technology, industry standards and client preferences. Our failure
to respond successfully in a timely or cost effective way to changes in
technology, industry standards or client preferences could have a
material adverse effect on our business, financial condition or results
of operations.
If we are unable to maintain our reputation and expand our
name recognition, we may have difficulty attracting new business and
retaining current clients and employees, and our business may
suffer
We
believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining clients and
employees. We also believe that the importance of reputation and name
recognition is increasing and will continue to increase due to the
growing number of providers of Internet services. If our reputation is
damaged or if potential clients are not familiar with us or the
solutions we provide, we may be unable to attract new clients and
employees and retain existing clients and employees. Promotion and
enhancement of our name will depend largely on our success in
continuing to provide effective solutions. If clients do not perceive
our solutions to be effective or of high quality, our brand name and
reputation will suffer. In addition, if solutions we provide have
defects, critical business functions of our clients may fail, and we
could suffer adverse publicity as well as economic
liability.
Increasing government regulation could adversely affect our
business
An
increase in federal, state or foreign legislation or regulation of
e-commerce could hinder the Internet’s growth and could decrease
its usage as a commercial marketplace. In the case of such a decline,
existing clients and prospective clients may decide not to use our
solutions. Such a decrease in the demand for our solutions would
substantially and adversely affect our business, financial condition
and results of operations.
Potential acquisitions may result in increased expenses,
difficulties in integrating target companies and diversion of management
’s attention
We
may attempt to expand our solutions and service offerings and gain
access to new markets through strategic acquisitions and investments.
Some of the risks that we may encounter in implementing such a strategy
include:
|
Ÿ
|
diversion of
management’s attention during the acquisition and integration
process;
|
|
Ÿ
|
costs,
delays and difficulties of integrating the acquired company’s
personnel into our existing organization and culture;
|
|
Ÿ
|
expenses of
amortizing the acquired company’s intangible assets, which could
be significant in light of the high valuations of many Internet and
other information technology services companies;
|
|
Ÿ
|
impact on
our financial condition due to the timing of the acquisition;
and
|
|
Ÿ
|
expenses of
any undisclosed or potential legal liabilities of the acquired
company, including intellectual property, employment and warranty and
product liability-related problems.
|
If realized, any of these risks could have a material adverse
effect on our business, financial condition and results of
operations.
We may encounter problems with any potential international
operations
We
have no experience in promoting and selling our solutions within
foreign countries or in integrating international operations into our
company. If we pursue international opportunities, including
acquisitions, we will face a number of potential difficulties,
including cultural differences, currency exchange risks, the
underdevelopment of an Internet infrastructure in certain international
markets and different government regulatory schemes. Additionally, we
would need to devote significant managerial and financial resources to
locate and retain qualified personnel for such international
operations, as well as to obtain the necessary technical and strategic
support for international expansion. As a result, we may not be able to
successfully promote our services or perform client engagements in
international markets. If we attempt to expand our operations
internationally, and if we fail to do so in a timely and effective
manner, it may hinder our ability to compete effectively and could harm
our financial condition and business reputation.
Risks Relating to this Offering
There is no prior market for our common stock and the market
price of our common stock may fluctuate significantly
There is currently no public market for our common stock.
Accordingly, we cannot assure you that an active public trading market
will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations between
representatives of the underwriters and us and may not be
representative of the price of our common stock after this offering.
The market price of our common stock could fluctuate significantly
after this offering in response to any of the following:
|
Ÿ
|
changes in
financial estimates or investment recommendations by securities
analysts following our business;
|
|
Ÿ
|
quarterly
variations in our operating results falling below analysts’ or
investors’ expectations in any given period;
|
|
Ÿ
|
general
economic and information technology services market
conditions;
|
|
Ÿ
|
changes in
economic and capital market conditions for Internet and other
information technology services companies;
|
|
Ÿ
|
changes in
market valuations of, or earnings and other announcements by,
providers of Internet and other information technology
services;
|
|
Ÿ
|
announcements by us or our competitors of new solutions or
service offerings;
|
|
Ÿ
|
changes in
business or regulatory conditions; and
|
|
Ÿ
|
trading
volume of our common stock.
|
Many
companies’ securities, including securities of Internet and other
technology companies, have experienced extreme price and volume
fluctuations in recent years. Often, these fluctuations are unrelated
to the companies’ operating performance. Elevated levels in market
prices for securities, often reached following these companies’
initial public offerings, may not be sustainable and may not bear any
relationship to operating performances. The market price of our common
stock may fluctuate widely and rapidly. In the past, following periods
of market volatility, stockholders have instituted securities class
action litigation. If we were involved in such litigation, it could
have a substantial cost and divert the attention of executive
management, which could have a material adverse effect on our business
and financial condition.
The sale or availability for sale of substantial amounts of
our shares could affect our stock price
Sales of a substantial number of shares of our common stock after
this offering, or the public perception that such sales may occur,
could adversely affect the market price of our common stock and could
materially impair our ability to raise capital through the sale of
additional equity securities. Immediately after this
offering,
shares of
common stock will be outstanding, or
shares if the underwriters fully exercise their
over-allotment option. All of the
shares sold in this offering will be freely
transferable without restriction or further registration under the
Securities Act, except for any shares purchased by our “affiliates,
” as defined in Rule 144 promulgated under the Securities Act.
After this offering, our affiliates will own 31,467,726 shares in the
aggregate. The 34,138,547 shares of common stock outstanding prior to
this offering are “restricted securities” as defined in Rule
144. These shares may be sold in the future without registration only
as permitted by Rule 144 or Rule 701 under the Securities Act or
another exemption from registration.
In
connection with this offering, we, our executive officers and directors
and all of our existing stockholders have agreed, with certain
exceptions, not to sell any shares of common stock for 180 days after
this offering without the consent of the underwriters or their
representatives. However, these shares may be released from these
restrictions by the underwriters at any time. The effect that sales in
the public market of shares held by principal stockholders or other
stockholders or the potential availability for future sale of these
shares will have on our common stock’s market price is
unpredictable.
We
have entered into agreements with a number of our stockholders that
provide these stockholders with the right to compel us to register
their shares for sale. These registration rights apply to approximately
32,136,324 shares, and will also apply to any shares owned by these
stockholders in the future. Registration of these shares would permit a
sale without regard to the restrictions of Rule 144.
The net proceeds of this offering may be allocated in ways
with which our stockholders may disagree
Management will have significant flexibility in applying the net
proceeds of this offering and need not specifically allocate these
proceeds to any investment or transaction. You may disagree with the
decisions of our management as to the application of these
proceeds.
Investors in this offering will experience immediate and
substantial dilution
If
you purchase common stock in this offering, you will pay more for your
shares than existing stockholders paid for their shares. Accordingly,
you will experience immediate and substantial dilution of approximately
$ per
share, representing the difference between our book value per share
after giving effect to this offering and the initial public offering
price. In addition, further dilution may occur to the extent that
shares of our common stock are issued upon the exercise of existing
stock options or under our stock purchase plan. All of the shares
issuable upon the exercise of currently outstanding stock options will
be issued at a lesser purchase price than the initial public offering
price per share. We also expect to offer stock options to employees,
customers and suppliers in the future; such issuances will cause
further dilution to investors.
Provisions of our charter and bylaws and Delaware law could
deter takeover attempts
Provisions of our certificate of incorporation, our bylaws and
Delaware law make acquiring control of us without the support of our
board of directors difficult for a third party. For example, our
certificate of incorporation provides that the board of directors will
be divided into three classes as nearly equal in size as possible with
staggered three-year terms. This classification of the board of
directors has the effect of making it more difficult for stockholders
to change the composition of the board of directors. In addition, our
certificate of incorporation authorizes our board of directors to issue
up to 10,000,000 shares of “blank check” preferred stock.
This means that, without stockholder approval, the board of directors
has the authority to attach special rights to this preferred stock,
including voting and dividend rights. With these rights, preferred
stockholders could make it more difficult for a third party to acquire
our company. A special meeting of stockholders may only be called by a
majority of the board of directors or by our president, chief executive
officer or chairman. In addition, a stockholder proposal for an annual
meeting must be received within a specified period of time to be placed
on the agenda. Because stockholders do not have the ability to require
the calling of a special
meeting of stockholders and are subject to timing requirements in
submitting stockholder proposals for consideration at an annual
meeting, any third-party takeover not supported by the board of
directors would be subject to significant delays and
difficulties.
Absence of dividends could reduce our attractiveness to
investors
Some
investors favor companies that pay dividends. We anticipate that for
the foreseeable future we will follow a policy of not declaring
dividends on common stock and instead retaining earnings, if any, for
use in our business. If we do not pay dividends, your return on an
investment in our common stock likely will depend on your ability to
sell our stock at a profit.
Our existing stockholders will have the ability to deter a
change in control
After this offering, our affiliates will own approximately
% of the
outstanding shares of our stock. As a result, if these persons act
together, they will have the ability to exercise substantial control
over our affairs and to elect a sufficient number of directors to
control our board of directors. The ownership position of these
stockholders may also have the effect of delaying, deterring or
preventing a change in control.
At
an assumed initial public offering price of $
per share, we estimate
that our net proceeds from this offering, after deducting underwriting
discounts and commissions and estimated offering expenses payable by
us, will be approximately $
million, or $
million if the underwriters exercise their over-allotment option in
full.
We
intend to use the net proceeds of this offering for general corporate
purposes, including:
|
Ÿ
|
recruiting
and hiring additional personnel;
|
|
Ÿ
|
upgrading
our infrastructure, including internal information systems;
and
|
|
Ÿ
|
expanding
into new geographical markets.
|
Though we continuously evaluate potential acquisitions or
investments, we have no agreement, commitment or understanding with
respect to any material acquisition or investment.
The
previous paragraphs describe our best estimate of our use of the net
proceeds from this offering, based on our current plans and estimates
of anticipated expenditures. Our actual expenditures may vary from this
estimate and we may find it necessary or advisable to reallocate the
net proceeds within the uses outlined above or to use portions of the
net proceeds for other purposes. Pending their use, we plan to invest
the net proceeds in short-term, investment-grade, interest-bearing
securities.
Prior to June 17, 1999, we were an S-corporation and paid out
dividends to compensate shareholders for their estimated tax
liabilities. These dividends totaled approximately $59,000, $20,000 and
$582,000 for 1997, 1998 and 1999, respectively. In addition, on June
15, 1999, we declared a dividend in conjunction with our conversion to
a C-corporation consisting of, in the aggregate, an undivided interest
in approximately $2.5 million of our accounts receivable and $1.5
million in cash.
We
plan to retain all future earnings to finance the development and
growth of our business. Therefore, we do not currently anticipate
paying any further cash dividends on our common stock. Any future
determination as to the payment of dividends will be at our board of
directors’ discretion and will depend on our results of
operations, financial condition, capital requirements and other factors
our board of directors considers relevant.
The
table below shows our capitalization as of September 30, 1999. The
“Pro forma” column gives effect to the conversion of all of
our preferred stock into our common stock. The “Subsequent
transaction” column gives further effect to the common stock
issuances to Dell Computer Corporation, certain preferred and common
stockholders and key management in December 1999. The “As adjusted
” column gives further effect to our issuance and sale of
shares of common
stock in this offering at an assumed initial public offering price of $
per share, after deducting underwriting discounts and
commissions, and estimated offering expenses payable by us.
| |
|
September 30,
1999
|
| |
|
Actual
|
|
Pro
forma
|
|
Subsequent
transaction
|
|
As
adjusted
|
| |
|
(In
thousands) |
|
| Cash and cash
equivalents |
|
$13,206 |
|
|
$13,206 |
|
|
$29,818 |
|
|
$
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current maturities
of long-term debt |
|
$
1,002 |
|
|
$
1,002 |
|
|
$
1,002 |
|
|
$
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt,
less current maturities |
|
$
2,005 |
|
|
$
2,005 |
|
|
$
2,005 |
|
|
$
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Redeemable
convertible preferred stock: |
Series A convertible
preferred stock, $.01 par value, 4,243,290
shares allocated, 3,536,069 shares issued
and outstanding,
actual (no shares issued and outstanding,
pro forma,
subsequent transaction or as
adjusted) |
|
25,334 |
|
|
—
|
|
|
—
|
|
|
|
|
|
| Stockholders’
equity: |
Common stock, $.01 par
value, 50,000,000 shares authorized,
25,022,724 shares issued and outstanding,
actual
(150,000,000 shares authorized, 32,094,862
shares issued
and outstanding, pro forma; 33,605,048
shares issued and
outstanding, subsequent transaction;
shares issued
and outstanding, as adjusted) |
|
250 |
|
|
321 |
|
|
336 |
|
|
|
|
Additional
paid-in-capital |
|
2,362 |
|
|
27,625 |
|
|
44,222 |
|
|
|
|
Retained
deficit |
|
(6,996 |
) |
|
(6,996 |
) |
|
(6,996 |
) |
|
|
|
Note receivable
—stockholder |
|
(3,271 |
) |
|
(3,271 |
) |
|
(3,271 |
) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’
(deficit) equity |
|
(7,655 |
) |
|
17,679 |
|
|
34,291 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization |
|
$19,684 |
|
|
$19,684 |
|
|
$36,296 |
|
|
$
|
| |
|
|
|
|
|
|
|
|
|
|
|
Our pro forma net tangible book value as of September
30, 1999 was approximately $17.6 million, or $0.55 per share. Pro
forma net tangible book value per share represents the amount of
pro forma stockholders’ equity, less intangible assets,
divided by the pro forma number of shares of common stock
outstanding as of September 30, 1999, which gives effect to the
conversion of the Series A convertible preferred stock. Our
“subsequent transaction” net tangible book value as of
September 30, 1999 would have been $34.2 million; or $1.02 per
share after giving further effect to the sale of shares of common
stock to Dell Computer Corporation, certain preferred and common
stockholders and key management in December 1999 (“December
Common Stock Issuance”). Our “As adjusted” pro forma
net tangible book value as of September 30, 1999 would have been $
, or $
per share after giving further effect to the
sale of
shares of common stock offered
by us at an initial public offering price of $
per share and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
This represents an immediate increase in pro forma net
tangible book value of $
per share to existing stockholders
and purchasers in the December Common Stock Issuance and an
immediate dilution in pro forma net tangible book value of $
per share to investors purchasing common stock in this offering, as
illustrated in the following table:
| Assumed initial
public offering price per share |
|
|
|
$
|
| |
|
|
|
|
|
Pro forma net tangible
book value per share before this offering |
|
$0.55 |
|
|
|
Increase per share
attributable to December Common Stock Issuance |
|
0.47 |
|
|
| |
|
|
|
|
|
Subsequent transaction
net tangible book value before this offering |
|
1.02 |
|
|
|
Increase per share
attributable to new investors |
|
|
|
|
| |
|
|
|
|
| As adjusted pro
forma net tangible book value per share after this
offering |
|
|
|
|
| |
|
|
|
|
| Dilution per
share to new investors |
|
|
|
$
|
| |
|
|
|
|
The table below summarizes on a pro forma basis as of
September 30, 1999, the differences between the existing
stockholders, including the effect of the conversion of the Series
A convertible preferred stock; the December Common Stock Issuance;
and the new investors purchasing common stock in this offering with
respect to the total number of shares purchased from us, the total
consideration paid and the average price per share paid (based upon
an initial public offering price of $
per share).
| |
|
Shares
purchased
|
|
Total
consideration
|
|
Average price
paid per share
|
| |
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
| Existing
stockholders |
|
32,094,862 |
|
|
|
|
|
|
|
|
|
|
| December Common
Stock Investor |
|
1,510,186 |
|
|
|
|
|
|
|
|
|
|
| New
investors |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
100 |
% |
|
|
|
100 |
% |
|
|
If the underwriters exercise their over-allotment
option in full, the as adjusted pro forma net tangible book value
per share of common stock as of September 30, 1999 would have been $
per share, which would result in dilution to the new
investors of $
per share, and the number of shares held by the
new investors will increase to
or
% of the total
number of shares to be outstanding after this offering.
The foregoing tables assume no exercise of any
outstanding stock options or warrants to purchase common stock. As
of September 30, 1999, there were outstanding options and warrants
to purchase an aggregate of 4,060,056 shares of common stock at a
weighted average exercise price of $0.65 per share under our stock
option plans and upon exercise of an outstanding warrant. If all of
these options and warrants had been exercised on September 30, 1999
and the December Common Stock Issuance had occurred on September
30, 1999; , our pro forma net tangible book value would have been
approximately $
million or $
per share. On issuance
of common stock from this offering, our as adjusted pro forma net
tangible book value on September 30, 1999 would have been
approximately $
million, or $
per share, the increase in pro forma net tangible book value
attributable to new investors would have been $
per share
and the dilution in pro forma net tangible book value to new
investors would have been $
per share. This does not give
effect to the issuance of 300,000 shares of common stock subsequent
to September 30, 1999 or options and warrants to purchase an
aggregate of approximately 2,155,000 shares of common stock issued
after September 30, 1999 through December 6, 1999.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data
should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and the
related notes, each of which is included in this prospectus. The
consolidated statement of operations data for the three-year period
ended December 31, 1998, the nine-month period ended September 30,
1999 and the consolidated balance sheet information as of December
31, 1997, 1998 and September 30, 1999 are derived from our
consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are
included in this prospectus. The consolidated balance sheet data as
of December 31, 1996 are derived from our audited financial
statements, which are not included in this prospectus. The
statement of operations data for the two-year period ended December
31, 1994 and 1995 and the balance sheet data as of December 31,
1994 and 1995 are derived from our unaudited financial statements,
which are not included in this prospectus. The statement of
operations data for the nine-month period ended September 30, 1998
are derived from our unaudited financial statements, which are
included in this prospectus. In the opinion of management, the
unaudited financial information includes all adjustments,
consisting of only normal recurring adjustments, considered
necessary for a fair presentation of such information. The results
of operations for interim periods are not necessarily indicative of
the results that may be expected for the entire year. Pro forma net
income (loss) reflects an adjustment to show assumed federal and
state income taxes based on statutory (federal and state) tax rates
for the periods presented, during which we were treated as an
S-corporation for income tax purposes.
| |
|
Year ended
December 31,
|
|
Nine months
ended
September 30,
|
| |
|
1994
|
|
1995
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
| |
|
(In thousands,
except per share data) |
| Statement of
Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$6,899 |
|
|
$
7,423 |
|
|
$
8,640 |
|
|
$11,134 |
|
|
$15,369 |
|
|
$11,128 |
|
|
$21,343 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services |
|
3,475 |
|
|
3,246 |
|
|
4,381 |
|
|
6,175 |
|
|
7,001 |
|
|
5,170 |
|
|
11,263 |
|
|
Selling, general and
administrative |
|
3,295 |
|
|
3,692 |
|
|
4,019 |
|
|
4,722 |
|
|
6,803 |
|
|
4,893 |
|
|
10,984 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating
expenses |
|
6,770 |
|
|
6,938 |
|
|
8,400 |
|
|
10,897 |
|
|
13,804 |
|
|
10,063 |
|
|
22,247 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss)
from operations |
|
129 |
|
|
485 |
|
|
240 |
|
|
237 |
|
|
1,565 |
|
|
1,065 |
|
|
(904 |
) |
|
|
| Other income
(expense), net |
|
35 |
|
|
(4 |
) |
|
(19 |
) |
|
(20 |
) |
|
(1 |
) |
|
(12 |
) |
|
353 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss)
before income taxes |
|
164 |
|
|
481 |
|
|
221 |
|
|
217 |
|
|
1,564 |
|
|
1,053 |
|
|
(551 |
) |
| Income tax
(provision) benefit |
|
(115 |
) |
|
(2 |
) |
|
(1 |
) |
|
(4 |
) |
|
(8 |
) |
|
(5 |
) |
|
579 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income |
|
$
49 |
|
|
$
479 |
|
|
$
220 |
|
|
$
213 |
|
|
$
1,556 |
|
|
$
1,048 |
|
|
$
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) available to common stockholders(1) |
|
$
49 |
|
|
$
479 |
|
|
$
220 |
|
|
$
213 |
|
|
$
1,556 |
|
|
$
1,048 |
|
|
$
(493 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.00 |
|
|
$
0.02 |
|
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.08 |
|
|
$
0.05 |
|
|
$
(0.02 |
) |
|
Diluted |
|
0.00 |
|
|
0.02 |
|
|
0.01 |
|
|
0.01 |
|
|
0.08 |
|
|
0.05 |
|
|
0.00 |
|
|
|
Pro
forma net income (loss) available to common
stockholders |
|
$
49 |
|
|
$
355 |
|
|
$
157 |
|
|
$
153 |
|
|
$
881 |
|
|
$
571 |
|
|
$(1,060 |
) |
| Pro
forma net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.00 |
|
|
$
0.02 |
|
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.04 |
|
|
$
0.03 |
|
|
$
(0.05 |
) |
|
Diluted |
|
0.00 |
|
|
0.02 |
|
|
0.01 |
|
|
0.01 |
|
|
0.04 |
|
|
0.03 |
|
|
(0.02 |
) |
| Weighted average number of shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
19,350 |
|
|
20,225 |
|
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
22,113 |
|
|
Diluted |
|
19,350 |
|
|
20,225 |
|
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
27,490 |
|
|
|
|
|
December 31,
|
|
September 30,
1999
|
|
|
|
1994
|
|
1995
|
|
1996
|
|
1997
|
|
1998
|
| Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$1,037 |
|
|
$
695 |
|
|
$
824 |
|
|
$
850 |
|
|
$3,377 |
|
|
$13,206 |
| Working capital |
|
845 |
|
|
981 |
|
|
1,097 |
|
|
544 |
|
|
4,880 |
|
|
14,017 |
| Total
assets |
|
2,888 |
|
|
2,596 |
|
|
3,307 |
|
|
3,893 |
|
|
7,320 |
|
|
27,158 |
Long-term debt and redeemable preferred stock, net of
current
portion |
|
1,030 |
|
|
800 |
|
|
800 |
|
|
350 |
|
|
2,660 |
|
|
27,339 |
| Total
stockholders’ (deficit) equity |
|
(23 |
) |
|
481 |
|
|
601 |
|
|
797 |
|
|
2,915 |
|
|
(7,655) |
(1)
|
Net loss available to common stockholders for
the nine-month period ended September 30, 1999 gives effect to
$521 of dividends and accretion related to our Series A
convertible preferred stock.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion in
conjunction with our consolidated financial statements and the
related notes included in this prospectus. The following
discussion contains certain forward-looking statements that
involve potential risks and uncertainties. Our future results
could differ materially from results discussed in such
forward-looking statements. Important factors that could cause
or contribute to such differences are discussed in this section
and in “Risk Factors.”
Overview
We are an Internet services company that develops
sophisticated technology-based solutions that are secure,
reliable and scalable and integrated with multiple back-end
systems. Our strategists, user experience experts and
technologists work as a multi-disciplinary team to build these
solutions. We integrate our competencies through an iterative
development process with the client that is overseen by our
delivery management specialists.
Since our inception in 1984, we have been innovators
in applying emerging technologies to businesses, evolving from
personal computer networks to database applications to
distributed client-server architectures to the Internet. We
began focusing on e-markets in late 1996. Since that time, our
revenue mix has shifted from a client-server base to virtually
100% Internet services in 1999. We expect revenues from Internet
services to continue to represent virtually all of our revenues
for the foreseeable future.
In 1999, we have spent considerable resources and
taken major steps to prepare us for rapid growth
including:
|
Ÿ
|
recruiting an experienced executive management
team led by our new president and chief executive officer,
Rudy Puryear;
|
|
Ÿ
|
entering into a strategic relationship with
Dell Computer Corporation that contemplates Dell providing us
with at least $40.0 million of total revenues over a five-year
period;
|
|
Ÿ
|
hiring three additional managing directors and
six additional principals to further enhance our business
development and delivery management efforts;
|
|
Ÿ
|
realigning our organization around our core
competencies—strategy, user experience, technology and
delivery management; and
|
|
Ÿ
|
making significant investments in our existing
and new office space, internal systems and communication
infrastructure necessary to support our growth.
|
We believe that our new management team will
significantly enhance our ability to grow rapidly. In order to
sustain our recent growth, we are focused on effectively
leveraging our existing and new strategic alliances; responding
to intense competition; retaining, motivating and managing our
existing employees; and attracting additional qualified billable
professionals, including regional managing directors and
principals to further enhance our business development and
delivery management efforts. We also are committed to expanding
our business by opening offices in new geographical
markets.
Our revenues consist of fees generated for
professional services. We provide services on a fixed-fee basis,
including retainer arrangements, and a time-and-materials basis.
For the nine-month period ended September 30, 1999,
approximately 70% of our revenues were derived from fixed-fee
engagements. We expect to continue to derive a majority of our
revenues from fixed-fee engagements in the future.
Generally, at the inception of an engagement, we
bill clients on a time-and-materials basis. Once we have
completed our initial assessment of the client’s goals, we
typically seek to establish a fixed-fee engagement to the extent
we believe we can adequately assess the time and expenses
necessary for the engagement. To determine the proposed fixed
fee for an engagement, we use an estimation process that takes
into account the complexity of the engagement, the anticipated
number and experience of billable professionals needed,
associated billing rates and the estimated duration of the
engagement. At the same time, we build into our fixed-fee
engagements the ability to renegotiate the fee if the scope of
the engagement changes. A member of our senior management team
is required to approve each fixed-fee proposal.
For fixed-fee engagements, we recognize revenue
using the percentage-of-completion method of accounting
primarily based on our evaluation of actual costs incurred to
date compared to total estimated costs. In the event billings
exceed revenues recognized, deferred revenue is recorded as a
liability. Conversely, if revenues recognized exceed billings,
an unbilled receivable is recorded as an asset. Where
appropriate, we make provisions for estimated losses on
uncompleted contracts on a contract-by-contract basis and
recognize these provisions in the period in which the losses are
determined. For time-and-materials engagements, revenues are
recognized when services are provided. We report revenues net of
reimbursable expenses.
Revenues from a few large clients have historically
constituted a significant portion of our total revenues in a
particular quarter or year. For example, in 1998, our five
largest clients represented 60% of our revenues. For the
nine-month period ended September 30, 1999, our five largest
clients represented 69% of our revenues. The following table
identifies these clients and the percentage of revenues derived
from each.
Year ended December 31, 1998
|
|
Nine months ended September 30, 1999
|
Client
|
|
%
of
Revenues
|
|
Client
|
|
%
of
Revenues
|
| Microsoft
Corporation |
|
21 |
% |
|
ZixIt
Corporation |
|
37 |
% |
| IntraLinks,
Inc. |
|
12 |
|
|
Microsoft Corporation |
|
16 |
|
| Classified
Ventures, Inc. |
|
11 |
|
|
IntraLinks, Inc. |
|
8 |
|
| HD Vest,
Inc. |
|
9 |
|
|
Classified Ventures, Inc. |
|
5 |
|
| Saranac
Software, Inc. |
|
7 |
|
|
Hewlett-Packard Company |
|
3 |
|
We expect a relatively high level of client
concentration to continue, although not necessarily involving
the same clients from period to period. For example, we
substantially completed our engagement with ZixIt in November
1999, and we do not anticipate material revenues from ZixIt in
the near future. At the same time, we have entered into a
strategic relationship with Dell Computer Corporation that
contemplates Dell providing us with at least $40.0 million of
total revenues over a five-year period. To the extent that any
significant client uses less of our services or terminates its
relationship with us, our revenues could decline substantially
and our operating results could be adversely affected to the
extent we are unable to quickly redeploy our billable
professionals to other client engagements.
Costs of professional services consist of salaries,
bonuses and benefits for our billable professionals, the cost of
subcontractors and other engagement costs that are not
reimbursed directly by the client. We expect that salaries for
our billable professionals will increase over time due to the
intense competition in our industry for qualified individuals.
We use the term “professional services margin” to mean
revenues less costs of professional services, stated as a
percentage of revenues. Professional services margins are
affected by our ability to utilize our billable professionals,
to incorporate any wage increases of our professionals into our
billing rates and to price and execute effectively our fixed-fee
engagements. Professional services margins may be reduced in any
given period to the extent that we use subcontractors or hire
new billable professionals who we may not be able to utilize
immediately on client engagements. We expect that these costs
will vary from quarter to quarter.
Our number of employees increased from 94 on January
1, 1997 to 317 on November 30, 1999. We actively recruit
billable professionals and support staff and expect our total
number of employees to increase significantly in
2000.
Selling, general and administrative expenses consist
primarily of salaries, bonuses and benefits for non-project
personnel, facility costs, staff recruiting and training costs,
depreciation and amortization, general operating expenses and
selling and marketing expenses. We largely develop new business
through our regional managing directors and principals. Our
selling, general and administrative expenses are expected to
increase in the future as we add additional personnel, expand
our information systems, open new offices, increase our
recruiting efforts and incur additional costs related to the
growth of our business and operations as a public
company.
In 1999, we expect to report an operating loss,
and we anticipate incurring losses in 2000 as well. In
particular, we expect that our plans for increases in expenses
and capital expenditures over the next year to support our
expected growth will adversely affect our operating results. As
we strive to grow our business, we expect to spend significant
funds for marketing, recruiting and hiring additional personnel,
upgrading our infrastructure, including internal information
systems, and expanding into new geographical markets. To the
extent revenues do not increase at a rate commensurate with
these costs and expenditures, our results of operations and
liquidity could be materially and adversely
affected.
Results of operations
The following table presents for the periods
indicated, our selected statement of operations data as a
percentage of our revenues. Percentages have been derived from
our audited financial statements for all periods presented
except for the nine-month period ended September 30, 1998 for
which such percentages were derived from our unaudited financial
statements.
|
|
|
Year ended December 31,
|
|
Nine months ended
September 30,
|
|
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
| Revenues |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
| Operating expenses: |
|
Professional services |
|
51 |
|
|
56 |
|
|
46 |
|
|
47 |
|
|
53 |
|
|
Selling,
general and administrative |
|
46 |
|
|
42 |
|
|
44 |
|
|
44 |
|
|
51 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
operating expenses |
|
97 |
|
|
98 |
|
|
90 |
|
|
91 |
|
|
104 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from operations |
|
3 |
|
|
2 |
|
|
10 |
|
|
9 |
|
|
(4 |
) |
|
|
| Other
income, net |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
1 |
|
| Income tax benefit |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) |
|
3 |
% |
|
2 |
% |
|
10 |
% |
|
9 |
% |
|
0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of nine months ended September
30, 1999 and 1998
|
Revenues
Revenues increased $10.2 million, or 91.8%, to $21.3
million for the nine-month period ended
September 30, 1999 from $11.1 million for the same period in 1998.
The increase in revenues reflects an increase in the average
size and number of client engagements and an increase in average
realized billing rates.
Operating expenses
Costs of professional services increased $6.1
million, or 117.8%, to $11.3 million for the nine-month period
ended September 30, 1999 from $5.2 million for the same period
in 1998. This increase was primarily due to the hiring of
additional billable professionals to support increases in
revenues and prepare for anticipated rapid growth. The increase
also reflects an overall increase in salary and benefit costs
and an increase in the use of subcontractors. As a percentage of
professional services, subcontractor costs for the nine-month
periods ended September 30, 1998 and 1999 were 2.4% and 17.7%,
respectively. The number of subcontractors used will vary from
quarter to quarter; however, we anticipate that we will use
fewer subcontractors in 2000 than we used in the nine-month
period ended September 30, 1999.
Our professional services margin decreased to 47.2%
for the nine-month period ended September 30, 1999 from 53.5%
for the same period in 1998. This decrease is attributed to an
increased use of subcontractors in 1999 and the completion of
engagements in 1998 that had better than expected margins for
that period.
|
Selling, general and
administrative
|
Our selling, general and administrative expenses
increased $6.1 million, or 124.5%, to $11.0 million for the
nine-month period ended September 30, 1999 from $4.9 million for
same period in 1998. This increase in selling, general and
administrative expenses was primarily the result of efforts to
significantly expand our business and prepare for rapid growth.
During the first nine months of 1999, we hired several new
senior managers, including a new chief executive officer,
established new office space, enhanced internal systems and
communication infrastructure, and increased personnel in
internal systems, marketing, finance and recruiting. During
1999, we also incurred approximately $1.0 million in
professional recruiting costs related to the hiring of several
members of our management team.
Net income
Net income for the nine-month period ended September
30, 1999 was $28,000 compared to net income of $1.0 million for
the same period in 1998. The decrease in net income for the
nine-month period ended September 30, 1999 was primarily due to
lower income from operations, which was partially offset by
additional interest income and tax benefits.
|
Comparison of years ended December 31,
1998 and 1997
|
Revenues
Revenues increased $4.2 million, or 38.0%, to $15.4
million in 1998 from $11.1 million in 1997. The increase in
revenues reflects an increase in the average size of client
engagements and an increase in average realized billing
rates.
Operating expenses
Costs of professional services increased $0.8
million, or 13.4%, to $7.0 million in 1998 from $6.2 million in
1997. This increase was primarily due to an increase in the
number of billable professionals and increases in wage rates.
Our professional services margin increased to 54.4% in
1998 from 44.5% in 1997 as a result of the start of a few
engagements during 1997 for which costs were incurred in 1997
while revenues were deferred due to the uncertainty of the
contractual terms of the engagements. Professional services
margin was positively affected by improved utilization due to an
increase in the average size and number of client engagements
and more effective sharing of billable professionals across
offices in 1998.
|
Selling, general and
administrative
|
Selling, general and administrative expenses
increased $2.1 million, or 44.1%, to $6.8 million in 1998 from
$4.7 million in 1997. This increase was primarily the result of
additional non-project personnel being hired in 1998 including
human resource, finance and senior personnel. The increase also
reflects an increase in facility costs related to the expansion
of our operations.
Net income
Net income increased to $1.6 million in 1998 from
$0.2 million in 1997 as a result of the above
factors.
|
Comparison of years ended December 31,
1997 and 1996
|
Revenues
Revenues increased $2.5 million, or 28.9%, to $11.1
million in 1997 from $8.6 million in 1996. The increase in
revenues reflects an increase in the average size of client
engagements and an increase in average realized billing
rates.
Operating expenses
Costs of professional services increased $1.8
million, or 40.9%, to $6.2 million in 1997 from $4.4 million in
1996. This increase was due to an increase in billable
professionals. Our professional services margin decreased from
49.3% in 1996 to 44.5% in 1997 as a result of a few new
engagements that began in 1997 and for which costs were incurred
while revenues were deferred in 1997 due to the uncertainty of
the contractual terms of the engagements. Our professional
services margin also was negatively affected in 1997 by the
integration of significant new billable professionals as well as
the training and learning effort required to transition from
client server to Internet professional
services.
|
Selling, general and
administrative
|
Selling, general and administrative expenses
increased $0.7 million, or 17.5%, to $4.7 million in 1997 from
$4.0 million in 1996. This increase was the result of increases
in facility costs related to the expansion of our business and
training and recruiting costs related to the hiring of new
employees.
Net income
Net income was $0.2 million in each of 1997 and
1996.
Quarterly results
The following table presents our unaudited quarterly
data for the periods indicated. We derived these data from
unaudited consolidated financial statements, and, in our
opinion, these data include all necessary adjustments, which
consist only of normal recurring adjustments necessary to
present fairly the financial results for the periods. Our
quarterly operating results have varied significantly in the
past and will continue to do so in the future due to a number of
factors including, but not limited to, the number, size and
scope of engagements, unanticipated delays, deferrals or
cancellation of significant engagements, unanticipated changes
in the scope of major engagements, utilization rates, the extent
to which we use subcontractors, realized hourly billing rates
and general economic conditions. Accordingly, our results for
any given quarter or series of quarters are not necessarily
indicative of our results for any future period. However, our
quarterly operating results may represent trends that aid in
understanding our business.
|
|
|
Quarter Ended
|
|
|
|
Mar. 31,
1998
|
|
June 30,
1998
|
|
Sept. 30,
1998
|
|
Dec. 31,
1998
|
|
Mar. 31,
1999
|
|
June 30,
1999
|
|
Sept. 30,
1999
|
|
|
|
(In millions) |
| Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$3.1 |
|
$3.8 |
|
$4.1 |
|
$4.2 |
|
$4.9 |
|
$7.1 |
|
|
$
9.3 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services |
|
1.7 |
|
1.7 |
|
1.8 |
|
1.8 |
|
2.5 |
|
3.8 |
|
|
5.0 |
|
Selling,
general and
administrative |
|
1.4 |
|
1.8 |
|
1.6 |
|
1.9 |
|
2.3 |
|
3.6 |
|
|
5.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
operating expenses |
|
3.1 |
|
3.5 |
|
3.4 |
|
3.7 |
|
4.8 |
|
7.4 |
|
|
10.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from operations |
|
–
|
|
0.3 |
|
0.7 |
|
0.5 |
|
0.1 |
|
(0.3 |
) |
|
(0.8 |
) |
| Interest income, net |
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
0.1 |
|
|
0.3 |
|
| Income tax (expense) benefit |
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
1.0 |
|
|
(0.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) |
|
$0.0 |
|
$0.3 |
|
$0.7 |
|
$0.5 |
|
$0.1 |
|
$0.8 |
|
|
$(0.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increases in 1999 quarterly revenues are
primarily due to increases in the number of billable
professionals, average realized billing rate increases and
improved utilization. Costs of providing professional services
for the same quarters reflect the costs associated with the
increased number of billable professionals and the use of
subcontractors on certain of our larger engagements. Selling,
general and administrative expenses during 1999 reflect costs
associated with preparing for rapid growth. Selling, general and
administrative expenses for the three-month periods ended June
30, 1999 and September 30, 1999 include approximately $0.6
million and $0.4 million, respectively, in professional
recruiting costs related to the hiring of several members of our
management team.
Liquidity and capital
resources
Prior to January 1998, we financed our operations
and investments in property and equipment primarily through cash
generated from operations, unsecured borrowings and secured
borrowings under our bank line of credit. During 1998, we
financed our operations and investments in property and
equipment primarily through cash generated from operations and
the issuance of subordinated convertible debt due 2007 resulting
in net proceeds to us of approximately $2.6 million. The notes
had a stated interest rate of 5.79% and in July 1999 were
redeemed in exchange for 2.7 million shares of our common stock.
The proceeds from the sale of the subordinated convertible debt
also were used to pay off approximately $1.2 million of
outstanding debt during 1998.
During the nine-month period ended September 30,
1999, we financed our operations, investments in property and
equipment and two acquisitions primarily through cash generated
from operations and the sale of 3,536,069 shares of our Series A
convertible preferred stock resulting in net proceeds to us of
approximately $24.8 million. The rights of the Series A
convertible preferred stock include voting rights equal to an
equivalent
number of shares of common stock into which it is convertible; the
right to receive dividends at a rate of 7% per annum;
liquidation preferences; and a requirement for us to redeem all
outstanding shares in one-fourth increments on an annual basis
beginning in June 2004 at a redemption price equal to the
greater of (i) $7.07 plus all accrued and unpaid dividends or
(ii) the fair market value of the shares of the common stock on
an as converted basis. In the event of a change in control, each
holder of the Series A convertible preferred stock may elect to
require us to redeem all or a portion of the holders’
preferred stock at the redemption price. All outstanding shares
of preferred stock will be converted into 7,072,138 shares of
our common stock upon consummation of the offering. Also during
the nine-month period ended September 30, 1999, we repurchased
2.46 million shares of our common stock at approximately $2.24
per share. Proceeds from the sale of our Series A convertible
preferred stock were used to complete this repurchase. We also
exercised our right to repurchase 2.0 million shares from our
former chief operating officer for approximately $2.00 per
share. We paid cash of $724,000, forgave $278,000 due to us by
the former employee and issued a promissory note in the amount
of $3.0 million as payment for the repurchased shares. The note
is due at various dates through September 30, 2002 and bears
interest at prime, which was 8.5% at September 30,
1999.
Prior to June 17, 1999, we were an S-corporation and
paid out dividends to compensate stockholders for their
estimated tax liabilities. These dividends totalled
approximately $59,000, $20,000 and $582,000 for 1997, 1998 and
1999, respectively. In addition, on June 15, 1999, we declared a
one-time dividend in conjunction with our conversion to a
C-corporation consisting of, in the aggregate, an undivided
interest in approximately $2.5 million of our accounts
receivable and $1.5 million in cash.
In June 1999, we entered into an employment
agreement with our new chief executive officer. Pursuant to this
agreement, we loaned him $2.5 million. Based on the terms of the
note, we have recorded the loan as deferred compensation and are
amortizing the loan over 73 months, the period in which the loan
may be forgiven. Upon execution of the employment agreement, he
also purchased 2.4 million shares of restricted common stock at
the then estimated fair value of $1.35 per share, based upon an
independent valuation. The restrictions on these shares lapse
over four years at 1
/48 per month, subject to certain
acceleration provisions upon a change in control or upon
termination of employment. We loaned him $3.2 million on a fully
recourse basis to purchase the shares of restricted stock.
Because the proceeds from the $3.2 million loan were used to
purchase the stock, this loan had no effect on our liquidity.
The loans bear interest at 5.37%. The loan and related interest
is due upon the earlier of June 20, 2005 or three years after a
liquidity event, as defined.
Historically, we have generated positive cash flows
from our operating activities. For the nine-month period ended
September 30, 1999, we used net cash in our operating activities
totalling $2.0 million. The use of cash was primarily due to the
$2.5 million loan made to our chief executive officer. Cash
flows used in investing activities principally relate to capital
expenditures for all periods presented. Cash flows used in
investing activities increased during the nine-month period
ended September 30, 1999 as a result of investments in our
facilities and information systems. Cash flows used in investing
activities for the nine-month period ended September 30, 1999
also reflect the cash portion of two acquisitions during
1999.
Cash and cash equivalents increased to $13.2 million
at September 30, 1999 from $3.4 million at December 31, 1998.
The increase was primarily due to cash provided as a result of
the completion of our convertible preferred stock transaction.
We invest available cash in short-term liquid
investments.
Accounts receivable increased approximately $3.6
million from December 31, 1998 to September 30, 1999 primarily
as a result of higher revenue levels. As we continue to grow,
any increases in our accounts receivable balance will adversely
impact our ability to generate positive cash flows from our
operating activities. Other non-current assets increased by
approximately $3.6 million from December 31, 1998 to September
30, 1999 as a result of our recording approximately $2.4 million
as deferred compensation expense, net, related to a loan made to
our chief executive officer that is being amortized over a
73-month period and the deferral of approximately $1.0 million
in compensation expense related to one of our acquisitions that
will be amortized over the three-year service
period.
We have a $3.5 million line of credit. The annual
interest rate on amounts borrowed under the line of credit is
calculated using the lender’s “index rate”, which
was 8.25% at September 30, 1999. The credit facility contains
customary covenants and expires in December 2000. Our accounts
receivable and our other general assets secure the loan. We
received a waiver from our lender for non-compliance with
certain financial covenants as of September 30, 1999. At
September 30, 1999, we had no outstanding borrowings under the
line of credit; however, we had two stand-by letters of credit
issued in the aggregate amount of approximately $0.4 million
related to security deposits on two of our office
leases.
In December 1999, we entered into an agreement with
Dell USA, L.P., a wholly owned subsidiary of Dell Computer
Corporation, and certain of our officers, advisors and other
stockholders regarding the sale of shares of our common stock.
Under this agreement, Dell agreed to purchase 1.0 million shares
of our common stock from us and 1.0 million shares from Mark
Tebbe and certain family trusts for a purchase price of $11.00
per share. In conjunction with this agreement, some of our
officers, directors and other stockholders also agreed to
purchase an aggregate of 510,186 shares from us at the same
price, the majority of which were acquired pursuant to
contractional preemptive rights. These preemptive rights will
terminate upon completion of this offering. The closing of these
purchases is scheduled to occur on or about December 10, 1999,
except the purchase of shares by some of the purchasers may be
deferred until termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act.
We are obligated under various non-cancelable
operating leases for our office space. Future annual minimum
rental commitments under these leases range from $1.4 million to
$1.6 million over the next five years. Total future minimum
rental commitments are approximately $12.9 million.
We anticipate that we will expend capital to develop
the infrastructure needed to support our future growth.
Specifically, we expect capital expenditures through December
31, 2000 will be between $3.0 million and $5.0 million. We may
attempt to expand our solutions and service offerings and gain
access to new markets through acquisitions. We do not have any
agreements, commitments or understandings with respect to any
material acquisitions. Accordingly, we have not included any
expenses related to acquisitions in the above description of
expected capital expenditures. We expect to use cash from
operations and the net proceeds from this offering to meet
capital expenditures and working capital necessary to support
our growth. We believe that the cash provided from operations,
availability under our line of credit, cash on hand and our net
proceeds from this offering will be sufficient to meet our
working capital and capital expenditure requirements through
December 31, 2000.
Year 2000 Issue
Many currently installed computer systems and
software products are coded to accept only two-digit year
entries in the date code field. Consequently, on January 1, 2000
or sooner, many of these systems could fail or malfunction
because they may be unable to distinguish 21st century dates
from 20th century dates. As a result, computer systems and
software used by many companies, including us, our clients and
our potential clients, may need upgrades to comply with year
2000 requirements.
To become ready for year 2000, in 1999 we conducted
a survey of all our equipment, systems and services upon which
our business depends and classified these according to how
severely and immediately they could impact our business and our
year 2000 compliance. Focusing foremost on the areas deemed most
critical, we upgraded our network and operating systems and
purchased year 2000 compliant servers, workstations, software
packages and peripheral devices, and obtained year 2000
representation letters from service providers. We have also
purchased year 2000 compliance testing software, which we have
used to test our systems. These tests resulted in no material
failures. As a result of our upgrades, new purchases and our
year 2000 testing, we believe that our principal internal
systems are year 2000 compliant. However, we will continue to
assess and test our internal systems to ensure that all
additions or modifications to our systems meet our
specifications for year 2000 compliance. Because our clients and
we depend, to a very substantial degree, upon the proper
functioning of our computer systems, a failure of our systems
could materially disrupt our operations and adversely affect our
business, financial condition and results of
operations.
The year 2000 problem may also affect third-party
software products that are incorporated into the business
systems that we create for our clients. Our clients license
software directly from third party suppliers, but at our clients
’ request, we will discuss year 2000 issues with these
suppliers and will perform internal testing on their products.
Any failure on our part to provide year 2000 compliant
e-business systems to our clients could result in financial
loss, harm to our reputation and liability to
others.
In August 1998, we began to incorporate into our
standard engagement contract, language that provides a limited
year 2000 warranty on our work product. This language was
intended to 1) limit our warranty to defects discovered within
sixty days of system delivery, unless the engagement
specifically includes year 2000 testing services; 2) limit our
responsibility for third-party platforms to those recommended by
us; and 3) disclaim liability for i) operation of our system
under platforms (including future versions) not recommended or
tested by us or ii) interoperation with other systems or iii)
user error. Furthermore, our standard engagement contract has a
provision to limit our liability 1) to direct damages incurred
by clients (specifically excluding incidental, consequential,
exemplary, special or punitive damages) and 2) to fees paid.
Notwithstanding the foregoing protections, there may be claims
made against us which arise from engagements that predate our
use of this year 2000 warranty language, and some engagement
contracts have specially negotiated provisions which are broader
than those described above.
We do not currently have any information concerning
the year 2000 compliance status of our clients nor do we intend
to examine our clients for year 2000 compliance. Our current or
potential clients may incur significant expenses to achieve year
2000 compliance. If our clients are not year 2000 compliant,
they may experience material costs to remedy problems or may
face litigation costs. In either case, year 2000 issues could
reduce or eliminate the budgets that current or potential
clients could have for purchases of our services. As a result,
our business, financial condition and results of operations
could be adversely affected.
We have funded the cost to become year 2000
compliant from operating cash flows and have not separately
accounted for these costs in the past. To date, we believe these
costs have not been material. We will incur additional costs
related to remaining year 2000 compliance for administrative
personnel to manage the process of remaining year 2000
compliant. The possibility exists that we may experience
problems and costs with year 2000 compliance, which could divert
management’s time from ordinary business activities and
have a material adverse effect on our business, financial
condition and operating results. We believe the most likely
worst case scenario for us would include temporary
telecommunication failures which would impair communication
among our offices, temporary failure of third party software
utilized by our internal systems which would impact our ability
to obtain information contained in our internal systems and
temporary cessation of normal operations while we responded to
our clients’ year 2000 problems. We do not believe that
these temporary failures would have a material adverse affect on
our operations. However, it is possible that prolonged failures
could have a material adverse affect on our
business.
Our year 2000 contingency plan is currently being
completed. The cost of maintaining our plan is not expected to
be material.
Recently Issued Accounting
Standards
During 1997, the FASB issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related
Information”. SFAS No. 131 specifies revised guidelines for
determining an entity’s operating segments and the type and
level of financial information to be disclosed. This standard
requires that management identify operating segments based on
the way that management desegregates the entity for making
internal operating decisions. We believe that we operate in one
business segment.
In June 1998, the FASB issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”. This statement establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and
for hedging activities. In June 1999, the FASB issued SFAS No.
137 which postponed the mandatory adoption of SFAS 133 until
January 1, 2001. We have not entered into any significant
derivative financial instrument transactions.
Overview
Lante is an Internet services company that develops
sophisticated technology-based solutions that enable emerging
electronic markets. These markets, which we refer to as
e-markets, are dynamic Internet based business networks that
allow multiple buyers and sellers to conduct business
efficiently online. For example, we helped one of our clients,
SciQuest.com, develop and build an e-market for the scientific
products industry that links lab technicians and purchasing
agents with suppliers of scientific products over the Internet,
thereby streamlining the traditional procurement process for
these products. To date, most of our e-market engagements have
been with Internet startup companies. We believe our success
with these early adopters of e-markets and our focus on e-market
solutions positions us to obtain engagements with other Internet
startup companies as well as with larger, more traditional
companies as they progress from their existing business models
toward e-markets.
We design and build solutions for our clients that
are secure, reliable and scalable, and integrated with multiple
back-end systems. Our strategists, user experience experts and
technologists work as a multi-disciplinary team to build these
solutions. We integrate our competencies through an iterative
development process with the client that is overseen by our
delivery management specialists. We believe this approach helps
to achieve rapid time to market, maximize our clients’
revenue generation and cost reduction and foster more efficient
customer and supplier relationships.
Since our inception in 1984, we have been innovators
in applying emerging technologies to business, evolving from
personal computer networks to database applications to
distributed client-server architectures to our current exclusive
focus on Internet services. We began focusing on e-markets in
late 1996. Today, we employ more than 300 people who serve
clients from offices in Chicago, Seattle, San Francisco, New
York, Los Angeles, Dallas, Boston and Charlotte. We have an
experienced management team led by Rudy Puryear and a
distinguished advisory group of investors including industry
luminaries such as Michael Dell, John Landry, Michael Maples and
Morton Meyerson.
In December 1999, we entered into a strategic
relationship with Dell Computer Corporation. As part of this
relationship, Dell has agreed to purchase 2.0 million shares of
our common stock, of which 1.0 million shares will be purchased
from us, and we have entered into a master services agreement
that contemplates Dell providing us with at least $40.0 million
of total revenues over a five-year period.
Industry
The first few years of e-commerce were dominated by
startup ventures. These companies typically involved a single
online seller transacting with many consumers. According to
International Data Corporation, a leading independent
information technology market research firm, the size of the
worldwide e-commerce market has grown from $1.0 billion in 1996
to an expected $64.8 billion in 1999.
We believe we are now entering a new e-commerce era
characterized by more sophisticated business models and the
potential for continued growth. We believe e-markets are the
next stage in the evolution of e-commerce and will be the
predominant business model of the digital economy. Innovative
e-markets are emerging that allow multiple buyers and sellers to
share information, determine supply and demand, negotiate
pricing and process orders with improved market efficiency. For
example, eBay’s e-market model represents a dynamic
marketplace where buyers and sellers transact directly.
Alternatively, priceline.com’s e-market model is one in
which it acts as an online intermediary facilitating the
interaction and trade between e-market participants. A large
number of existing companies are beginning to progress from
their existing business models toward e-markets. For example, a
traditional distributor of industrial products, W.W. Grainger,
recently established OrderZone.com as an e-market for suppliers
and distributors of its products.
International Data Corporation estimates that the
worldwide e-commerce market will grow from approximately $64.8
billion in 1999 to more than $978.4 billion in 2003,
representing a compound annual growth rate of 97%. We believe
this growth in the worldwide e-commerce market also will lead to
a significant increase in demand for Internet services.
International Data Corporation also forecasts that the worldwide
market for Internet services will grow from $12.9 billion in
1999 to $78.5 billion in 2003, representing a compound annual
growth rate of 57%.
Our competition stems primarily from Internet
services firms such as Scient Corporation, Viant Corporation,
Razorfish, Inc., Proxicom Inc., Sapient Corporation and USWeb,
and other large information technology consulting firms and
integrators such as Andersen Consulting, the major accounting
firms, EDS and IBM. The traditional information technology
consulting firms have primarily focused on integration projects
for client-server systems, enterprise resource planning software
package implementations and simple web enablement of internal
business functions. Most of the early work in Internet services
focused on front-end web design and did not require the strong
technology integration skills necessary to build solutions for
e-markets.
We believe the next stage of growth for Internet
services will involve building systems that require a greater
degree of security, scalability and reliability and are
integrated with multiple back-end systems in addition to web
site design and user experience capabilities. We further believe
that we are well positioned to benefit from this market
opportunity because of our early focus on e-markets, our
experience and expertise in building complex solutions and our
strong legacy system integration skills.
The Lante Solution
We believe the following key factors distinguish our
ability to deliver solutions to our clients:
Our professionals possess the vision and
understanding of e-markets necessary to help our clients clarify
their short and long term goals and evolve their business models
toward these emerging e-markets. Because of our early focus on
building e-market solutions, we are able to help our clients
think big, start smart, scale fast and realize the full
potential of their e-market opportunities.
|
ŸAbility to
Build Solutions for e-Markets
|
E-markets must be designed to provide a secure
computing environment, enhance functionality with increasing
usage, process extremely large volumes of information reliably,
integrate with multiple back-end systems and adapt to the
ever-changing needs of the markets they serve. Our professionals
possess the skills and experience to successfully design and
develop these solutions; we have been building complex
technology solutions for 15 years and have focused on e-markets
since 1996. For example, we developed a digital platform for
Zixit that has the capacity to support signature hosting for
every email address in the world. In addition, we have strategic
alliance partnerships with leading Internet and e-market
software providers such as InterWorld Corp., Persistence
Software, Tradex Technologies, webMethods and Yantra
Corporation. These relationships enable our professionals to
stay apprised of the latest technologies and to effectively
integrate these software products into our
solutions.
|
ŸFlexible,
Integrated Development Framework
|
Rapidly launching the right solution is a
competitive imperative for our clients. To help them achieve
this objective, we utilize an iterative development process
—rather than a rigid methodology composed of discrete phases
—and an integrated, multi-disciplinary team approach. Our
flexible framework helps our clients adapt to the changing
circumstances and needs that often arise in these types of
engagements. Our multi-disciplinary teams integrate strategy,
user experience and technology competencies within a delivery
management discipline. We believe this approach enables
continuous collaboration and client feedback to help speed time
to market.
|
ŸEnterprise-wide Competencies Balanced with Regional
Delivery
|
We deliver successful solutions for our clients by
deploying regional client service teams that are supported by
our enterprise-wide competencies—strategy, user experience,
technology and delivery management. Each of our professionals
specializes in an enterprise-wide competency and serves on the
regional client service team in the area where he or she
resides. Our strategy, user experience and technology leaders
are responsible for capability development, quality assurance,
recruiting, training and intellectual capital
development for their respective competencies throughout all of
our offices. Our managing directors have profit and loss
responsibility for their regions, and oversee new business
development, solution delivery and client relationship
management. We create incentives for our regional managing
directors to share resources nationally. We believe our delivery
model optimizes both client satisfaction and the retention of
our talented workforce.
Strategy
Our objective is to be one of the recognized leaders
in the Internet services industry. We intend to pursue this
objective in the following ways:
|
ŸFocus on
Building Solutions for e-Markets
|
We will continue to focus on building solutions that
enable our clients to seize market opportunities and competitive
advantages in their industries. To date, most of our e-market
engagements have been with Internet startup companies, and we
will continue to seek out such clients. At the same time,
traditional businesses are evolving their business models toward
emerging e-markets. We expect to leverage our early experience
with Internet startup companies to develop e-markets for these
traditional businesses.
|
ŸMaintain
Our Technological Leadership
|
We believe technological expertise is critical to
building successful e-market solutions. It also helps us attract
more clients and technology-savvy professionals, both of which
fuel our continued growth. Through a number of initiatives, we
intend to maintain our technological leadership and know-how. We
are establishing virtual technology laboratories in each of our
offices that allow us to prototype and evaluate new technologies
and applications. We have also entered into strategic alliances
with leading software vendors that help us build solutions for
e-markets. In addition, we maintain ongoing software development
training programs for our professionals and a knowledge
management system that fosters the sharing of intellectual
capital among our professionals in all of our
offices.
|
ŸContinue to
Attract and Retain Talented Professionals
|
We believe our skilled professionals are our
greatest asset. To grow our business we intend to devote
substantial resources to attracting and retaining skilled
professionals. We believe the opportunity to develop
leading-edge solutions will help attract qualified
professionals. We have a full-time recruiting staff of eleven,
up from three in 1998, dedicated to identifying suitable
candidates with strategy, user experience, technology and/or
delivery management skills. When possible, we recruit
professionals with hybrid skills across two or more of our
competencies. Employee referrals are another recruiting channel
and have accounted for approximately 30% of our hires in 1999.
We work diligently to retain our employees by, among other
things:
|
Ÿ
|
offering opportunities to develop leading-edge
solutions;
|
|
Ÿ
|
promoting a positive corporate culture and
balanced lifestyle;
|
|
Ÿ
|
offering a competitive compensation and
benefits package;
|
|
Ÿ
|
distributing stock options to every
employee;
|
|
Ÿ
|
enabling employees to structure and control
their own career path through our Professional Development
Program; and
|
|
Ÿ
|
providing orientation and mentoring programs to
integrate new employees.
|
|
ŸInvest in
Brand Building
|
Positive awareness of our brand and a strong
reputation are critical to our growth. We will continue to
invest in strengthening our brand and building awareness of
Lante within the business and technology communities. Our
initiatives include:
|
Ÿ
|
sponsoring and speaking at targeted industry
conferences and e-commerce events;
|
|
Ÿ
|
promoting our brand through an aggressive
public relations campaign;
|
|
Ÿ
|
developing customized local marketing programs
for each of our regional operations;
|
|
Ÿ
|
creating co-marketing programs with our
strategic alliance partners; and
|
|
Ÿ
|
promoting the Lante brand at industry
shows.
|
When appropriate, we also seek to leverage our
distinguished advisory group of investors to enhance our brand
and build awareness of Lante.
|
ŸExpand Our
Geographic Presence
|
We intend to grow through geographic expansion. We
doubled our number of offices during 1999, and we now operate
from Chicago, Seattle, San Francisco, New York, Los Angeles,
Dallas, Boston and Charlotte. We will continue to expand our
geographic presence, which may include international locations.
We believe strong client relationships are built and sustained
by regional client service teams that draw upon our best
practices on an enterprise-wide basis.
The Lante Approach
We deploy an integrated, multi-disciplinary team
approach to develop solutions for our clients. Each team is
composed of experts from each of our four competencies
—strategy, user experience, technology and delivery
management. Our professionals work closely with the client
through an iterative development process in which we
incrementally refine our assumptions from engagement inception
to a final delivered solution. Our work in each iteration
augments the preceding iteration, mitigating risks and adjusting
to inevitable changes. We believe this approach strikes a
healthy and successful balance between the desire for a
structured process and the dynamic nature of our clients’
needs.
[LANTE E-MARKET CHART]
During an engagement’s inception, we
primarily emphasize our strategy competency. As we progress to
the design phase, our user experience competency plays a greater
role. As we build our solution and integrate it with the client
’s back-end systems, our technology competency takes on a
more predominant role. Throughout the engagement, our delivery
management professionals oversee the process and work closely
with the client.
Our strategy professionals are skilled in market
research, strategy development, assessment and business
modeling. Our strategy professionals help our clients with the
following:
|
Ÿ
|
Opportunities and readiness
assessment: We clarify the client
’s proposed business model, identify opportunities to
leverage the Internet, validate the client’s objectives,
identify critical success factors and assess the organization
’s preparedness for capitalizing on these
opportunities.
|
|
Ÿ
|
Strategy development:
We refine the client’s strategic
objectives by identifying the gap between their current
business model and the requirements for a successful Internet
based business model. We also help the client identify the
nature of the relationship among the buyers, sellers and
suppliers participating in the new business model.
|
|
Ÿ
|
Business modeling:
Our professionals explore various business and user
scenarios with the client to establish a model of the desired
business processes and systems. We often identify and
establish key business metrics that will help in assessing the
future success of the new business model.
|
Our user experience professionals are skilled in
content strategy, information architecture, interaction and
visual design, as well as front-end development and usability
testing. Our user experience professionals help our clients
build an Internet presence that attracts, engages and retains
users through the following:
|
Ÿ
|
Content strategy:
We work with the client to assess the market and
audience for which the site is to be designed. This effort
includes initial considerations for developing and
establishing online identity and brand, as well as assessing
user capability, understanding and behavioral patterns that
will influence the visual design of the site.
|
|
Ÿ
|
Content design:
We develop and deliver a set of prototypes to
demonstrate alternative content designs that will be effective
in delivering the solution. We collaborate with the client and
often include testing the user experience among focus groups
and select customers to determine which prototype will best
meet their needs.
|
|
Ÿ
|
Front-end development:
We build out the content design and navigation
of the web site and work with our technology professionals to
integrate the web site with the system’s back-end data
and processing components.
|
Our technology professionals are skilled in
leading-edge Internet based platforms and technologies such as
CORBA, COM, Java, and XML; SQL database products from Oracle,
Microsoft and Sybase; Internet based packaged application
software and tools; as well as Unix and Windows NT server
platforms. Our technology professionals provide our clients with
the following:
|
Ÿ
|
System Architecture:
We identify the hardware, software, network,
security and personnel needed to successfully construct and
deliver the specifications dictated by the new business
model.
|
|
Ÿ
|
Software Architecture:
We identify the various software components that
need to be developed and integrated in our systems
architecture. These software components include packaged
software from third-party vendors as well as customized
software that we develop for the solution.
|
|
Ÿ
|
Construction:
We develop and integrate the application software,
database and platform tools and products identified by our
system and software architectures into an overall technology
solution.
|
Our delivery management professionals are
responsible for managing our iterative delivery model and
ensuring client satisfaction. Our delivery management personnel
usually possess a hybrid set of skills across our
competencies.
Case Studies
An online solution for appraising art, antiques and
other collectibles.
|
Challenge:
|
Develop an Internet based solution to obtain an
accurate, credible appraisal of collectibles.
|
|
Solution:
|
We are working with eppraisals.com to build a
solution that will efficiently link collectors with a network
of appraisal experts to determine the value of antiques, art
and other collectibles. Through eppraisals.com, a collector
will be able to submit digital images and a description of the
item to be appraised. Within 48 hours, a member of the network
of appraisal experts will respond with an easy-to-understand
opinion about the object’s period, style and value,
authenticated by an eppraisals.com “digital certificate
”.
|
A leading producer of perennials and other garden
products.
|
Challenge:
|
Integrate Etera’s traditional retail
channel with a new business model that leverages the
Internet.
|
|
Solution:
|
We are working with Etera to build a
sophisticated solution that enables its network of more than
6,000 independent lawn and garden centers to offer a broad
array of premium garden products and related information
through customized web sites. Each web site will be integrated
with Etera and other product vendors that supply lawn and
garden centers. Product orders placed through dealer web sites
are shipped directly from the vendors to the home gardeners
with participating local garden centers receiving a fee on
each transaction. The result will be an integrated e-market
that benefits all parties—Etera and its dealers will be
able to build their brands and create a new revenue channel,
and home gardeners will gain a broader product selection and a
more simplified purchasing process.
|
An Internet based service to manage
business-critical communication.
|
Challenge:
|
Simplify the document distribution and
transaction management processes for syndicated loan
transactions.
|
|
Solution:
|
We collaborated with IntraLinks to develop a
highly secure extranet called IntraLoan. This solution allows
the underwriting bank of a loan syndication to manage the
global distribution and exchange of confidential documents
with multiple, participating financial institutions. IntraLoan
reduces the typical cycle time and administrative resources
needed to syndicate a loan and has facilitated nearly 1,000
transactions valued at more than $500 billion in less than two
and a half years. We designed IntraLoan as a flexible and
scalable e-market solution that IntraLinks has been able to
expand into other document-intensive industries and
applications such as private placements, mergers and
acquisitions, municipal financings and other legal
matters.
|
The world’s largest software
company.
|
Challenge:
|
Improve customer service while reducing the
costs of Microsoft’s worldwide software certification
program.
|
|
Solution:
|
We developed a solution that enables Microsoft
to efficiently manage the certification process for hundreds
of thousands of information technology professionals. This
solution, called MS Cert, centralizes the scheduling of
candidates and certified software trainers for exams, events,
courses, materials, reporting tools and analysis. With MS
Cert, Microsoft has streamlined management processes, reduced
the number of telephone calls support representatives must
handle concerning certification data and increased customer
service.
|
An interactive online marketplace for buyers and
suppliers of scientific products.
|
Challenge:
|
Streamline the traditional catalog order
procurement process for scientific products.
|
|
Solution:
|
We collaborated with SciQuest.com to develop a
scalable e-market system that aggregates and fulfills customer
orders for merchandise from over 200 scientific product
suppliers. Our solution helped SciQuest.com to be the first to
market in its industry with a centralized e-commerce site.
Their web site carries over 300,000 scientific products and
can significantly reduce ordering costs.
|
A technology platform for security and privacy on
the Internet.
|
Challenge:
|
Establish a platform for secure email
communications and Internet transactions that addresses
consumer and merchant concerns about security and
privacy.
|
|
Solution:
|
We worked with ZixIt to architect, design and
develop a secure, centralized digital platform with signature
hosting capacity for every email address in the world and the
secure data center to support this operation. ZixMail, one of
the platform’s offerings, enables Internet users all over
the world to send and receive encrypted and digitally signed
email communications without changing their existing email
addresses or systems. It ensures that only intended recipients
can read an email message, protects email messages from
tampering and certifies the identity of the sender of an email
message.
|
Clients
The following is a representative list of our
clients for the nine-month period ended September 30,
1999:
| Ÿ
beautyjungle.com
Ÿ Chempoint.com
Ÿ Classified Ventures,
Inc.
Ÿ eppraisals.com
Ÿ Etera, LLC
|
|
Ÿ Hewlett-Packard Company
Ÿ IntraLinks, Inc.
Ÿ Microsoft
Corporation
Ÿ
SolutionCentral.com
Ÿ ZixIt Corporation
|
|
The majority of our engagements are billed on a
fixed-fee basis that requires we accurately estimate the time
and expenses necessary to complete a particular engagement. As
this is a difficult task, we cannot give any assurances that our
estimates are accurate.
As of November 15, 1999, we had 54 ongoing client
engagements. Our five largest clients accounted for 69% of our
revenues for the first nine months of 1999, of which ZixIt and
Microsoft contributed 37% and 16%, respectively. In 1998, our
five largest clients accounted for 60% of our revenues, of which
Microsoft and IntraLinks contributed 21% and 12%, respectively.
In 1997, our five largest clients accounted for 56% of our
revenues, of which Microsoft and Saranac Software contributed
27% and 13%, respectively.
Marketing and Sales
We target a wide range of clients from Internet
startup ventures to Fortune 1000 companies. We also plan to
focus our efforts on the Fortune e-50 companies that represent
the leading brand name companies of the Internet economy. Our
marketing efforts are dedicated to strengthening our brand name,
differentiating us in the Internet services market, generating
business and recruiting leads and building employee
understanding and support for our mission. We have eight
professionals dedicated to our marketing efforts. We generate
leads through the relationships of our management team and our
strategic alliance program. Leads are directed to the
appropriate regional managing director or principal based on the
location of the lead. The marketing department works with our
regional delivery teams to tailor programs and activities
designed to help generate qualified leads. We use a variety of
tools in our integrated marketing program to provide information
about us to potential clients. Our marketing strategies
include:
|
Ÿ
|
sponsoring and speaking at targeted industry
conferences and e-commerce events;
|
|
Ÿ
|
promoting our brand through an aggressive
public relations campaign;
|
|
Ÿ
|
developing customized local marketing programs
for each of our regional operations; and
|
|
Ÿ
|
creating co-marketing programs with our clients
and strategic alliance partners.
|
Our Event Systems Group is responsible for preparing
demonstrations of new technologies at industry conferences and
events. It focuses exclusively on building interactive web
sites, on-site networked systems and other information
technology services for these meetings and events. This group
provides us with valuable exposure to leading-edge technology
and potential business partners.
Strategic Alliances
Strategic alliances are important to the growth of
our business. We define strategic alliances as mutually
beneficial relationships between us and other organizations that
include mutual investments of resources —time, people and
money. Some of the important benefits we derive from our
strategic alliances include: enhanced capability to deploy
end-to-end solutions, greater name recognition in the
marketplace and enhanced lead and revenue
generation.
We undertake a comprehensive review of potential
strategic alliance partners before entering into a strategic
alliance. We target partners who have leading-edge technologies
and share our focus on e-markets and our collaborative
culture.
Our strategic alliances can be grouped into three
major categories: packaged software applications, infrastructure
products and services and application development tools and
platforms. Currently, we have non-exclusive alliances with the
following organizations:
|
Packaged Software
Applications
|
Eprise Corporation provides Participant
Server, an advanced content-management system that allows users
to create and update Internet based content, distribute
content-management responsibility across various departments,
target information to select audiences and control access and
content from unauthorized use. Our professionals use Participant
Server to provide leading-edge content-management functionality
in their solutions.
InterWorld Corp. provides Commerce Exchange,
an e-commerce software application which includes on-line
catalog, merchandising and order entry management systems that
our professionals use in deploying solutions for
e-markets.
Tradex Technologies provides Commerce Center,
a software platform that facilitates the exchange of goods,
services and information online among multiple buyers and
sellers. Our professionals integrate the Commerce Center
software platform as a transaction engine to build solutions for
e-markets.
Yantra Corporation provides PureEcommerce, an
Internet-based fulfillment software application that provides
real-time order management and supply chain functionality,
including personalized product selection and delivery, warehouse
distribution and drop-ship from suppliers. Our professionals use
PureEcommerce to provide our clients with control of their order
management process across complex e-market distribution
models.
|
Infrastructure Products and
Services
|
Digital Island provides global,
transaction-based content distribution and hosting, and a
reliable, cacheable global network. Our relationship with
Digital Island enables us to support the unique needs of our
clients that operate in multiple countries and need to securely
and consistently extend business-critical applications for
marketing, selling, servicing or distributing products via the
Internet.
GTE Internetworking provides an advanced
fiber optic network, data centers for managed hosting, training,
technical support and maintenance to support our clients. Our
relationship with GTE Internetworking enables us to provide our
clients with a secure and reliable environment to host their
solutions after we have built and deployed them.
|
Application Development Tools and
Platforms
|
Persistence Software provides PowerTier, a
leading transactional application server that utilizes a unique
caching approach for storing core business data. PowerTier
accelerates application performance and minimizes unnecessary
network traffic. Our relationship with Persistence Software
enables us to rapidly deliver highly scalable, large volume
Enterprise Java Bean applications for our clients. We believe
this technology is particularly suitable for large transactional
applications typical in e-market solutions.
Rational Software provides project life-cycle
management solutions for software development, including tools,
services and software engineering best practices. Rational
’s software simplifies the process of acquiring, deploying
and supporting a comprehensive development platform. Our
professionals use the Rational Unified Process to improve team
productivity and reduce the total cost of delivery for our
solutions.
Versata provides Business Logic Server and
JADE Developer Studio, an application development and deployment
platform. This platform uses business rule automation
technology, which significantly improves time to market. Our
relationship with Versata enables us to rapidly build and modify
prototypes and multi-tier Java applications for our
clients.
webMethods provides the B2Bi product suite, a
business-to-business integration platform that leverages XML to
automatically link a client’s business processes with those
of its key partners. It accomplishes this result without the
time or expense of altering existing legacy, proprietary or
enterprise resource planning applications. Lante’s
relationship with webMethods enables us to provide our clients
with leading-edge knowledge on business community
integration.
Internal Information Systems
We continuously work to improve our infrastructure,
management systems and knowledge sharing systems. We currently
have internal information systems infrastructure and personnel
that support our network,
web site, intranet and extranet. Our current management systems
consist of various internal processes, financial reporting,
human resources and benefits information, client engagements,
intellectual capital and marketing systems. We are currently in
the process of making improvements in these areas because
scalable infrastructure, efficient management of business, and
effective sharing of our knowledge base are key components of
our strategy. We have begun work on each of the following
improvements and expect to complete each of these projects
during the first half of 2000:
|
Ÿ
|
Scalable and Flexible Network:
We are implementing a highly scalable network
that provides each of our offices with high-speed wide
bandwidth connections to our corporate wide area network.
Additionally, we are upgrading each office to 100 MB local
area networks, as well as dramatically increasing Internet
bandwidth and remote access. As part of this process, we are
developing a template that will allow us to readily integrate
future offices into our network.
|
|
Ÿ
|
Video Conferencing Systems:
We are deploying conference room and desktop video
conferencing systems at all of our offices to provide
real-time communication with our clients and to improve our
overall productivity. These systems will be able to
communicate with a variety of other video system
standards.
|
|
Ÿ
|
Management Systems Improvements:
We are implementing an enterprise-wide
professional services automation system (EVOLVE) and an
integrated financial reporting system to effectively manage
our business and measure key performance
indices.
|
Competition
The Internet services market is relatively new and
highly competitive. This market has grown dramatically in recent
years as a result of the increasing use of the Internet by
businesses to increase revenue, reduce costs and deepen
relationships with customers, suppliers and other key partners
Our competitors include:
|
Ÿ
|
Internet service firms, such as Scient
Corporation, Viant Corporation, Razorfish, Inc., Proxicom
Inc., Sapient Corporation and USWeb;
|
|
Ÿ
|
technology consulting firms and integrators,
such as Andersen Consulting, the major accounting firms,
Diamond Technology Partners, Inc., EDS and IBM;
|
|
Ÿ
|
strategy consulting firms, such as Bain &
Company, Booz Allen & Hamilton Inc., The Boston Consulting
Group, Inc. and McKinsey & Company; and
|
|
Ÿ
|
in-house information technology, marketing and
design service departments of our current and potential
clients.
|
Many of our competitors have longer operating
histories, larger client bases, longer relationships with their
clients, greater brand or name recognition and significantly
greater financial, technical and marketing resources than we
do.
Several of these competitors have announced their
intention to offer a broader range of Internet based solutions.
Furthermore, greater resources may enable a competitor to
respond more quickly to new or emerging technologies and changes
in customer requirements and to devote greater resources to the
development, promotion and sale of its products and services
than we can. In addition, competition may intensify because
there are relatively low barriers to entry into the Internet
services market.
We believe that the principal competitive factors in
this market, in relative importance, are technical knowledge and
creative skills, brand recognition and reputation, reliability
of the delivered solution, client service and price. We also
believe that our ability to compete in our market is dependent
on our ability to attract and retain qualified
professionals.
Employees
As of November 30, 1999, we had 317 employees. Our
employees include 233 billable professionals, 62 support staff
and 22 executives, including principals and managing directors.
Our employees are not represented by any union and generally are
retained on an at-will basis. We consider our relations with our
employees to be satisfactory.
Facilities
Our corporate office is located in Chicago, Illinois
and comprises 13,429 square feet. The lease for our corporate
office expires on March 31, 2007. We also lease other office
space in Chicago, as well as office space in New York, San
Francisco, Charlotte, Dallas and Seattle. We do not own any real
estate. We do not consider any specific leased location to be
material to our operations, and we believe that equally suitable
alternative locations are available in all areas where we
currently do business.
Legal Proceedings
From time to time, we may be involved in litigation
incidental to the conduct of our business.
Pantelis Georgiadis, our former chief operating
officer, filed a complaint against us on October 21, 1999. Mr.
Georgiadis previously owned 2,000,000 shares of our common stock
with respect to which we exercised our right to repurchase upon
the termination of his employment. Mr. Georgiadis contends that
we breached our contractual obligations by improperly valuing
these shares in connection with the repurchase. We deny Mr.
Georgiadis’ allegations, believe they are without merit and
intend to defend this lawsuit vigorously.
Except as described above, we are not currently
party to any material legal proceedings.
Executive Officers, Directors and Key
Employees
The following table contains information with
respect to our executive officers, directors and key
employees:
Name
|
|
Age
|
|
Position
|
| Executive officers and directors: |
|
|
|
|
|
Mark
Tebbe(1) |
|
38 |
|
Chairman of
the Board of Directors |
|
C. Rudy
Puryear(1) |
|
48 |
|
President,
Chief Executive Officer and Director |
|
Brian
Henry |
|
42 |
|
Executive Vice
President and Chief Financial Officer |
|
Marvin
Richardson |
|
37 |
|
Chief
Technology Officer |
|
Rick
Gray |
|
43 |
|
Vice President
—Marketing |
|
Marla
Mellies |
|
39 |
|
Vice President
—Human Resources |
|
John
Oltman(1) |
|
54 |
|
Vice Chairman
of the Board of Directors |
|
Paul
Carbery(2)(3) |
|
38 |
|
Director |
|
James
Cowie(1) |
|
44 |
|
Director |
|
Judith
Hamilton(3) |
|
55 |
|
Director |
|
John
Kraft(3) |
|
57 |
|
Director |
|
John
Landry(2) |
|
52 |
|
Director |
|
Paul
Yovovich(2) |
|
46 |
|
Director |
| Other key employees: |
|
|
|
|
|
Jeff
Bradley |
|
35 |
|
Managing
Director |
|
Norman
Schmidt |
|
52 |
|
Managing
Director |
|
Shawn
Sires |
|
36 |
|
Managing
Director |
(1)
|
Member of the executive committee
|
(2)
|
Member of the audit committee
|
(3)
|
Member of the compensation
committee
|
Mark Tebbe, a founder of Lante, served as our
president and chief executive officer from inception until June
1999. Since June 1999, Mr. Tebbe has been our chairman of the
board. Mr. Tebbe also serves as a director of ZixIt Corporation,
a company which provides a technology platform for on-line
security and privacy to Internet based businesses, as well as
several technology-based and not-for-profit
corporations.
C. Rudy Puryear has served as our president
and chief executive officer since June 1999. Mr. Puryear was
Andersen Consulting’s global managing partner for
e-commerce from September 1997 to June 1999. Mr. Puryear served
as Andersen Consulting’s managing partner for information
technology strategy from March 1991 to September 1997. Prior to
his tenure at Andersen Consulting, Mr Puryear was managing
director for Nolan, Norton & Co., an information technology
strategy-consulting firm.
Brian Henry joined Lante as executive vice
president and chief financial officer in November 1999 and is
responsible for our financial and information technology
functions. From April 1998 to October 1999, Mr. Henry was chief
operating officer of the information management group of
Convergys Corporation, a leader in billing and customer care for
the communications industry. He has also held senior positions
including executive vice president and chief financial officer
of Cincinnati Bell Inc., a diversified communications service
company, from 1993 to 1998, and vice president and chief
financial officer of Mentor Graphics Corporation, a public
software company, from 1986 to 1993.
Marvin Richardson has been our chief
technology officer since November 1999. From April 1999 to
October 1999, he was vice president and chief technology officer
for EDS E. Solutions. From July 1996 to April 1999, he was vice
president and chief technology officer for MCI Systemhouse,
Inc., a network services company. From 1993 to 1995, he was
chief architect at SHL Systemhouse, a company involved in
client-server consulting and systems integration.
Rick Gray has been our vice president of
marketing and communications since November 1998. From May 1996
to November 1998, he was the worldwide director of public
relations at A.T. Kearney (a subsidiary of EDS), an
international management consultancy and executive search firm.
From June 1993 to May 1996, Mr. Gray served as director of
corporate marketing and communications for SHL Systemhouse,
Inc., a client-server outsourcing and systems integration firm.
Prior to June 1993, he served as director of public and investor
relations for Technology Solutions Company, and as vice
president, group director and head of the Midwest Advanced
Technology Practice for Hill and Knowlton, Inc.
Marla Mellies has been our vice president of
human resources since June 1998. From June 1995 to June 1998,
Ms. Mellies was vice president of human resources for client
access products at 3Com Corporation/U.S. Robotics, a provider of
information networking systems. From 1992 to May 1995, Ms.
Mellies served as human resources director for the International
Business Group of Caremark, Inc.
John Oltman has been vice chairman of the
board of directors since July 1998. Since 1996, Mr. Oltman has
served as the president of JRO Consulting, Inc., which advises
and invests in technology companies. From February 1996 to
August 1997, he served as chairman and senior member of the
executive committee of TSW International, a provider of
application software and related services. From 1991 to 1995, he
served as chairman and chief executive officer of SHL
Systemhouse, Inc. a company involved in client server consulting
and systems integration. Prior to 1991, Mr. Oltman was a
worldwide managing partner for Andersen Consulting’s
Chicago consulting group and a member of the Andersen Worldwide
Organization board of directors. He joined Arthur Andersen in
1970. Mr. Oltman also serves as a director of InaCom Corp., an
information services technology provider, and Alysis
Technologies, Inc., a provider of application software solutions
to financial services organizations.
Paul Carbery has been a director since June
1999. Mr. Carbery has been a general partner of Frontenac
Company, a Chicago-based private equity investing firm, since
1993. He is also a director of Allegiance Telecom, Inc., a
provider of voice, data and Internet services, and
Whittman-Hart, Inc., an information services
company.
James Cowie has been a director since June
1999. Mr. Cowie has been a general partner of Frontenac Company,
a Chicago-based private equity investing firm, since 1989. He is
also a director of 3Com Corporation, a provider of information
networking systems. He also served on the board of PLATINUM
technology International, inc., a provider of
system software products and related consulting services, until
its sale to Computer Associates, Inc.
Judith Hamilton has been a director since
March 1999. She has been president and chief executive officer
at Classroom Connect, a leader in Internet based curriculum and
professional development for K-12 education since January 1999.
From April 1996 to July 1998, she served as president and chief
executive officer of First Floor, Inc., an Internet information
management company. From July 1992 to December 1995, she was
president and chief executive officer of Dataquest, Inc., an
information technology research company. Ms. Hamilton also
serves as a director of R.R. Donnelley & Sons Company,
Software.com, Inc., an Internet messaging solutions provider,
and Classroom Connect.
John Kraft has been a director since July
1998. Since 1993, Mr. Kraft has been active in consulting and
assisting many startup companies including Modem Media, a
provider of interactive marketing and communications, Two Way
Communications, a provider of interactive marketing and media
services, T-Zero Inc., a producer of software that delivers and
manages images to digital point-of-sales displays, and BioSafe
Medical Technologies, a developer of innovative technologies to
exploit small blood samples for analysis. Prior to 1993, Mr.
Kraft was employed for over twenty years at Leo Burnett, a
leader in the advertising industry, most recently as vice
chairman.
John Landry has served as a director since
October 1999. Since 1995, Mr. Landry has served as vice
president of technology strategy for IBM. Mr. Landry has also
served as chairman of AnyDay.com, an Internet calendar and
personal information management company, since February 1999.
From March 1996 to January 1999, he also served as chairman of
Narrative Communications, an Internet-based media advertising
and direct marketing company. From December 1990 to June 1995,
Mr. Landry served as the senior vice president of development
and chief technology officer for Lotus Development Corporation,
a provider of software products and services. He also serves as
a director of GIGA Information Group, a technology market
research firm, MCK Communications, Inc., a voice-over-IP
telecommunications company, and Interliant, Inc., an
applications service provider, as well as several other private
companies.
Paul Yovovich has been a director since July
1998. He currently serves as director for several companies
including 3Com Corporation, a provider of information networking
systems, APAC Customer Service, Inc., a customer relationship
marketing firm, Focal Communications Corporation, a
telecommunications provider, Comarco, Inc., a provider of
wireless communication, engineering and management services, and
Van Kampen Open End Funds. From 1993 to 1996, he was president
of Advance Ross Corporation, an international transaction
services company. Prior to 1993, he served in a variety of
executive positions with Centel Corporation.
Jeff Bradley has been our managing director
for the Northwest region since June 1999. From June 1996 to May
1999, Mr. Bradley served as the managing director of the
Northwest Area for MCI Systemhouse, Inc., a network services
company. From 1994 to May 1996, he developed and led IBM’s
object technology practice for the Northwest region and
eventually the entire West coast. From 1993 to 1994, he
developed and led IBM’s client-server consulting practice
for the Northwest region. From 1992 to 1993, he served as the
practice leader of IBM’s integration technology operations
consulting group for Seattle.
Norman Schmidt has been our managing director
for the Southeast region since August 1999. From August 1996 to
July 1999, Mr. Schmidt served as the vice president and regional
business development manager of The Revere Group, a national
information technology consulting firm. From 1976 to 1996, he
was self-employed, and during that time he founded and sold two
information technology consulting firms.
Shawn Sires has been our managing director
for the Southwest region since May 1999. From August 1996 to
April 1999, Mr. Sires served as senior managing director of MCI
Systemhouse, Inc. From May 1993 to July 1996, he served as
district manager for EDS in its San Francisco area sales and
client management organization.
Our Advisory Group
In 1998, we established an advisory group to assist
our management team in addressing strategic issues as we
positioned ourselves as a leader in the Internet services
industry. Our nine-member advisory group consists of the
following members:
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Ÿ
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Michael Dell, chairman and chief executive
officer of Dell Computer Corporation;
|
|
Ÿ
|
Judith Hamilton, president and chief executive
officer of Classroom Connect and former president and chief
executive officer of Dataquest, Inc.;
|
|
Ÿ
|
John Kraft, former vice chairman of Leo
Burnett;
|
|
Ÿ
|
John Landry, vice president of technology
strategy for IBM and former chief technology officer of Lotus
Development Corporation;
|
|
Ÿ
|
Dan Lynch, chairman of CyberCash,
Inc.;
|
|
Ÿ
|
Michael Maples, former executive vice president
of products for Microsoft Corporation;
|
|
Ÿ
|
Morton Meyerson, chairman and chief executive
officer of 2M Companies, Inc. and the former chairman and
chief executive officer of Perot Systems and president and
vice-chairman of EDS;
|
|
Ÿ
|
John Oltman, former Andersen Consulting
managing partner and former chief executive officer of SHL
Systemhouse; and
|
|
Ÿ
|
Paul Yovovich, former president of Advance Ross
Corporation.
|
Each advisor is expected to devote at least five
days per year, including attending semi-annual strategy
sessions. We granted each of the members of the advisory group
an option to purchase 200,000 shares of our common stock under
our 1998 stock option plan on the date they joined the advisory
group. These options vest over five years so long as they remain
a member of the advisory group and terminate on the seventh
anniversary of their grant date. At the time of grant, John
Oltman received options for another 200,000 shares in
consideration for additional consulting and advisory services he
has provided to us. Each of the advisors also has invested in
Lante. To date, the advisory group has been instrumental in
developing plans to accelerate our growth rate, recruiting top
executive and professional talent, referring qualified business
leads and helping us establish a differentiated market position
from our competitors.
Board of Directors
Our certificate of incorporation authorizes a board
of directors consisting of at least five, but not more than 15,
members. The current board of directors consists of nine
members. Our certificate of incorporation provides that, upon
completion of this offering, the terms of office of the members
of our board of directors will be divided into three classes:
Class I, whose term will expire at the annual meeting of
stockholders to be held in 2001; Class II, whose term will
expire at the annual meeting of stockholders to be held in 2002;
and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2003. The Class I directors are Paul
Carbery, John Kraft and John Oltman, the Class II directors are
Judith Hamilton, C. Rudy Puryear and Paul Yovovich, and the
Class III directors are James Cowie, John Landry and Mark Tebbe.
At each annual meeting of stockholders after the initial
classification, the successors to directors whose term will then
expire will be elected to serve three-year terms. Our bylaws
provide that the authorized number of directors may be changed
only by resolution of our board of directors. Any additional
directorships resulting from an increase in the number of
directors may be changed only by resolution of the board of
directors and will be distributed among the three classes so
that, as nearly as possible, each class will consist of
one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or
preventing changes in control or management of
Lante.
Prior to completion of this offering, Frontenac VII
Limited Partnership has the right to designate two directors. If
the initial public offering price in this offering is at least
$6.00 per share and at least $20 million in proceeds are raised
in connection with this offering, then Frontenac VII Limited
Partnership shall only be entitled to designate, as of the
completion of this offering, one representative to the board of
directors. The director selected by Frontenac shall then be
entitled to remain on the board of directors for an initial term
equal in length to the longest period served by any director
before requiring reelection by the stockholders.
Each officer is elected by, and serves at the
discretion of, the board of directors. Each of our officers and
directors, other than non-employee directors, devotes full-time
efforts to our affairs. Our non-employee directors devote such
time to our affairs as is necessary to fulfill their duties.
There are no family relationships among any of our directors,
officers or key employees.
Committees of the Board of
Directors
Our board of directors has established an executive
committee, audit committee and compensation
committee.
Our executive committee has such powers in the
management of our business and affairs as our board of directors
may delegate or assign to the executive committee. These powers
may include evaluating and negotiating acquisitions and
strategic alliances. The current members of the executive
committee are Messrs. Cowie, Oltman, Puryear and Tebbe. Mr.
Tebbe serves as the chairman of this committee.
Our audit committee recommends to our entire board
the independent public accountants to be engaged by us, reviews
the plan and scope of our annual audit and reviews our internal
controls and financial management policies with our independent
public accountants. The current members of our audit committee
are Messrs. Carbery, Landry and Yovovich. Mr. Yovovich serves as
the chairman of this committee.
Our compensation committee establishes guidelines
and standards relating to the determination of executive
compensation, reviews executive compensation policies and
recommends to our entire board compensation for our executive
officers. Our compensation committee also administers our stock
option and incentive award plans and determines the number of
shares covered by, and terms of, options to be granted to
executive officers and key employees pursuant to these plans.
Our compensation committee currently consists of Messrs. Carbery
and Kraft and Ms. Hamilton. Mr. Kraft serves as the chairman of
this committee.
Director Compensation
No additional compensation is provided to our
employees for serving as a director. Directors who are not our
employees do not receive a cash fee for serving as a director
but are reimbursed for reasonable expenses incurred in
connection with attendance at directors’ meetings. During
1999, we have granted options to Ms. Hamilton and Messrs. Kraft,
Landry, Oltman and Yovovich for serving as directors. During
1999, Ms. Hamilton and Mr. Landry each received options to
purchase 80,000 shares, Mr. Oltman has received options to
purchase 100,000 shares and Messrs. Kraft and Yovovich have each
received options to purchase 120,000 shares. These options vest
over periods ranging from three to four years.
Compensation Committee Interlocks and Insider
Participation
No member of the compensation committee has been an
officer or employee of us at any time. None of our executive
officers serves as a member of the board of directors or
compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors
or compensation committee. Prior to the formation of the
compensation committee in June 1999, the board of directors as a
whole made decisions relating to compensation of our executive
officers.
Executive Compensation
The following table contains information concerning
all compensation paid by Lante during 1998 to our chief
executive officer and our four other most highly compensated
executive officers.
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|
|
Annual compensation
|
|
Long-term
compensation awards
|
|
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other annual
compensation
($)
|
|
Securities underlying
options/SARs
(#)
|
Mark
Tebbe(1)
Chairman of the Board of Directors |
|
$355,000 |
|
$648,571 |
|
—
|
|
—
|
|
C.
Rudy Puryear(2)
President and Chief Executive Officer |
|
—
|
|
—
|
|
—
|
|
—
|
|
Pantelis Georgiadis(3)
Chief Operating Officer |
|
250,000 |
|
— |
|
—
|
|
1,750,000 |
(4) |
Marla
Mellies(5)
Vice President—Human Resources |
|
66,970 |
|
15,000 |
|
—
|
|
200,000 |
|
Rick
Gray(6)
Vice President—Marketing |
|
33,333 |
|
25,000 |
|
—
|
|
300,000 |
|
(1)
|
Mr. Tebbe served as President of Lante
throughout 1998.
|
(2)
|
Mr. Puryear was not affiliated with Lante until
June 30, 1999.
|
(3)
|
Mr. Georgiadis’ employment as chief
operating officer was terminated as of September 10,
1999.
|
(4)
|
We entered into an agreement with Mr.
Georgiadis dated June 3, 1999 whereby options to purchase
1,000,000 shares were fully vested and options to purchase
750,000 shares were canceled.
|
(5)
|
Ms. Mellies was not affiliated with Lante until
June 25, 1998.
|
(6)
|
Mr. Gray was not affiliated with Lante until
November 2, 1998.
|
Option Grants in 1998
The following table contains information concerning
our grant of stock options during 1998 to our chief executive
officer and our four other most highly compensated executive
officers. Potential realizable value is presented net of the
option exercise price, but before any federal or state income
taxes associated with exercise, and is calculated assuming that
the fair market value on the date of the grant appreciates at
the indicated annual rates, compounded annually, for the term of
the option. The 5% and 10% assumed rates of appreciation are
mandated by the rules of the SEC and do not represent our
estimate or projection of future increases in the price of our
common stock. Actual gains will be dependent on the future
performance of our common stock and the option holder’s
continued employment throughout the vesting period. The amounts
reflected in the following table may not be
achieved.
Name
|
|
Number of shares
underlying
options granted
(#)
|
|
Percent of total
options
granted to
employees in
fiscal year
|
|
Exercise or
base price
($/Sh)
|
|
Expiration
date
|
|
Potential realizable
value at assumed annual
rates of stock price
appreciation for option
term
|
|
|
|
|
|
5%
|
|
10%
|
| Mark
Tebbe |
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
| C.
Rudy Puryear |
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
| Pantelis Georgiadis |
|
1,750,000 |
(1) |
|
32.0 |
% |
|
$.225 |
|
4/30/2007 |
|
$217,085 |
|
$534,692 |
| Rick
Gray |
|
300,000 |
|
|
5.5 |
|
|
.268 |
|
11/2/2007 |
|
44,244 |
|
108,975 |
| Marla
Mellies |
|
50,000 |
|
|
0.9 |
|
|
.225 |
|
4/30/2007 |
|
6,202 |
|
15,277 |
| Marla
Mellies |
|
150,000 |
|
|
2.7 |
|
|
.225 |
|
9/10/2007 |
|
18,607 |
|
45,831 |
(1)
|
Mr. Georgiadis exercised options to purchase
1,000,000 shares on June 3, 1999, and options to purchase
750,000 shares were canceled on the same date. Mr. Georgiadis
’ employment was terminated on September 10,
1999.
|
1998 Option Values
The following table contains information regarding
unexercised options held at December 31, 1998 by our chief
executive officer and our four other most highly compensated
executive officers. The value of “in-the-money”
options represents the difference between the exercise price of
an option and the fair market value of our common stock as of
December 31, 1998, which, solely for purposes of this
calculation, we estimate to have been $.268 per
share.
|
|
|
Number of shares
underlying unexercised
options at
December 31, 1998 (#)
|
|
Value of
unexercised
in-the-money options at
December 31, 1998
|
|
|
|
Exercisable/Unexercisable |
|
Exercisable/Unexercisable |
| Mark
Tebbe |
|
—
|
|
|
—
|
| C.
Rudy Puryear |
|
—
|
|
|
—
|
| Pantelis Georgiadis |
|
0/1,750,000 |
(1) |
|
$0/$74,375 |
| Rick
Gray |
|
0/300,000 |
|
|
$0/$0 |
| Marla
Mellies |
|
0/200,000 |
|
|
$0/$8,500 |
(1)
|
Mr. Georgiadis entered into an agreement with
us dated June 3, 1999 whereby options to purchase 1,000,000
shares were fully vested and options to purchase 750,000
shares were canceled. Mr. Georgiadis’ employment was
terminated on September 10, 1999.
|
Employment Agreements
We have entered into an employment agreement with
Mark Tebbe that provides for an annual base salary of $360,000
and an annual bonus based upon his performance. The employment
agreement may be terminated
by either Mr. Tebbe or us, provided that the board of directors
may elect, other than in the case of termination of the
employment agreement by us for cause, to pay a severance amount
to Mr. Tebbe in the amount of $360,000 plus his most recent
annual bonus. This agreement imposes noncompetition and
nonsolicitation restrictions upon Mr. Tebbe during the term of
his employment and for two years thereafter.
We have entered into an employment agreement with
Rudy Puryear that provides for an annual base salary of $500,000
in each of 2000 and 2001 and a guaranteed bonus of $250,000,
pro-rated for the days of employment, for 1999, $250,000 for
2000 and $125,000 for 2001. This agreement imposes on Mr.
Puryear nonsolicitation restrictions for two years following
termination of his employment and noncompetition restrictions
for six months following termination of his
employment.
In connection with his employment agreement, Mr.
Puryear purchased 2.4 million restricted shares of common stock
for $1.345 per share. These shares vest over 48 months. In
connection with this purchase, we loaned Mr. Puryear $3.2
million. All principal and accrued interest on this loan are due
upon the earlier of June 30, 2005 or three years following a
defined liquidity event that includes this offering. In
addition, we made a second loan to Mr. Puryear in the amount of
$2.5 million. Principal and accrued interest on this loan are
due upon the earlier of June 30, 2003 or six months from the
termination of Mr. Puryear’s employment. If Mr. Puryear is
still employed as of June 30, 2003 and none of the specified
liquidity events have occurred or certain valuation targets for
Mr. Puryear’s stock have not been reached, then this loan
will be forgiven prospectively at the rate of $100,000 per
month.
Mr. Puryear is entitled to a one-time bonus pursuant
to his employment agreement, payable upon the earliest of (1)
six months from the date of termination of employment, (2) June
30, 2003 or (3) the date the accrued interest on the $2.5
million loan is paid in full. If Mr. Puryear repays this loan,
he is entitled to a bonus equal to $20,833 times the number of
full months of his employment from June 16, 1999 until the
accrued interest is paid.
If Mr. Puryear’s employment is terminated other
than by us for cause, he will be entitled to severance pay equal
to one year’s base salary plus the current year’s
target bonus, 18 months’ acceleration on the release of
shares of restricted stock from our right to repurchase for cost
and the unpaid principal balance of the $2.5 million loan shall
be forgiven at the rate of $83,333 for each full month of
service provided to us. Upon any termination of Mr. Puryear
’s employment, except following a change of control, we
have the right to repurchase from Mr. Puryear the unvested
portion of the 2.4 million shares purchased by Mr. Puryear at
the price he paid for these shares. Upon a change in control,
all of these shares shall become fully vested. We have also
granted registration rights to Mr. Puryear requiring that we
file a Form S-8 including a resale prospectus as necessary to
allow Mr. Puryear to resell his shares at the same time and in
the same amount as would be available under Rule 144 had Mr.
Puryear not acquired his shares pursuant to a secured
loan.
We have entered into an employment agreement with
Brian Henry that provides for an annual base salary of $250,000
and an annual bonus, with a target bonus of $100,000, pro-rated
for the days of employment for 1999. Mr. Henry’s employment
agreement imposes non-solicitation obligations during the term
of his employment and two years thereafter.
In connection with his employment agreement, Mr.
Henry purchased 300,000 shares of our common stock. Of these
shares, 200,000 shares are subject to our right to repurchase at
the then fair market value, and 50,000 of these shares will be
released from our repurchase right for each full year of
service. Mr. Henry also received an option grant for 700,000
shares of common stock which will vest over four years. The
exercise price of Mr. Henry’s options is $2.245 per
share.
If Mr. Henry’s employment is terminated without
cause, we will be obligated to pay Mr. Henry severance of six
months’ base salary plus a pro-rated portion of his target
bonus and the vesting of his stock options will be accelerated
by one year. Upon a change in control, Mr. Henry may terminate
his employment and will be entitled to severance of six months
’ base salary plus a pro-rated portion of his target bonus,
the vesting of his stock options will be accelerated by one year
and 200,000 of his restricted shares will be released from our
repurchase right.
We have entered into an employment agreement with
Marvin Richardson that provides for an annual salary of $200,000
and an annual bonus of $75,000, guaranteed through June 2000.
The agreement provides for nonsolicitation restrictions for two
years following termination of employment.
Limitation of Liability and Indemnification
Matters
Our certificate of incorporation contains provisions
that eliminate the personal liability of our directors to us or
our stockholders for monetary damages for breach of their
fiduciary duty as a director to the fullest extent permitted by
the Delaware General Corporation Law, except for
liability:
|
Ÿ
|
for any breach of their duty of loyalty to us
or our stockholders;
|
|
Ÿ
|
for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law;
|
|
Ÿ
|
for unlawful payments of dividends or unlawful
stock repurchases or redemptions; and
|
|
Ÿ
|
for any transaction from which the director
derived an improper personal benefit.
|
These provisions do not affect a director’s
responsibilities under any other laws, such as the federal
securities laws or state or federal environmental
laws.
Our bylaws also contain provisions that require us
to indemnify our directors, and permit us to indemnify our
officers and employees, to the fullest extent permitted by
Delaware law. However, we are not obligated to indemnify any
such person:
|
Ÿ
|
with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by
way of defense; or
|
|
Ÿ
|
for any amounts paid in settlement of an action
indemnified against by us without our prior written
consent.
|
We have obtained directors’ and officers’
liability insurance and have entered into indemnity agreements
with each of our directors and executive officers. We believe
that these limitations on liability are essential to attracting
and retaining qualified persons as directors and
officers.
Stock Plans
In 1998, we adopted, and our stockholders approved,
the establishment of our 1998 stock option plan, which is
designed to promote our overall financial objectives by
motivating board members, officers, employees and other persons
who are instrumental to our long-term growth. The 1998 plan is
administered by the compensation committee of our board and
provides the committee with broad discretion to fashion the
terms of grants of options as it deems appropriate. The plan
permits the issuance of stock options for the purchase of up to
15 million shares of our common stock. As of December 8, 1999
6,713,744 shares of our common stock remained available for
grants under the 1998 plan.
Subject to the terms of the specific option
agreement, each option to purchase common stock issued under our
1998 plan will become exercisable in stages beginning one year
after its grant date, when 1/4th of the participant’s
options will become exercisable. An additional 1/48th of each
option will become exercisable as of the last day of each month
thereafter. As a result, each option will be exercisable in full
48 months after its grant date. An optionee may only transfer
options to his or her immediate family members, trusts for the
benefit of the optionholder or his or her immediate family or an
entity in which the optionee owns all of the equity interests.
Generally, there is no acceleration of vesting in the event of a
change in control or otherwise. However, on June 17, 1999, we
amended the option agreements of Marla Mellies, Rick Gray and
the members of the advisory group to provide for acceleration of
all unvested options upon a change in control. All vested
options at the date of termination of employment shall be
exercisable for 90 days following termination.
When an optionee exercises an option to purchase
shares, we are entitled to deduct from any payment under the
1998 plan or from the optionee’s gross pay, as applicable,
or may require the optionee to make the payment to Lante of
applicable federal, state and local income taxes and other
amounts as may be required to be withheld by us before delivery
of any shares or payment under the 1998 plan.
According to the terms of the 1998 plan, if there is
any change in the number of outstanding shares of common stock
through a capitalization change, the committee will make
appropriate adjustments to the maximum number of shares which
may be issued under the 1998 plan as well as any adjustments to
outstanding options as it deems appropriate. If there is a
change in the number of outstanding shares due to a stock split
or stock dividend, the number of shares subject to options and
the option exercise prices are automatically adjusted. In the
event of any other change in capital structure or in case of a
merger, consolidation, combination or exchange of shares or the
like, all terms of an option can be adjusted as deemed equitable
by the committee.
The outstanding options that have been granted to
our non-employee directors and advisory group members have terms
of seven years and all other option grants under the plan have
terms of nine years. The board of directors may amend, suspend
or terminate the 1998 plan at any time, but no such amendment,
suspension or termination may adversely affect the right of an
optionee without the consent of such optionee.
Stock Purchase Plan
We have adopted an employee stock purchase plan
under which a total of 800,000 shares of our common stock will
be made available for sales to our employees. The compensation
committee of our board will administer the stock purchase plan.
Employees are eligible to participate in the stock purchase plan
if they are employed by us for at least 20 hours per week and
for more than five months in any calendar year. The stock
purchase plan will permit our eligible employees to purchase our
common stock through payroll deductions.
The stock purchase plan will operate on a calendar
year basis. The stock purchase plan will be implemented in a
series of consecutive offering periods, each approximately six
months long. Offering periods will begin on the first trading
day after
and
of each year and end on
the last trading day in the period six months later. Each
participant will be granted an option to purchase our common
stock on the first day of the six-month period and such option
will be automatically exercised on the last day of each offering
period. The exercise price of the option granted under the stock
purchase plan will be not less than 85% of the lower of our stock
’s closing price on the first day of the offering period
and the last day of the offering period. Employees may end or
modify their participation in the stock purchase plan at any
time during an offering period. Participation ends automatically
upon termination of employment. Payroll deductions may not
exceed $25,000 for any employee in any offering
period.
No person will be able to purchase our common stock
under the stock purchase plan if such person, immediately after
the purchase, would own stock possessing 5% or more of the total
combined voting power or value of all outstanding shares of all
classes of our stock.
On June 15, 1999, we repurchased the following
number of shares from officers and directors: 2.35 million
shares from Mark Tebbe and trusts for the benefit of his family
members and 56,250 from John Meyer, each at a repurchase price
of $2.245 per share.
In connection with a purchase by Pantelis Georgiadis
of 1.0 million shares of common stock in June 1999, we loaned
Mr. Georgiadis $276,000 pursuant to a secured promissory note.
On September 30, 1999, we cancelled this note by offsetting all
amounts owed to us under the note against the proceeds to Mr.
Georgiadis from our repurchase of all of his shares on this
date.
On June 17, 1999, we sold an aggregate of 3,323,904
shares of Series A convertible preferred stock to Frontenac VII
Limited Partnership, Frontenac Masters VII Limited Partnership
and Dell USA, L.P. for the aggregate amount of $23.5 million.
Two members of our board of directors, Paul Carbery and James
Cowie, are affiliated with Frontenac Company, the sole general
partner of Frontenac VII Limited Partnership and Frontenac
Masters VII Limited Partnership. On June 17, 1999, we also
entered into a Registration Agreement with the holders of our
Series A convertible preferred stock and some of the holders of
our common stock, which provides these holders with demand and
piggyback registration rights.
On June 30, 1998, we raised $2,595,000 through the
issuance of convertible subordinated notes due 2007. We redeemed
all of these notes on July 1, 1999 in exchange for 2.7 million
shares of our common stock at $0.86 per share. The holders of
these notes included Michael Dell, John Kraft (whose
directly-controlled entity, Kraft Enterprises Ltd., was issued a
note), John Landry, John Oltman and Paul Yovovich.
On July 16, 1999, we sold an aggregate of 212,165
shares of Series A convertible preferred stock to a number of
our advisors, for an aggregate price of $1.5 million. The
purchasers of stock on July 16, 1999 included Judith Hamilton,
John Kraft, John Landry, John Oltman, Paul Yovovich and DBV
Investments, L.P., an entity affiliated with MSD Capital, L.P.,
a private investment firm for Michael Dell.
ZixIt Corporation retained us in February 1999 to
architect, design and develop a signature server and two related
products. For the nine-month period ended September 30, 1999,
fees under this engagement represented 37% of our total
revenues. Mark Tebbe, our Chairman of the Board, became a member
of ZixIt’s board of directors in March 1999. In connection
with the completion of our engagement by ZixIt in November 1999,
we issued to ZixIt an option to purchase up to 400,000 shares of
our common stock at an exercise price of $7.00 per share.
Pursuant to an agreement executed simultaneously with this
grant, we have an option to purchase up to 166,666 shares of
ZixIt’s common stock at an exercise price of $7.625 per
share. The number of shares of common stock issuable upon
exercise of either of these options will not exceed a number of
shares having a fair market value at the time of exercise of
$12.0 million in the aggregate. ZixIt and we have agreed not to
transfer any of the shares issuable upon exercise of our
respective options until after the earlier of 180 days from the
date of this prospectus and certain changes of control of us or
ZixIt.
In December 1999, we entered into an agreement with
Dell USA, L.P., a subsidiary of Dell Computer Corporation, and
certain of our officers, advisors and other stockholders
regarding the sale of shares of our common stock. Under this
agreement, Dell agreed to purchase 1.0 million shares of our
common stock from us and 1.0 million shares from Mark Tebbe and
certain family trusts for a purchase price of $11.00 per share.
In conjunction with this agreement, some of our officers,
directors and other stockholders also agreed to purchase an
aggregate of 510,186 shares from us at the same price, the
majority of which were acquired pursuant to contractional
preemptive rights. These preemptive rights will terminate upon
completion of this offering. The closing of these purchases is
scheduled to occur on or about December 10, 1999, except the
purchase of shares by some of the purchasers may be deferred
until termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act. We also have
entered into a master services agreement that contemplates Dell
providing us with at least $40.0 million of total revenues over
a five-year period, although Dell may terminate the agreement
after three years. The guaranteed revenues for the first three
years would be $15 million. We believe this agreement is on
customary business terms.
We have entered into indemnification agreements with
each of our directors and executive officers. The
indemnification agreements will likely require us to indemnify
these individuals to the fullest extent possible under Delaware
law. Our bylaws also require us to indemnify these individuals
in certain circumstances and permit us to indemnify them in
other circumstances.
The following table contains information regarding
the beneficial ownership of our common stock as of December 8,
1999, and as adjusted to reflect the sale of our common stock in
this offering, by:
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each person or group of affiliated persons
known by us to beneficially own more than 5% of the
outstanding shares of our common stock;
|
|
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|
each of our chief executive officer and the
four other most highly compensated executive officers;
and
|
|
Ÿ
|
all of our directors and executive officers as
a group.
|
Unless otherwise indicated below the persons in this
table have sole voting and investment power with respect to all
shares shown as beneficially owned by them. Beneficial ownership
is determined in accordance with the rules of the SEC. The
number of shares beneficially owned by a person and the
percentage ownership of that person includes shares of our
common stock subject to options and warrants held by that person
that are currently exercisable or exercisable on or before
January 29, 2000. The information in this table gives effect to
the issuance of shares of our common stock to certain of our
stockholders under a purchase agreement dated December 8,
1999.
Unless otherwise indicated, the address of the
beneficial owners is c/o Lante Corporation, 161 North Clark
Street, Suite 4900, Chicago, Illinois 60601.
Name and
Address
|
|
Number of shares of
common stock
beneficially owned prior
to and after this offering
|
|
Percentage of
voting power owned
|
|
Options to purchase
shares included in
beneficial ownership
|
|
|
Prior to
offering
|
|
After
offering
|
| Executive officers and directors: |
|
|
|
|
|
|
|
|
|
|
Mark
Tebbe |
|
13,025,000 |
|
38.15 |
% |
|
|
|
|
|
C. Rudy
Puryear(1) |
|
2,470,500 |
|
7.24 |
|
|
|
|
|
|
Brian
Henry |
|
325,000 |
|
* |
|
|
|
|
|
|
Marvin
Richardson |
|
20,000 |
|
* |
|
|
|
|
|
|
Rick
Gray |
|
97,500 |
|
* |
|
|
|
|
12,500 |
|
Marla
Mellies |
|
79,792 |
|
* |
|
|
|
|
8,334 |
|
Paul
Carbery(2) |
|
5,398,604 |
|
15.81 |
|
|
|
|
|
|
James
Cowie(2) |
|
5,398,604 |
|
15.81 |
|
|
|
|
|
|
Judith
Hamilton |
|
235,495 |
|
* |
|
|
|
|
|
|
John
Landry |
|
529,733 |
|
1.55 |
|
|
|
|
79,167 |
|
John
Kraft(3) |
|
661,006 |
|
1.94 |
|
|
|
|
|
|
John
Oltman(4) |
|
1,082,638 |
|
3.17 |
|
|
|
|
|
|
Paul
Yovovich |
|
658,046 |
|
1.93 |
|
|
|
|
1,166 |
| Five percent stockholders: |
|
|
|
|
|
|
|
|
|
|
Frontenac VII Limited Partnership |
|
5,141,528 |
|
15.06 |
|
|
|
|
|
|
John
Meyer(5) |
|
2,945,625 |
|
8.63 |
|
|
|
|
11,250 |
|
Dell
Computer Corporation(6) |
|
3,051,204 |
|
8.94 |
|
|
|
|
|
All executive officers and directors as a
group: |
|
|
|
|
|
|
|
|
|
|
(13 people) |
|
24,583,314 |
|
71.80 |
|
|
|
|
101,167 |
*less than 1%.
(1)
|
Includes 105,000 shares in the aggregate held
by certain family members of Mr. Puryear. Mr. Puryear
disclaims beneficial ownership of these 105,000
shares.
|
(2)
|
Represents 5,141,528 shares held by Frontenac
VII Limited Partnership and 257,076 shares held by Frontenac
Masters VII Limited Partnership. Mr. Cowie and Mr. Carbery are
each a General Partner of Frontenac Company, which is the sole
general partner of Frontenac VII Limited Partnership and
Frontenac Masters VII Limited Partnership. As a result, Mr.
Cowie and Mr. Carbery may each be deemed to have beneficial
ownership of the shares held by Frontenac VII Limited
Partnership and Frontenac Masters VII Limited
Partnership.
|
(3)
|
Includes 300,000 shares held by Kraft
Enterprises Ltd., an entity directly controlled by Mr.
Kraft.
|
(4)
|
Represents 1,033,134 shares held by JRO
Consulting, Inc., a corporation controlled by Mr. Oltman, and
49,504 shares held by the John R. Oltman Charitable
Foundation.
|
(5)
|
Includes 2,425,000 shares held by trusts for
the benefit of family members of Mark Tebbe, of which Mr.
Meyer serves as trustee. Mr. Meyer disclaims beneficial
ownership of these 2,425,000 shares.
|
(6)
|
Includes 2,414,428 shares held by Dell USA,
L.P., 600,000 shares held by Michael Dell, individually, and
36,776 shares held by DBV Investments, L.P., an entity
affiliated with MSD Capital, L.P., a private investment firm
for Mr. Dell. Mr. Dell is a principal stockholder of Dell
Computer Corporation, which is the sole owner of Dell USA,
L.P. Mr. Dell may be deemed to have beneficial ownership of
the shares held by Dell USA, L.P. and DBV Investments, L.P.
Dell USA, L.P. does not have any ownership interest in or
voting or investment power with respect to shares owned by DBV
Investments, L.P. or Michael Dell.
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DESCRIPTION OF CAPITAL STOCK
General
The following summary is subject to, and qualified
by, applicable law and the provisions of our certificate of
incorporation and bylaws. These organizational documents are
exhibits to the registration statement of which this prospectus
is a part.
Our certificate of incorporation authorizes us to
issue 160,000,000 shares of capital stock, of which 150,000,000
shares are designated common stock and 10,000,000 shares are
designated preferred stock. As of December 8, 1999, we had
outstanding 27,066,409 shares of common stock and 3,536,069
shares of Series A convertible preferred stock. After giving
effect to this offering and the conversion of all outstanding
preferred stock simultaneously with the consummation of the
offering, there will be outstanding
shares of
common stock and no shares of preferred stock. We also have
reserved 13,495,001 shares of common stock for issuance under
our 1998 stock option plan, our stock purchase plan and upon
exercise of our outstanding warrants.
Common Stock
Holders of our common stock are entitled to one vote
per share. Subject to any voting rights granted to holders of
any preferred stock, a majority of the votes entitled to be cast
by all holders of our common stock will generally be required to
approve matters voted on by our stockholders. Amendments to our
certificate of incorporation that would change and adversely
affect the powers, preferences or rights of our stock also must
be approved by a majority of the votes entitled to be cast by
the holders of the adversely affected shares, voting as a
separate class.
Subject to the rights of holders of any outstanding
preferred stock, the holders of outstanding shares of our common
stock will share ratably on a per share basis in any dividends
declared from time to time by our board.
Subject to the rights of holders of any outstanding
preferred stock, upon our liquidation, dissolution or winding
up, we will distribute any assets legally available for
distribution to our stockholders, ratably among the holders of
our common stock outstanding at that time. All shares of our
common stock currently outstanding are, and all shares of our
common stock when duly issued and paid for will be, fully paid,
nonassessable, and not subject to redemption.
Preferred Stock
Upon the consummation of this offering, all of our
currently outstanding preferred stock will be converted into
shares of our common stock. Therefore, the following information
pertains to any preferred stock that we may issue in the future
pursuant to our certificate of incorporation.
We may issue preferred stock in series from time to
time with such designations, relative rights, priorities,
preferences, qualifications, limitations and restrictions
thereof, to the extent that those are not fixed in our
certificate of incorporation, as our board determines. The
rights, preferences, limitations and restrictions of different
series of preferred stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and other
matters. Our board may authorize the issuance of preferred stock
which ranks senior to our common stock with respect to the
payment of dividends and the distribution of assets on
liquidation. In addition, our board is authorized to fix the
limitations and restrictions, if any, upon the payment of
dividends on common stock to be effective while any
shares of preferred stock are outstanding. Our board, without
stockholder approval, may issue preferred stock with voting and
conversion rights which could adversely affect the voting power
of the holders of common stock.
The ability to authorize the issuance of our
undesignated preferred stock allows the board the option to
render more difficult or to discourage an attempt to obtain
control of us by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of our
management. The issuance of this preferred stock pursuant to the
board’s authority may adversely affect the rights of the
holders of our common stock. For example, preferred stock issued
by us may rank prior to our common stock as to dividend rights,
liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of our common stock.
Accordingly, the issuance of shares of preferred stock may
discourage bids for our common stock or may otherwise adversely
affect the market price of our common stock. We have no present
intention to issue shares of preferred stock.
Delaware Anti-Takeover Law and Charter and
Bylaw Provisions
We are subject to the provisions of Section 203 of
the Delaware General Corporation Law. In general, this section
prohibits a publicly held Delaware corporation from engaging in
a “business combination” with an “interested
stockholder” for a period of three years after the date of
the transaction in which the person becomes an interested
stockholder, unless each of the following is
satisfied:
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prior to the date at which the stockholder
became an interested stockholder the board of directors
approved either the business combination or the transaction in
which the person became an interested stockholder;
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the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares
held by directors who are officers or held in certain employee
stock plans) upon consummation of the transaction in which the
stockholder becomes an interested stockholder; and
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the business combination is approved by the
board of directors and by two-thirds of the outstanding voting
stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of the stockholders (and
not by written consent) held on or subsequent to the date of
the business combination.
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An “interested stockholder” is a person
who, together with affiliates and associates, owns (or at any
time within the prior three years did own) 15% or more of the
corporation’s voting stock. A “business combination
” includes, without limitation, mergers, consolidations,
stock sales and asset-based transactions and other transactions
resulting in a financial benefit to the interested
stockholder.
Our certificate of incorporation and bylaws contain
a number of provisions relating to corporate governance and to
the rights of our stockholders. These provisions may be deemed
to have a potential “anti-takeover” effect in that
such provisions may delay, defer or prevent a change in control
of Lante. These provisions include:
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a requirement that stockholder action may be
taken only at stockholder meetings and not by written
consent;
|
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|
notice requirements relating to nominations to
our board and to the raising of business matters at
stockholder meetings; and
|
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a requirement that special meetings of
stockholders can only be called by our president, chief
executive officer, chairman or a majority of our board of
directors.
|
Our certificate of incorporation also provides
that upon the consummation of this offering, the board of
directors will be divided into three classes of directors with
each class serving a staggered three-year term. The
classification system of electing directors may tend to
discourage a third party from making a tender offer or
otherwise attempting to obtain control of Lante and may maintain
the incumbency of the board of directors, as the classification
of the board of directors generally increases the time period
necessary to replace a majority of the directors.
Registration Rights
Following is a description of the registration
rights of our existing stockholders:
The following groups of stockholders have demand
registration rights pursuant to a Registration Agreement, dated
June 17, 1999: (1) Mark Tebbe along with his parents,
descendants and other direct lineage, (2) Frontenac VII Limited
Partnership and Dell USA, L.P., collectively, and (3) a number
of our non-employee advisor stockholders, collectively. The
holders of a majority of the stock held by any one of these
groups may request registration for all or any of their
securities at any time following this offering. A majority of
any of these groups is entitled to request two long form demand
registrations in which we will pay all registration expenses and
unlimited long form registrations in which the security holders
each pay their share of registration expenses. Additionally, a
majority of any of these groups is entitled to request unlimited
short form registrations in which we will pay all registration
expenses. We are not obligated to effect any demand registration
within 90 days after the effective date of a previous demand
registration for an underwritten offering. We may postpone the
filing or effectiveness of a registration statement in
connection with a demand registration for up to 90 days if the
board of directors determines that such demand registration is
adverse to our best interests generally or to any of our
specific plans.
Aside from this offering, whenever we propose to
register any of our securities, we must give prompt written
notice to all members of the groups described above of the
registration, and must include in the registration all
securities of these groups which are requested for inclusion in
the registration. The registration expenses (but not
underwriting commissions) for these piggyback rights will be
paid by us. If the number of securities which can be offered in
a registration is limited, the priority for the inclusion of
shares proposed to be included in such registration is
determined according to the Registration Agreement. No person
shall be allowed to participate in any offering which is
underwritten unless the person agrees to sell on the same basis
as is provided in any applicable underwriting
arrangements.
Transfer Agent and Registrar
The transfer agent and registrar for our common
stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
There will be
shares of our common stock
outstanding immediately after this offering. The
shares being sold in this offering are freely tradable without
restriction unless held by an “affiliate” as that term
is defined in Rule 144 under the Securities Act. The remaining
34,138,547 outstanding shares of our common stock will continue
to be “restricted securities” under the Securities
Act. These shares have not been registered under the Securities
Act and, therefore, may not be sold unless registered under the
Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule
144.
Lock-Up Agreements
Our directors and executive officers and all of our
existing stockholders have agreed with the underwriters that,
for a period of 180 days from the date of this prospectus, they
will not offer, sell, transfer or dispose of, directly or
indirectly, any shares of our common stock, or any securities
convertible into or exercisable for shares our common stock,
except with the prior written consent of Credit Suisse First
Boston Corporation.
As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701 of the Securities Act
discussed below, shares subject to these lock-up agreements will
not be salable until the agreements expire or unless prior
written consent is received from Credit Suisse First Boston
Corporation. Any early waiver of the lock-up agreements by the
underwriters, which, if granted, could permit sales of a
substantial number of shares and could adversely affect the
trading price of our shares, may not be accompanied by an
advance public announcement by us.
Taking into account these lock-up agreements,
restricted shares will be eligible for sale immediately
after the expiration of the lock-up agreements and
restricted shares will become eligible for sale in
2000, subject
in some cases to the volume and manner of sale limitations set
forth in Rule 144.
Rule 144
In general, under Rule 144, beginning 90 days after
the date of this prospectus, a person (or persons whose shares
are aggregated) who has beneficially owned “restricted
shares” for at least one year, including a person who may
be deemed our “affiliate,” would be entitled to sell
within any three-month period a number of shares that does not
exceed the greater of:
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one percent of the number of shares of our
common stock then outstanding; or
|
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the average weekly trading volume of our common
stock during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
|
Sales under Rule 144 are also subject to manner
of sale provisions and notice requirements and to the
availability of current public information about us. We are
unable to estimate accurately the number of restricted shares
that will be sold under Rule 144 because this will depend in
part on the market price of our common stock, the personal
circumstances of our stockholders and other factors.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to
have been our affiliate at any time during the 90 days preceding
a sale, and who has beneficially owned for at least two years
the shares proposed to be sold, would be entitled to sell those
shares under Rule 144(k) without complying with the manner of
sale, public information, volume limitation or notice provisions
of Rule 144. Therefore, subject to the lock-up agreements,
“144(k) shares” may be sold upon completion of this
offering.
Rule 701
Beginning 90 days after the date of this prospectus,
the shares of common stock issuable upon exercise of the options
granted by us prior to the effective date of the registration
statement will be eligible for sale in the public market
pursuant to Rule 701 under the Securities Act, subject to the
lock-up agreements. In general, Rule 701 permits resales of
shares issued pursuant to certain compensatory benefit plans and
contracts commencing 90 days after the issuer becomes subject to
the reporting requirements of the Securities Exchange Act of
1934 in reliance upon Rule 144, but without having to comply
with the public information, holding period, volume limitation
and notice provisions in Rule 144.
Registration Statements on Form
S-8
Following this offering, we intend to file under the
Securities Act one or more registration statements on Form S-8
to register all of the shares of our common stock:
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issuable upon exercise of outstanding options
granted pursuant to our 1998 stock option plan;
|
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reserved for future option grants pursuant to
individual option agreements or our 1998 stock option
plan;
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that we intend to offer for sale to our
employees pursuant to our employee stock purchase plan;
and
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owned by Rudy Puryear in order to provide him
with the resale rights agreed to by us.
|
These registration statements are expected to become
effective upon filing and shares covered by these registration
statements will be subject to vesting provisions and, in the
case of affiliates only, to the restrictions of Rule 144, other
than the holding period requirement, and subject to expiration
of the lock-up agreements with the underwriters.
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S.
HOLDERS
The following is a general discussion of the
principal U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock by a Non-U.S.
Holder. As used in this prospectus, the term “Non-U.S.
Holder” is a person that is not:
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a citizen or individual resident of the United
States for U.S. federal income tax purposes;
|
|
Ÿ
|
a corporation or other entity taxable as a
corporation created or organized in or under the laws of the
United States or of any political subdivision of the United
States;
|
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an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its
source; or
|
|
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a trust, in general, if it is subject to the
primary supervision of a court within the United States and
the control of one or more U.S. persons.
|
An individual may, subject to certain exceptions, be
treated as a resident of the United States for U.S. federal
income tax purposes, instead of a nonresident, by, among other
things, being present in the United States for at least 31 days
in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year
—counting for these purposes all of the days present in the
current year, one-third of the days present in the immediately
preceding year and one-sixth of the days present in the second
preceding year. Residents are subject to U.S. federal taxes as
if they were U.S. citizens.
This discussion does not consider:
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U.S. state and local or non-U.S. tax
consequences;
|
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Ÿ
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specific facts and circumstances that may be
relevant to a particular Non-U.S. Holder’s tax position,
including, if the Non-U.S. Holder is a partnership, that the
U.S. tax consequences of holding and disposing of our common
stock may be affected by certain determinations made at the
partner level;
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the tax consequences for the shareholders,
partners or beneficiaries of a Non-U.S. Holder;
|
|
Ÿ
|
special tax rules that may apply to certain
Non-U.S. Holders, including without limitation, banks,
insurance companies, dealers in securities and traders in
securities; or
|
|
Ÿ
|
special tax rules that may apply to a Non-U.S.
Holder that holds our common stock as part of a “straddle,
” “hedge” or “conversion transaction
”.
|
The following discussion is based on provisions of
the U.S. Internal Revenue Code of 1986, as amended, applicable
Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all
of which may change, retroactively or prospectively. The
following summary is for general information. Accordingly, each
Non-U.S. Holder should consult a tax advisor regarding the U.S.
federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of
our common stock.
Dividends
We do not anticipate paying cash dividends on our
common stock in the foreseeable future. In the event, however,
that dividends are paid on shares of common stock, dividends
paid to a Non-U.S. Holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate,
or such lower rate as may be provided by an applicable income
tax treaty. Canadian holders of the common stock, for example,
will generally be subject to a reduced rate of 15% under the
Canada-U.S. Income Tax Treaty. Non-U.S. Holders should consult
their tax advisors regarding their entitlement to benefits under
a relevant income tax treaty.
Dividends that are effectively connected with a
Non-U.S. Holder’s conduct of a trade or business in the
United States or, if an income tax treaty applies, attributable
to a permanent establishment, or in the case of an individual, a
“fixed base,” in the United States, as provided in
that treaty (“U.S. trade or business income”), are
generally subject to U.S. federal income tax on a net income
basis at regular graduated rates, but are not generally subject
to the 30% withholding tax if the Non-U.S. Holder files the
appropriate U.S. Internal Revenue Service form with the payor.
Any U.S. trade or business income received by a Non-U.S. Holder
that is a corporation may also, under certain circumstances, be
subject to an additional “branch profits tax” at a 30%
rate or such lower rate as specified by an applicable income tax
treaty.
Dividends paid prior to 2001 to an address in a
foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of such country for purposes
of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For
dividends paid after December 31, 2000:
|
Ÿ
|
a Non-U.S. Holder of common stock who claims
the benefit of an applicable income tax treaty rate generally
will be required to satisfy applicable certification and other
requirements;
|
|
Ÿ
|
in the case of common stock held by a foreign
partnership, the certification requirement will generally be
applied to the partners of the partnership and the partnership
will be required to provide certain information, including a
U.S. taxpayer identification number; and
|
|
Ÿ
|
look-through rules will apply for tiered
partnerships.
|
A Non-U.S. Holder of common stock that is eligible
for a reduced rate of U.S. withholding tax under an income tax
treaty may obtain a refund or credit of any excess amounts
withheld by filing an appropriate claim for a refund with the
IRS.
Gain on Disposition of Common
Stock
A Non-U.S. Holder generally will not be subject to
U.S. federal income tax in respect of gain recognized on a
disposition of common stock unless:
|
Ÿ
|
the gain is U.S. trade or business income, in
which case, the branch profits tax described above may also
apply to a corporate Non-U.S. Holder;
|
|
Ÿ
|
the Non-U.S. Holder is an individual who holds
the common stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code, is present in the
United States for more than 182 days in the taxable year of
the disposition and meets certain other
requirements;
|
|
Ÿ
|
the Non-U.S. Holder is subject to tax pursuant
to the provisions of the U.S. tax law applicable to certain
U.S. expatriates; or
|
|
Ÿ
|
we are or have been a “U.S. real property
holding corporation” for U.S. federal income tax purposes
at any time during the shorter of the five-year period ending
on the date of disposition or the period that the Non-U.S.
Holder held our common stock.
|
Generally, a corporation is a “U.S. real
property holding corporation” if the fair market value of
its “U.S. real property interests” equals or exceeds
50% of the sum of the fair market value of its worldwide real
property interests plus its other assets used or held for use in
trade or business. We believe that we have not been, are not
currently, and do not anticipate becoming, a “U.S. real
property holding corporation,” and thus we believe that the
effects which could arise if we were ever a “U.S. real
property holding corporation” will not apply to a Non-U.S.
Holder whose holdings, direct and indirect, at all times during
the applicable period, constituted 5% or less of our common
stock, provided that our common stock was regularly traded on an
established securities market.
Federal Estate Tax
Common stock owned or treated as owned by an
individual who is a Non-U.S. Holder at the time of death will be
included in the individual’s gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S.
federal estate tax.
Information Reporting and Backup Withholding
Tax
We must report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to that holder and
the tax withheld with respect to those dividends. Copies of the
information returns reporting those dividends and withholding
may also be made available to the tax authorities in the country
in which the Non-U.S. Holder is a resident under the provisions
of an applicable income tax treaty or agreement.
Under certain circumstances, U.S. Treasury
Regulations require information reporting and backup withholding
at a rate of 31% on certain payments on common stock. Under
currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting
requirements and from backup withholding on dividends prior to
2001 to an address outside the United States. For dividends paid
after December 31, 2000, however, a Non-U.S. Holder of common
stock that fails to certify its Non-U.S. Holder status in
accordance with applicable U.S. Treasury Regulations may be
subject to backup withholding at a rate of 31% on payments of
dividends.
The payment of the proceeds of the disposition of
common stock by a holder to or through the U.S. office of a
broker through a non-U.S. branch of a U.S. broker generally will
be subject to information reporting and backup withholding at a
rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption. The payment of the proceeds of the
disposition by a Non-U.S. Holder of common stock to or through a
non-U.S. office of non-U.S. broker will not be subject to backup
withholding or information reporting unless the non-U.S. broker
is a “U.S. related person.” In the case
of the payment of proceeds from the disposition of common stock by
or through a non-U.S. office of a broker that is a U.S. person
or a “U.S. related person,” information reporting, but
currently not backup withholding, on the payment applies unless
the broker receives a statement from the owner, signed under
penalty of perjury, certifying its non-U.S. status or the broker
has documentary evidence in its files that the holder is a
Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a “U.S. related person”
is:
|
Ÿ
|
a “controlled foreign corporation”
for U.S. federal income tax purposes;
|
|
Ÿ
|
a foreign person, 50% or more of whose gross
income from all sources for the three-year period ending with
the close of its taxable year preceding the payment, or for
such part of the period that the broker has been in existence,
is derived from activities that are effectively connected with
the conduct of a U.S. trade or business; or
|
|
Ÿ
|
effective after December 31, 2000, a foreign
partnership if, at any time during the taxable year, (A) at
least 50% of the capital or profits interest in the
partnership is owned by U.S. persons or (B) the partnership is
engaged in a U.S. trade or business.
|
Effective after December 31, 2000, backup
withholding may apply to the payment of disposition proceeds by
or through a non-U.S. office of a broker that is a U.S. person
or a “U.S. related person” unless certain
certification requirements are satisfied or an exemption is
otherwise established and the broker has no actual knowledge
that the holder is a U.S. person. Non-U.S. Holders should
consult their own tax advisors regarding the application of the
information reporting and backup withholding rules to them,
including changes to these rules that will become effective
after December 31, 2000.
Any amounts withheld under the backup withholding
rules from a payment to a Non-U.S. Holder will be refunded, or
credited against the holder’s U.S. federal income tax
liability, if any, provided that the required information is
furnished to the IRS.
Under the terms and subject to the conditions
contained in an underwriting agreement, dated
, 2000, we have agreed
to sell to the underwriters named below, for whom Credit Suisse
First Boston Corporation, Deutsche Banc Securities Inc., Thomas
Weisel Partners LLC and Friedman, Billings, Ramsey & Co.,
Inc. are acting as representatives, the following respective
numbers of shares of our common stock:
Underwriters
|
|
Number
of shares
|
| Credit Suisse First Boston Corporation |
|
|
| Deutsche Bank Securities Inc. |
|
|
| Thomas Weisel Partners LLC |
|
|
| Friedman, Billings, Ramsey & Co., Inc. |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total |
|
|
| |
|
|
| |
|
|
| |
|
|
The underwriting agreement provides that the
underwriters are obligated to purchase all the shares of common
stock in this 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 of our common stock 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 the selling group members at that
price less a concession of $
per share. The underwriters and the 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 dealers may be changed by the
representatives.
The following table summarizes the compensation and
estimated expenses we will pay.
|
|
|
Per
Share
|
|
Total
|
|
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
Underwriting discounts and commissions
paid by us |
|
$
|
|
$
|
|
$
|
|
$
|
| Expenses payable by us |
|
$
|
|
$
|
|
$
|
|
$
|
The underwriters have informed us that they do not
expect discretionary sales to exceed 5% of the shares of common
stock being offered.
We, our executive officers and directors and all of
our existing stockholders have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under
the Securities Act relating to, any additional shares of our
common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock or publicly
disclose the intention to make an 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, except in our case for grants
of employee stock options pursuant to the terms of any plan in
effect on the date of this prospectus, issuances of securities
pursuant to the exercise of employee stock options outstanding
on the date of this prospectus, employee stock purchases
pursuant to the terms of any plan in effect on the date of this
prospectus or the issuance of shares pursuant to the exercise of
any warrants outstanding on the date of this
prospectus.
The underwriters have reserved for sale, at the
initial public offering price, up to
shares of
common stock for our employees and certain other persons
associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares of common
stock available for sale to the general public in the offering
will be reduced to the extent these persons purchase these
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 have our common stock listed on
The Nasdaq National Market under the symbol
“ LNTE.”
Thomas Weisel Partners LLC, one of the
representatives of the underwriters, was organized and
registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has acted as lead-manager or
co-manager on numerous public offerings of equity securities.
Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual
relationship with us under the underwriting agreement entered
into in connection with this offering.
Prior to this offering, there has been no public
market for our common stock. The initial public offering price
has been determined by negotiation between us and the
representatives, and does not reflect the market price for our
common stock that may prevail following this offering. Among the
principal factors considered in determining the initial public
offering price were:
|
Ÿ
|
the information in this prospectus and
otherwise available to the representatives;
|
|
Ÿ
|
market conditions for initial public
offerings;
|
|
Ÿ
|
the history of and prospects for the industry
in which we will compete;
|
|
Ÿ
|
our past and present operations;
|
|
Ÿ
|
our past and present earnings and current
financial position;
|
|
Ÿ
|
the ability of our management;
|
|
Ÿ
|
our prospects for future earnings;
|
|
Ÿ
|
the present state of our development and our
current financial condition;
|
|
Ÿ
|
the recent prices of, and the demand for,
publicly traded common stock of generally comparable
companies; and
|
|
Ÿ
|
the general condition of the securities markets
at the time of this offering.
|
We can offer no assurance that the initial public
offering price will correspond to the price at which our common
stock will trade in the public market subsequent to this
offering or that an active trading market for our common stock
will develop and continue after this offering.
The representatives may engage in over-allotment,
stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange
Act.
|
Ÿ
|
Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short
position.
|
|
Ÿ
|
Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing
bids do not exceed a specified maximum.
|
|
Ÿ
|
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.
|
|
Ÿ
|
Penalty bids permit the representatives to
reclaim a selling concession from a syndicate member when the
common stock originally sold by that syndicate member is
purchased in a syndicate covering transaction to cover
syndicate short positions.
|
These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of our 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.
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 the 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 our 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 “Resale
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 rescission 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
judgment against the issuer or such persons 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 shares of our common stock acquired on the
same date and under the same prospectus exemption.
Taxation and Eligibility for
Investment
Canadian purchasers of the common stock should
consult their own legal and tax advisors about the tax
consequences of an investment in the common stock in their
particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian
legislation.
Katten Muchin Zavis, Chicago, Illinois will pass
upon the validity of this offering of our common stock and other
matters for us. Cravath, Swaine & Moore, New York, New York
has represented the underwriters in this offering.
The consolidated financial statements as of December
31, 1997 and 1998 and September 30, 1999 and for each of the
three years in the period ended December 31, 1998 and the nine
months ended September 30, 1999, included in this Prospectus
have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement
we filed with the SEC. This prospectus does not contain all of
the information contained in the registration statement and all
of its exhibits and schedules.
For further information about us, please see the
complete registration statement. Summaries of agreements or
other documents in this prospectus are not necessarily complete.
Please refer to the exhibits to the registration statement for
complete copies of these documents.
You may read and copy our registration statement and
all of its exhibits and schedules at the following SEC public
reference rooms:
| 450 Fifth
Street, N.W.
Judiciary Plaza
Room 1024
Washington, D.C. 20549
|
|
Seven World Trade Center
Suite 1300
New York, NY 10048
|
|
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, IL 60661
|
|
You may obtain information on the operation of the
SEC public reference room in Washington, D.C. by calling the SEC
at 1-800-SEC-0330. You may also inspect and copy the complete
registration statement and other information at the offices of
The Nasdaq Stock Market located at 1735 K Street, N.W.,
Washington, D.C. 20006-1500.
The registration statement is also available from
the SEC’s Web site at http://www.sec.gov, which contains
reports, proxy and information statements and other information
regarding issuers that file electronically.
Statements in this prospectus as to the contents of
any contract or other document are not necessarily complete, and
in each instance we refer you to the full text of such contract
or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such
reference.
We intend to furnish our stockholders with annual
reports containing financial statements audited by an
independent public accounting firm and make available to our
stockholders quarterly reports for the first three quarters of
each fiscal year containing interim unaudited financial
information.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants
December 6, 1999
To the Board of Directors and Stockholders
of
Lante Corporation
In our opinion, the accompanying consolidated
balance sheets of Lante Corporation (the “Company”)
and the related consolidated statements of operations, of
stockholders’ equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of the
Company at 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. These consolidated
financial statements are the responsibility of the Company
’s management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSE
COOPERS
LLP
Chicago, Illinois
LANTE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share
data)
|
|
|
Year ended December
31,
|
|
Nine months ended
September 30,
|
|
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
| Revenues |
|
$
8,640 |
|
|
$11,134 |
|
|
$15,369 |
|
|
$11,128 |
|
|
$21,343 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services |
|
4,381 |
|
|
6,175 |
|
|
7,001 |
|
|
5,170 |
|
|
11,263 |
|
|
Selling,
general and administrative |
|
4,019 |
|
|
4,722 |
|
|
6,803 |
|
|
4,893 |
|
|
10,984 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
operating expenses |
|
8,400 |
|
|
10,897 |
|
|
13,804 |
|
|
10,063 |
|
|
22,247 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from operations |
|
240 |
|
|
237 |
|
|
1,565 |
|
|
1,065 |
|
|
(904 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest (expense) income, net |
|
(19 |
) |
|
(20 |
) |
|
(1 |
) |
|
(12 |
) |
|
353 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) before income taxes |
|
221 |
|
|
217 |
|
|
1,564 |
|
|
1,053 |
|
|
(551 |
) |
| Income tax (provision) benefit |
|
(1 |
) |
|
(4 |
) |
|
(8 |
) |
|
(5 |
) |
|
579 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income |
|
220 |
|
|
213 |
|
|
1,556 |
|
|
1,048 |
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and accretion on mandatorily redeemable
preferred stock |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(521 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) available to common stockholders |
|
$
220 |
|
|
$
213 |
|
|
$
1,556 |
|
|
$
1,048 |
|
|
$
(493 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic
net income (loss) per common share |
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.08 |
|
|
$
0.05 |
|
|
$
(0.02 |
) |
| Diluted net income per common share |
|
0.01 |
|
|
0.01 |
|
|
0.08 |
|
|
0.05 |
|
|
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited pro forma data (Note 2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share |
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.04 |
|
|
$
0.03 |
|
|
$
(0.05 |
) |
|
Diluted
net income (loss) per common share |
|
0.01 |
|
|
0.01 |
|
|
0.04 |
|
|
0.03 |
|
|
(0.02 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
22,113 |
|
|
Diluted |
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
27,490 |
|
The accompanying notes are an integral part
of these consolidated financial statements.
LANTE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share
data)
|
|
|
December 31,
|
|
September 30,
1999
|
| Assets |
|
1997
|
|
1998
|
| Current assets: |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$
850 |
|
$3,377 |
|
$13,206 |
|
Trade accounts
receivable (net of allowance of $216, $313 and $801 at
December 31,
1997, 1998 and September 30, 1999,
respectively) |
|
2,338 |
|
3,088 |
|
6,648 |
|
|
Deferred income
taxes |
|
—
|
|
—
|
|
821 |
|
|
Other current
assets |
|
34 |
|
103 |
|
564 |
|
| |
|
|
|
|
|
|
|
|
Total current assets |
|
3,222 |
|
6,568 |
|
21,239 |
|
|
Property and
equipment, net |
|
597 |
|
682 |
|
2,268 |
|
|
Other
assets |
|
74 |
|
70 |
|
3,651 |
|
| |
|
|
|
|
|
|
|
|
Total assets |
|
$3,893 |
|
$7,320 |
|
$27,158 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Liabilities
and Stockholders’ Equity (Deficit) |
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$
154 |
|
$
328 |
|
$
1,928 |
|
|
Accrued compensation
and related costs |
|
1,120 |
|
1,284 |
|
2,297 |
|
|
Notes
payable |
|
800 |
|
8 |
|
—
|
|
|
Deferred
revenues |
|
599 |
|
62 |
|
1,604 |
|
|
Other current
liabilities |
|
5 |
|
6 |
|
391 |
|
|
Current portion of
note payable—redeemed shares |
|
—
|
|
—
|
|
1,002 |
|
| |
|
|
|
|
|
|
|
|
Total current
liabilities |
|
2,678 |
|
1,688 |
|
7,222 |
|
| Long-term notes payable, net of current
portion |
|
350 |
|
16 |
|
—
|
|
| Subordinated convertible debt |
|
—
|
|
2,644 |
|
—
|
|
| Other
noncurrent liabilities |
|
68 |
|
57 |
|
252 |
|
| Noncurrent portion of note payable—redeemed
shares |
|
—
|
|
—
|
|
2,005 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities |
|
3,096 |
|
4,405 |
|
9,479 |
|
| |
|
|
|
|
|
|
|
|
|
| Commitments and contingencies |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Mandatorily redeemable preferred stock |
|
|
|
|
|
|
|
Series A convertible
preferred stock, $0.01 par value; 4,243 shares allocated and
3,536
shares issued and outstanding as of September 30,
1999 |
|
—
|
|
—
|
|
25,334 |
|
| |
|
|
|
|
|
|
|
| Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
Preferred stock,
$0.01 par value; 10 shares authorized as of December 31, 1997
and
1998, 10,000 shares authorized as of September 30,
1999; none issued and
outstanding as of December 31, 1997 and 1998;
4,243 shares allocated to Series A
convertible preferred stock as of September 30,
1999 |
|
—
|
|
—
|
|
—
|
|
Common stock, $0.01
par value; none authorized, issued or outstanding at December
31, 1997 and 1998, 50,000 authorized, 25,023
shares issued and outstanding at
September 30, 1999 |
|
—
|
|
—
|
|
250 |
|
Common stock Class
A, $0.01 par value, 10,041 and 10,191 shares issued and
outstanding at December 31, 1997 and 1998; none
authorized, issued and
outstanding at September 30, 1999 |
|
100 |
|
102 |
|
—
|
|
Common stock Class
B, $0.01 par value, 10,041 and 12,291 shares issued and
outstanding at December 31, 1997 and 1998; none
authorized, issued and
outstanding at September 30, 1999 |
|
100 |
|
123 |
|
—
|
|
|
Additional paid in
capital |
|
20 |
|
577 |
|
2,362 |
|
|
Retained earnings
(deficit) |
|
577 |
|
2,113 |
|
(6,996 |
) |
|
Note receivable
—stockholder |
|
—
|
|
—
|
|
(3,271 |
) |
| |
|
|
|
|
|
|
|
|
Total stockholders’ equity
(deficit) |
|
797 |
|
2,915 |
|
(7,655 |
) |
| |
|
|
|
|
|
|
|
|
Total liabilities and
stockholders’ equity |
|
$3,893 |
|
$7,320 |
|
$27,158 |
|
| |
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
LANTE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
(In thousands)
|
|
|
Common stock
|
|
Additional
paid in
capital
|
|
Retained
earnings
(deficit)
|
|
Note
receivable
stockholder
|
|
Total
stockholders’
equity
(deficit)
|
|
|
|
Shares
|
|
Par value
|
|
|
|
Common
|
|
Class A
|
|
Class B
|
|
Common
|
|
Class A
|
|
Class B
|
| Balance at December 31, 1995 |
|
68 |
|
|
—
|
|
|
—
|
|
|
$
1 |
|
|
$ —
|
|
|
$—
|
|
|
$
236 |
|
|
$
244 |
|
|
$
— |
|
|
$
481 |
|
|
|
Conversion of common shares to
Class A and B common stock
(15 for 1) |
|
(68 |
) |
|
1,012 |
|
|
1,012 |
|
|
(1 |
) |
|
10 |
|
|
10 |
|
|
(19 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
| Common stock split (5 for 1) |
|
—
|
|
|
4,050 |
|
|
4,050 |
|
|
—
|
|
|
40 |
|
|
40 |
|
|
(80 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
| Common stock split (2 for 1) |
|
—
|
|
|
5,063 |
|
|
5,063 |
|
|
—
|
|
|
51 |
|
|
51 |
|
|
(102 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
| Net
income |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
220 |
|
|
—
|
|
|
220 |
|
| Dividends |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100 |
) |
|
—
|
|
|
(100 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 1996 |
|
—
|
|
|
10,125 |
|
|
10,125 |
|
|
—
|
|
|
101 |
|
|
101 |
|
|
35 |
|
|
364 |
|
|
—
|
|
|
601 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
213 |
|
|
—
|
|
|
213 |
|
| Redemption of common stock |
|
—
|
|
|
(84 |
) |
|
(84 |
) |
|
—
|
|
|
(1 |
) |
|
(1 |
) |
|
(15 |
) |
|
—
|
|
|
—
|
|
|
(17 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 1997 |
|
—
|
|
|
10,041 |
|
|
10,041 |
|
|
—
|
|
|
100 |
|
|
100 |
|
|
20 |
|
|
577 |
|
|
—
|
|
|
797 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common stock—
Class A and B |
|
—
|
|
|
(150 |
) |
|
(150 |
) |
|
—
|
|
|
(1 |
) |
|
(1 |
) |
|
(30 |
) |
|
—
|
|
|
—
|
|
|
(32 |
) |
Issuance of common stock—
Class A and B |
|
—
|
|
|
300 |
|
|
1,200 |
|
|
—
|
|
|
3 |
|
|
12 |
|
|
322 |
|
|
—
|
|
|
—
|
|
|
337 |
|
Exercise of stock options and
issuance of restricted shares |
|
—
|
|
|
—
|
|
|
1,200 |
|
|
—
|
|
|
—
|
|
|
12 |
|
|
258 |
|
|
—
|
|
|
—
|
|
|
270 |
|
Amortization of compensation
expense |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7 |
|
|
—
|
|
|
—
|
|
|
7 |
|
| Net
income |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,556 |
|
|
—
|
|
|
1,556 |
|
| Dividends |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20 |
) |
|
—
|
|
|
(20 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 1998 |
|
—
|
|
|
10,191 |
|
|
12,291 |
|
|
—
|
|
|
102 |
|
|
123 |
|
|
577 |
|
|
2,113 |
|
|
—
|
|
|
2,915 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class A and
Class B common stock to one
class of common shares |
|
22,481 |
|
|
(10,191 |
) |
|
(12,291 |
) |
|
225 |
|
|
(102 |
) |
|
(123 |
) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| Redemption of common stock |
|
(4,460 |
) |
|
—
|
|
|
—
|
|
|
(45 |
) |
|
—
|
|
|
—
|
|
|
(4,916 |
) |
|
(4,567 |
) |
|
—
|
|
|
(9,528 |
) |
| Issuance of common stock |
|
2,830 |
|
|
—
|
|
|
—
|
|
|
28 |
|
|
—
|
|
|
—
|
|
|
4,062 |
|
|
—
|
|
|
(3,271 |
) |
|
819 |
|
Conversion of debt to common
stock |
|
2,700 |
|
|
—
|
|
|
—
|
|
|
27 |
|
|
—
|
|
|
—
|
|
|
2,667 |
|
|
—
|
|
|
—
|
|
|
2,694 |
|
| Exercise of stock options |
|
1,472 |
|
|
—
|
|
|
—
|
|
|
15 |
|
|
—
|
|
|
—
|
|
|
333 |
|
|
—
|
|
|
—
|
|
|
348 |
|
Preferred stock dividends and
accretion |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(521 |
) |
|
—
|
|
|
—
|
|
|
(521 |
) |
Amortization of compensation
expense |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
160 |
|
|
—
|
|
|
—
|
|
|
160 |
|
| Net
income |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28 |
|
|
—
|
|
|
28 |
|
| Dividends |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,570 |
) |
|
—
|
|
|
(4,570 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30, 1999 |
|
25,023 |
|
|
—
|
|
|
—
|
|
|
$250 |
|
|
$
— |
|
|
$—
|
|
|
$2,362 |
|
|
$(6,996 |
) |
|
$(3,271 |
) |
|
$(7,655 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
LANTE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
Year ended December
31,
|
|
Nine months ended
September 30,
|
|
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
| Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$220 |
|
|
$213 |
|
|
$1,556 |
|
|
$
1,048 |
|
|
$
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
130 |
|
|
255 |
|
|
267 |
|
|
197 |
|
|
450 |
|
|
Deferred
income taxes |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(656 |
) |
|
Stock
compensation and warrant expense |
|
—
|
|
|
—
|
|
|
7 |
|
|
3 |
|
|
159 |
|
|
Other,
net |
|
(32 |
) |
|
8 |
|
|
(11 |
) |
|
24 |
|
|
50 |
|
Increase
(decrease) in cash attributable to changes in assets
and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable |
|
(381 |
) |
|
(312 |
) |
|
(750 |
) |
|
(1,096 |
) |
|
(3,405 |
) |
|
Other
current assets |
|
20 |
|
|
94 |
|
|
(69 |
) |
|
14 |
|
|
(504 |
) |
|
Other
assets |
|
(35 |
) |
|
(9 |
) |
|
4 |
|
|
(33 |
) |
|
(2,586 |
) |
|
Accounts
payable |
|
87 |
|
|
57 |
|
|
174 |
|
|
(12 |
) |
|
1,560 |
|
|
Accrued
compensation and related costs |
|
453 |
|
|
(345 |
) |
|
164 |
|
|
118 |
|
|
1,368 |
|
|
Deferred
revenues |
|
(195 |
) |
|
387 |
|
|
(537 |
) |
|
(412 |
) |
|
1,542 |
|
|
Other
liabilities |
|
—
|
|
|
(8 |
) |
|
65 |
|
|
(8 |
) |
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) operating
activities |
|
267 |
|
|
340 |
|
|
870 |
|
|
(157 |
) |
|
(1,989 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures |
|
(97 |
) |
|
(588 |
) |
|
(367 |
) |
|
(187 |
) |
|
(1,804 |
) |
|
Acquisitions, net of cash acquired |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(426 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
used in investing activities |
|
(97 |
) |
|
(588 |
) |
|
(367 |
) |
|
(187 |
) |
|
(2,230 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on bank debt and other note payable |
|
—
|
|
|
—
|
|
|
(800 |
) |
|
(800 |
) |
|
(24 |
) |
|
Payments
on stockholder note payable |
|
—
|
|
|
(450 |
) |
|
(350 |
) |
|
(350 |
) |
|
—
|
|
|
Proceeds
from issuance of bank debt and other note payable |
|
—
|
|
|
800 |
|
|
24 |
|
|
24 |
|
|
—
|
|
|
Proceeds
from issuance of subordinated convertible debt |
|
—
|
|
|
—
|
|
|
2,595 |
|
|
2,595 |
|
|
—
|
|
Proceeds
from issuance of mandatorily redeemable preferred stock,
net |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,814 |
|
|
Proceeds
from issuance of common stock |
|
—
|
|
|
—
|
|
|
607 |
|
|
608 |
|
|
3,577 |
|
|
Redemption of common stock |
|
—
|
|
|
(17 |
) |
|
(32 |
) |
|
(32 |
) |
|
(6,521 |
) |
|
Loan to
executive officer |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,228 |
) |
|
Dividends paid |
|
(41 |
) |
|
(59 |
) |
|
(20 |
) |
|
(20 |
) |
|
(4,570 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by financing
activities |
|
(41 |
) |
|
274 |
|
|
2,024 |
|
|
2,025 |
|
|
14,048 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents |
|
129 |
|
|
26 |
|
|
2,527 |
|
|
1,681 |
|
|
9,829 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
and cash equivalents, beginning of period |
|
695 |
|
|
824 |
|
|
850 |
|
|
850 |
|
|
3,377 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
and cash equivalents, end of period |
|
$824 |
|
|
$850 |
|
|
$3,377 |
|
|
$
2,531 |
|
|
$13,206 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental disclosure of cash flow
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest |
|
$
45 |
|
|
$
68 |
|
|
$
47 |
|
|
$
47 |
|
|
$
15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for taxes |
|
$—
|
|
|
$
5 |
|
|
$
4 |
|
|
$
4 |
|
|
$
408 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share
data)
1. Nature of Business
Lante Corporation (the “Company”), a
Delaware corporation, is an Internet services company that
develops sophisticated technology-based solutions that enable
emerging electronic markets. These markets, which the Company
refers to as e-markets, are dynamic Internet based business
networks that enable multiple buyers and sellers to conduct
business efficiently online. Lante’s strategists, user
experience experts and technologists work as a
multi-disciplinary team to build these solutions. Lante
integrates its competencies through an iterative development
process with the client that is overseen by Lante’s
delivery management specialists. This approach helps Lante
achieve rapid time to market, maximize its clients’ revenue
generation and cost reduction and develop effective customer and
supplier relationships.
2. Summary of Significant Accounting
Policies
|
Principles of Consolidation
|
The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary (see
Note 3) after elimination of all significant intercompany
accounts and transactions.
Revenues from fixed-fee engagements are recognized
on the percentage-of-completion method of accounting, based on
the cost incurred compared to total estimated cost. Revenues
from time and materials engagements are recognized as services
are provided. Anticipated losses on engagements, if any, are
charged to earnings when identified.
Unbilled revenues on engagements consist of revenues
recognized in excess of billings, and deferred revenues consist
of billings or cash received in excess of revenues
recognized.
|
Cash and Cash Equivalents
|
Cash and cash equivalents consist of cash and
overnight investments and investment-grade commercial paper with
original maturities of three months or less and whose carrying
amount approximates market value.
Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Expenditures for
renewals and improvements that significantly extend the useful
life of an asset are capitalized. Expenditures for maintenance
and repairs are charged to operations as incurred. Depreciation
and amortization are computed using the straight-line method
over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the estimated
useful lives of the assets or the remaining lease term. The
estimated useful lives are as follows:
| Computers, computer peripherals and software |
|
3-5
years |
| Office machines and equipment |
|
5-7
years |
| Furniture and fixtures |
|
10
years |
The Company reviews the carrying values of
long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of the assets
may not be recoverable.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
Prior to June 17, 1999, the Company had elected
S-Corporation status for tax purposes. It was the Company’s
policy to distribute to its stockholders amounts at least equal
to their estimated federal and state tax liabilities resulting
from the pass-through of the Company’s taxable income. As
of June 17, 1999, the Company terminated its S-Corporation
status for federal and state income tax purposes. At that time,
deferred taxes were provided for temporary differences between
the financial reporting basis and the tax basis of the Company
’s assets and liabilities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, “Accounting
for Income Taxes”.
|
Use of Estimates in the Preparation of
Financial Statements
|
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,
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. The estimates and
assumptions used in the accompanying financial statements are
based upon management’s evaluation of the relevant facts
and circumstances as of the date of the financial statements.
Actual results could differ from those estimates.
|
Concentration of Credit Risk
|
Financial instruments that potentially subject the
Company to a concentration of credit risk consist of cash and
cash equivalents and trade accounts receivable.
The Company performs ongoing credit evaluations of
its customers and generally does not require collateral on
accounts receivable. The Company maintains allowances for
potential credit losses and such losses have been within
management’s expectations. As of September 30, 1999, the
largest client accounted for 31% of the accounts receivable
balance. As of December 31, 1998, the three largest clients
accounted for 15%, 12% and 11% of the accounts receivable
balance. As of December 31, 1997, the three largest clients
accounted for 19%, 16% and 11% of the accounts receivable
balance. The two largest clients (in excess of 10%) accounted
for 37% and 16% of total revenues in the nine months ended
September 30, 1999. The three largest clients in 1998 accounted
for 21%, 12% and 11% of total revenues. In 1997, the two largest
clients accounted for 27% and 13% of total revenues. In 1996,
the largest client accounted for 30% of total
revenues.
|
Fair Value of Financial
Instruments
|
The carrying value of current assets and liabilities
approximated their fair value at December 31, 1997 and 1998 and
at September 30, 1999. The carrying value of long-term notes
payable and subordinated convertible debt approximates fair
value based on current rates of interest available to the
Company for notes of similar maturities.
The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, “Accounting for
Stock Issued to Employees” and related interpretations and
elects the disclosure option of Statement of SFAS No. 123. SFAS
No. 123 requires that companies either recognize compensation
expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure
of net income and earnings per share in the notes to the
financial statements. Accordingly, compensation expense for
stock options is measured as the excess, if any, of the fair
value of the Company’s stock at the date of grant over the
exercise price (see Note 12).
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
Effective January 1, 1998, the Company implemented
SFAS No. 130 “Reporting Comprehensive Income”. SFAS
No. 130 establishes standards for reporting comprehensive income
and its components in the financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has
not had any transactions that are required to be reported in
comprehensive income.
Certain prior year amounts have been reclassified to
conform to the current year presentation.
The interim financial information as of and for the
nine months ended September 30, 1998 is unaudited. However, in
the opinion of management, such information has been prepared on
the same basis as the audited financial statements and includes
all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial
position, results of operations and of cash flows for the
periods presented. Interim results, however, are not necessarily
indicative of results for any future period.
In October 1999, the Board of Directors declared a
two for one stock split of the common stock effected in the form
of a dividend. The accompanying consolidated financial
statements and related notes give retroactive effect to this
stock split.
|
Basic and Diluted Net Income (Loss) Per
Share
|
The Company computes basic and diluted net income
(loss) per share in accordance with SFAS No. 128, “Earnings
per Share”, and SEC Staff Accounting Bulletin No. 98 (
“SAB 98”). Basic net income (loss) per common share is
computed by dividing the net income available to common
stockholders for the period by the weighted average number of
shares of common stock outstanding during the period. The
calculation of diluted net income per share is based on the
weighted average number of shares of common stock outstanding,
adjusted, if dilutive, for the effect of common stock
equivalents. Common stock equivalents are composed of
incremental shares of common stock issuable upon the exercise of
stock options and warrants, common stock subject to restrictions
and incremental shares of stock issuable upon the conversion of
subordinated convertible debt and Series A convertible preferred
stock.
The following table sets forth the weighted average
effect of common stock equivalents that are not included in the
diluted net income (loss) per share calculation for each
respective period because the exercise price exceeded the
average estimated fair market value price for that period. There
were no common stock equivalents outstanding prior to
1998.
|
|
|
December 31,
1998
|
|
September 30,
|
|
|
|
|
1998
|
|
1999
|
|
|
|
|
|
(Unaudited) |
|
|
| Weighted average effect of common stock
equivalents: |
|
|
|
|
|
|
|
Restricted shares |
|
479 |
|
229 |
|
901 |
|
Options
outstanding |
|
1,948 |
|
1,337 |
|
202 |
|
Convertible debt |
|
1,380 |
|
920 |
|
—
|
|
Warrants |
|
—
|
|
—
|
|
76 |
| |
|
|
|
|
|
|
| |
|
3,807 |
|
2,486 |
|
1,179 |
| |
|
|
|
|
|
|
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
The following table sets forth the computation of
basic and diluted net income (loss) per share for the periods
indicated.
|
|
|
Year ended December 31,
|
|
Nine months ended
September 30,
|
|
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
|
|
|
(Unaudited) |
| Net
income (loss) available to common stockholders |
|
$
220 |
|
|
$
213 |
|
|
$
1,556 |
|
|
$
1,048 |
|
|
$
(493 |
) |
| Adjustments for diluted earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends on Series A convertible
preferred stock |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
521 |
|
|
Interest
expense on convertible debt (net of tax) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted net income available to common
stockholders |
|
$
220 |
|
|
$
213 |
|
|
$
1,556 |
|
|
$
1,048 |
|
|
$
58 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.08 |
|
|
$
0.05 |
|
|
$
(0.02 |
) |
|
Diluted |
|
0.01 |
|
|
0.01 |
|
|
0.08 |
|
|
0.05 |
|
|
0.00 |
|
|
|
| Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
22,113 |
|
|
Dilution
attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
849 |
|
|
Options
outstanding |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,686 |
|
|
Convertible debt |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
190 |
|
|
Series A
convertible preferred stock |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,652 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
20,250 |
|
|
20,167 |
|
|
20,607 |
|
|
20,384 |
|
|
27,490 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| This table gives pro forma
effect for income taxes assuming that the Company was a
C-Corporation for all periods presented (see Note
6). |
|
|
|
|
|
Year ended December 31,
|
|
Nine months ended
September 30,
|
|
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
|
|
|
(Unaudited) |
| Pro
forma (unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) available to common
stockholders |
|
$
220 |
|
|
$
213 |
|
|
$
1,556 |
|
|
$
1,048 |
|
|
$
(493 |
) |
|
Pro
forma adjustment to tax (provision) benefit |
|
(63 |
) |
|
(60 |
) |
|
(675 |
) |
|
(477 |
) |
|
(567 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net income (loss) available to common
stockholders |
|
157 |
|
|
153 |
|
|
881 |
|
|
571 |
|
|
(1,060 |
) |
|
Adjustments for diluted earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of dividends on Series A
convertible
preferred stock |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
521 |
|
|
Interest expense on convertible debt
(net of tax) |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
pro forma net income (loss) available to
common stockholders |
|
$
157 |
|
|
$
153 |
|
|
$
881 |
|
|
$
571 |
|
|
$
(509 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$
0.01 |
|
|
$
0.01 |
|
|
$
0.04 |
|
|
$
0.03 |
|
|
$
(0.05 |
) |
|
Diluted |
|
0.01 |
|
|
0.01 |
|
|
0.04 |
|
|
0.03 |
|
|
(0.02 |
) |
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
3. Acquisitions
On September 2, 1999 the Company acquired Ingenious,
Inc. (“Ingenious”), a consulting company, for total
consideration of $1,121. The acquisition was recorded under the
purchase method of accounting. As part of the acquisition, the
two principal owners of Ingenious agreed to employment
agreements with the Company through August 31, 2002. If these
individuals do not comply with the employment agreements, they
will be required to remit to the Company $1,000 of the
consideration received. Consequently, $1,000 of the purchase
price has been recorded as deferred compensation and will be
amortized ratably as professional service expense through August
31, 2002. The balance of the total purchase price principally
has been allocated to other current operating assets. The
Ingenious acquisition and another acquisition are not
significant and as such, separate pro forma financial
information is not necessary.
4. Property and Equipment
Property and equipment consists of the
following:
|
|
|
December 31,
|
|
September 30,
1999
|
|
|
|
1997
|
|
1998
|
|
|
|
| Computers, computer peripheral and software |
|
$
701 |
|
|
$
753 |
|
|
$
2,459 |
|
| Furniture and fixtures |
|
316 |
|
|
328 |
|
|
405 |
|
| Office machines and equipment |
|
207 |
|
|
258 |
|
|
343 |
|
| Leasehold improvements |
|
50 |
|
|
54 |
|
|
70 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
1,274 |
|
|
1,393 |
|
|
3,277 |
|
| Less:
Accumulated depreciation and amortization |
|
(677 |
) |
|
(711 |
) |
|
(1,009 |
) |
| |
|
|
|
|
|
|
|
|
|
| Property and equipment, net |
|
$
597 |
|
|
$
682 |
|
|
$
2,268 |
|
| |
|
|
|
|
|
|
|
|
|
5. Notes Payable and Line of
Credit
On December 23, 1994, the Company borrowed $1,000
from a stockholder. As of December 31, 1997 the Company had $350
outstanding under this note. The note was fully repaid in 1998.
The note bore interest at a rate equal to the “short-term
applicable federal rate”, and was payable, under its terms,
one year after demand. The note was fully repaid in 1998. At
December 31, 1997 the applicable federal interest rate was
5.56%.
The Company has a line of credit in place pursuant
to a loan agreement with its commercial bank dated December 29,
1998 and maturing two years thereafter. There were no borrowings
under the loan as of December 31, 1998 or September 30, 1999.
The line has a maximum borrowing amount of $3,500 of which
$3,000 is subject to a formula based on 75% of eligible accounts
receivable. Borrowings are secured by accounts receivable and
general Company assets. Borrowings bear interest at the lender
’s “index rate” of 7.75% and 8.25% at December
31, 1998 and September 30, 1999, respectively. An unused
facility fee is due semiannually in an amount equal to 0.25% of
the difference between $3,500 and the average daily outstanding
principal. The loan agreement contains certain financial
covenants, including maintenance of 1.75 to 1 debt service ratio
and capital funds greater than $7,500 (both as defined). The
Company was not in violation of its financial covenants at
December 31, 1998 and received a waiver in respect to certain
covenants at September 30, 1999. The amount drawn under prior
line of credit arrangements as of December 31, 1997 was $800 at
a rate of 8.5%.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
|
Subordinated Convertible
Debt
|
The Company issued eight notes on June 30, 1998 to
the Company’s advisors, directors and former Chief
Operating Officer. The notes had an aggregate face value of
$2,190 and were issued at a premium of $405. The stated interest
rate was 5.79%. The accrued interest aggregated $64 at December
31, 1998. The notes were carried on the books at their face
value, plus unamortized original issue premium, plus accrued
interest. The original issue premium was being amortized using
the effective interest rate method over the ten-year life of the
notes.
On July 1, 1999, the holders converted the notes
into 2,700 shares of common stock pursuant to an agreement with
the Company. The face value of the notes plus accrued interest
at conversion aggregated $2,317. As provided in the terms of the
notes, the conversion rate was adjusted to $0.86 per share as a
result of the common stock dividend distributions prior to
conversion of the notes.
6. Income Taxes
The Company’s income tax provision consisted
solely of current state taxes of $1, $4, $8, and $5 (unaudited)
for the years ended December 31, 1996, 1997 and 1998, and the
nine months ended September 30, 1998, respectively. The Company
’s income tax benefit of $579 for the nine months ended
September 30, 1999 consisted of current state tax expense of
$77, deferred federal tax benefit of $551 and deferred state tax
benefit of $105.
The Company terminated its S-Corporation election
for federal and state purposes on June 17, 1999. Accordingly,
all income that was earned in the subsequent C-Corporation
period was taxable at the statutory federal and state tax rates.
In order to present amounts in a comparable format, the
statements of operations include a pro forma adjustment for
additional taxes that would have been recorded if the Company
had been a C-Corporation for all periods presented, based upon
the tax laws in effect during those periods. Unaudited pro forma
income tax provisions (benefits) calculated on a separate
company basis in conformity with SFAS 109, are as
follows:
|
|
|
Year ended
December 31,
|
|
Nine months
ended
September 30,
|
Unaudited
pro forma
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
| Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$43 |
|
$11 |
|
$124 |
|
$
8 |
|
|
$702 |
|
|
State |
|
14 |
|
3 |
|
28 |
|
2 |
|
|
155 |
|
| Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
6 |
|
44 |
|
468 |
|
473 |
|
|
(766 |
) |
|
State |
|
1 |
|
6 |
|
63 |
|
(1 |
) |
|
(103 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense (benefit) |
|
$64 |
|
$64 |
|
$683 |
|
$482 |
|
|
$
(12 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
The pro forma provisions for income taxes differ
from the amount of income tax determined by applying the
applicable U.S. statutory federal income tax rate to income from
operations as a result of the following differences:
|
|
|
Year ended
December 31,
|
|
Nine months
ended
September 30,
|
Unaudited
pro forma
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
| Income tax provision at statutory U.S. tax rates of
34% |
|
$75 |
|
|
$74 |
|
|
$532 |
|
$359 |
|
$(187 |
) |
| Increase (decrease) in rates resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graduated average rate |
|
(27 |
) |
|
(26 |
) |
|
—
|
|
—
|
|
—
|
|
|
Change
in graduated average rate |
|
—
|
|
|
—
|
|
|
64 |
|
64 |
|
—
|
|
|
State
taxes |
|
13 |
|
|
13 |
|
|
74 |
|
50 |
|
(24 |
) |
|
Other,
net |
|
3 |
|
|
3 |
|
|
13 |
|
9 |
|
199 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pro
forma provision (benefit) for income taxes |
|
$64 |
|
|
$64 |
|
|
$683 |
|
$482 |
|
$
(12 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (liabilities) assets on an unaudited
pro forma basis at December 31, 1997 and 1998, and actual basis
at September 30, 1999, respectively, are as follows:
|
|
|
December 31,
|
|
September 30,
1999
|
|
|
|
1997
|
|
1998
|
|
|
|
(Pro forma)
(unaudited) |
|
(Actual) |
| Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accrual to cash |
|
$(175 |
) |
|
$(682 |
) |
|
$
(23 |
) |
| Provision for doubtful accounts |
|
59 |
|
|
121 |
|
|
309 |
|
| Net
operating loss carryforward |
|
—
|
|
|
—
|
|
|
474 |
|
| Other, net |
|
(44 |
) |
|
(111 |
) |
|
61 |
|
| |
|
|
|
|
|
|
|
|
|
|
Current
deferred tax (liabilities) assets |
|
$(160 |
) |
|
$(672 |
) |
|
$821 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
$
3 |
|
|
$
(17 |
) |
|
$
(48 |
) |
| Other, net |
|
1 |
|
|
1 |
|
|
(117 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (liabilities) assets |
|
4 |
|
|
(16 |
) |
|
(165 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net
deferred tax (liabilities) assets |
|
$(156 |
) |
|
$(688 |
) |
|
$656 |
|
| |
|
|
|
|
|
|
|
|
|
7. Commitments and
Contingencies
The Company is obligated under various
noncancellable operating leases for its office space in
Charlotte, Chicago, Dallas, New York, San Francisco and Seattle.
Future minimum rental commitments under all noncancellable
operating leases with initial or remaining terms in excess of
one year are $312 for the quarter ending December 31, 1999. They
are as follows for each respective year ending December
31:
|
|
|
| 2000 |
|
$
1,598 |
| 2001 |
|
1,534 |
| 2002 |
|
1,578 |
| 2003 |
|
1,471 |
| 2004 |
|
1,406 |
| Thereafter |
|
4,965 |
| |
|
|
|
|
|
$12,552 |
| |
|
|
Rent expense for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1999
was $319, $580, $657 and $501, respectively.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
As of September 30, 1999, the Company had standby
letters of credit issued by its bank in the amounts of $200 and
$222 related to security deposits on office leases.
A former employee has filed a claim against the
Company alleging that the Company failed to comply with a
shareholder’s agreement to repurchase common stock held by
the former employee. The Company intends to vigorously defend
the litigation. Since this case has not proceeded to a hearing
on the merits, the Company is unable to evaluate or estimate the
extent of any potential loss.
8. Employee Loans
In June 1999, the Company entered into an employment
agreement with one of its executive officers. Pursuant to this
agreement the Company loaned the executive $2,500 under a note
that will mature and be due on the earlier of six months after
termination of employment or June 30, 2003. The note bears
interest at 5.37% per annum. The loan will be payable upon
maturity if the executive is still employed by the Company but
only if the Company has a liquidity event (as defined) and the
fair market value of the executive’s holdings in the Company
’s common stock is greater than an agreed-upon amount,
provided that if these conditions are met, but executive does
not have the ability to liquidate his stock, the maturity will
be postponed. Otherwise, if these conditions are not met, the
loan will be forgiven at the rate of $100 per month commencing
on the maturity date until all principal and interest is
forgiven. The Company recorded the loan as deferred compensation
and is amortizing the loan over 73 months, the period in which
the loan may be forgiven. In addition, upon execution of the
employment agreement, the executive purchased 2,400 restricted
shares of common stock at the then estimated fair value of $1.35
per share, based upon an independent valuation. The restrictions
lapse over four years at 1
/48 per month, subject to certain
acceleration provisions upon a change in control and upon
termination of employment. The Company loaned the executive
$3,228 on a fully recourse basis to purchase the restricted
stock. The loan bears interest at 5.37%. The loan and related
interest is due upon the earlier of June 20, 2005 or three years
after a liquidity event (as defined).
9. Related Party Transactions
The Company’s chairman is a member of the Board
of Directors of a corporation that was the Company’s most
significant client during the nine-month period ended September
30, 1999. In addition, he is a stockholder with beneficial
ownership of less than 1% of this client’s outstanding
common stock. The Company believes that the fees billed to this
client have been at customary business terms.
10. Retirement Plan
The Company has a defined contribution profit
sharing plan which is qualified under section 401K of the
Internal Revenue Code and for which most employees are eligible.
The plan provides for discretionary Company contributions based
on a percentage of eligible participants’ compensation, as
defined. In addition, the Company may make year-end matching
contributions based on eligible participants’ deferral
contributions. In 1996, 1997, 1998 and for the nine month period
ended September 30, 1999, the Company expensed matching
contributions in the amounts of $154, $137, $260 and $166,
respectively.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
11. Mandatorily Redeemable Preferred
Stock
In 1999, the Company issued 3,536 shares of Series A
redeemable convertible preferred stock, par value $0.01 per
share for an aggregate value of $25,000, net of issuance costs
of $186. The rights of the Series A convertible preferred stock
are as follows:
Each share of Series A convertible preferred stock
has voting rights equal to an equivalent number of shares of
common stock into which it is convertible and votes together as
one class with common stock.
Holders of the Series A convertible preferred stock
are entitled to receive dividends at the rate of 7% per annum on
the sum of the liquidation value plus all accumulated and unpaid
dividends, subject to reduction (as defined) based upon
increases in the fair market value of the common stock at the
date of conversion of the Series A convertible preferred stock.
Any dividends declared or paid upon the common stock shall also
be declared and paid to holders of the Series A convertible
preferred stock based upon the number of shares of common stock
issuable upon conversion of the preferred stock.
In the event of liquidation, dissolution or winding
up of the Company, the holders of the Series A convertible
preferred stock shall be entitled to receive the greater of (i)
$7.07 per share plus any accrued and unpaid dividends or (ii)
such amount per share as would have been payable had such shares
been converted into common stock immediately prior to
liquidation.
Each share of Series A convertible preferred stock
will be convertible at the option of the holder at any time into
two shares of common stock, or 7,072 shares in total, subject to
anti-dilution adjustments. Each share of Series A convertible
preferred stock automatically converts into common stock at the
then effective conversion ratio upon (i) the written request of
the holders of a majority of the outstanding shares, or (ii) the
completion of an initial public offering with aggregate proceeds
of at least $20,000 and a minimum specified initial offering
price based on the timing of the initial offering.
Absent a conversion, the Company shall redeem from
each holder of Series A convertible preferred stock one fourth
of such holder’s Series A convertible preferred stock
annually beginning on June 30, 2004 at a redemption price equal
to the greater of (i) $7.07 plus all accrued and unpaid
dividends or (ii) the fair market value of the shares of the
common stock on an as converted basis. In the event of a change
in control, each holder of the Series A convertible preferred
stock may elect to require the Company to redeem all or a
portion of the holder’s preferred stock at the redemption
price. The difference between the net issuance price and the
redemption value of the Series A convertible preferred stock is
being accreted by periodic charges to additional paid-in
capital.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
12. Stockholders’ Equity and Other Stock
Related Information
|
Preferred Stock and Common
Stock
|
In June 1999, the Company amended its Certificate of
Incorporation to provide for one class of common stock and one
class of preferred stock. The amendment authorized 50,000 shares
of common and 10,000 shares of preferred stock and allocated
4,243 shares as Series A convertible preferred stock (see Note
11). Each previously issued and outstanding share of voting
Class A common stock and non-voting Class B common stock was
converted and exchanged into one share of common stock, $0.01
par value.
The effect of stock splits and recapitalization has
been retroactively reflected in the consolidated financial
statements for all periods presented.
In June 1999, the Company repurchased 2,460 shares
of common stock at approximately $2.24 per share, from certain
employee stockholders. The repurchased shares were cancelled
upon redemption. The Company issued promissory notes aggregating
$5,519 in payment for the repurchased shares, which notes were
fully repaid on June 22, 1999.
In September 1999, pursuant to a stockholder’s
agreement, the Company executed its right to repurchase 2,000
shares of common stock held by a former employee. The Company
paid cash of $724 net of $278 due to the Company by the
stockholder, and issued a promissory note aggregating $3,007 as
payment for the repurchased shares, which note is due at various
dates through September 30, 2002. The promissory note bears
interest at prime, which was 8.5% at September 30, 1999 (see
Note 7).
|
Employee Stock Plan
—Redemptions
|
In 1993, the Company adopted an employee Stock
Benefit Plan under which certain key employees were permitted to
purchase shares of common stock at then current estimated fair
value. In 1997 and 1998, the Company redeemed from terminating
employees 169 shares and 300 shares, respectively, at then
current estimated fair values of $0.10 and $0.11 per
share.
Prior to June 17, 1999, the Company was treated as
an S-Corporation for income tax purposes and paid out dividends
to compensate stockholders for their estimated tax liabilities.
These dividends totaled $59, $20 and $582 in the years ended
December 31, 1997 and 1998 and the nine months ended September
30, 1999, respectively. In addition, on June 15, 1999, the
Company declared a dividend in conjunction with the conversion
to a C-Corporation consisting of $2,488 of accounts receivable
and $1,500 of cash.
In June 1998, the Company adopted its 1998 Option
Plan (“the Plan”), under which it may grant
nonqualified stock options for up to 10,000 Common Shares to
employees, directors, and advisors. The Plan is administered,
and grants are determined, by the compensation committee of the
Board of Directors. Options
granted under the plan generally vest over a four-year period and
expire nine years from the date of grant. Stock option activity
under the Plan is summarized as follows:
|
|
|
Option
shares
|
|
Weighted
average
exercise
price per
share
|
| Outstanding at December 31, 1997 |
|
—
|
|
|
$
— |
|
Granted |
|
5,469 |
|
|
0.230 |
|
Exercised |
|
(1,200 |
) |
|
0.225 |
|
Cancelled |
|
(87 |
) |
|
0.225 |
| |
|
|
|
|
|
| Outstanding at December 31, 1998 |
|
4,182 |
|
|
0.232 |
|
Granted |
|
2,066 |
|
|
0.878 |
|
Exercised |
|
(1,472 |
) |
|
0.237 |
|
Cancelled |
|
(916 |
) |
|
0.237 |
| |
|
|
|
|
|
| Outstanding at September 30, 1999 |
|
3,860 |
|
|
0.575 |
| |
|
|
|
|
|
At December 31, 1998, the Company had 4,182 stock
options outstanding with exercise prices between $0.225 and
$0.268 per option and a weighted average exercise price of
$0.232 per option. The weighted average remaining contractual
life of the options was 8.17 years. None of the options was
exercisable at December 31, 1998.
The following table summarizes information about
stock options outstanding at September 30, 1999.
|
|
Options outstanding
|
|
Options exercisable
|
Range of
exercise prices
|
|
Number
outstanding
as of
period end
|
|
Weighted
average
remaining
contractual
life
|
|
Weighted
average
exercise
price
|
|
Number
exercisable
as of
period-end
|
|
Weighted
average
exercise
price
|
| $0.225
–0.845 |
|
3,070 |
|
7.80 |
|
$0.284 |
|
379 |
|
$0.225 |
|
1.345–1.875 |
|
597 |
|
8.47 |
|
1.607 |
|
—
|
|
—
|
|
2.005–2.005 |
|
193 |
|
8.95 |
|
2.005 |
|
—
|
|
—
|
| |
|
|
|
|
|
|
|
|
|
|
| $0.225
–2.005 |
|
3,860 |
|
7.97 |
|
$0.575 |
|
379 |
|
$0.225 |
| |
|
|
|
|
|
|
|
|
|
|
In June 1999, the Company changed the vesting
schedule for options granted under the “1998 Stock Option
Plan” such that the vesting period was reduced from five
years to four years. This change in vesting periods did not
increase the estimated fair value of the options
granted.
In June 1999, the options previously granted to one
employee were reduced to 1,000 from 1,750. In conjunction with
this change, the vesting of the employee’s remaining
options was accelerated so that the options were fully vested
and the options were immediately exercised at the original price
of $0.23 per share.
The Company applies Accounting Principle Board
Option No. 25, “Accounting for Stock Issued to Employees,
” (“APB 25”) and related interpretations in
accounting for its option plans. In accordance with the
provisions of APB 25, the Company recorded deferred compensation
and compensation expense of $171 and $21, respectively, during
the nine months ended September 30, 1999 for options granted to
advisors and options issued to employees with an exercise price
below the estimated fair value of the common stock at the date
of grant. The weighted average exercise price of such options
was $0.37, and the weighted average fair value was $0.58. The
Company’s board of directors, in assessing the fair value
of the Company’s common stock,
considers factors relevant at the time, including recent issuances
and sales of the Company’s securities, third party
independent valuations, significant customer wins, composition
of the management team, recent hiring results, the Company
’s financial condition and operating results and the lack
of a public market for the Company’s common stock. Had
compensation expense for the Company’s stock option plans
been determined based on the fair value at the grant date for
awards under these plans consistent with the methodology
prescribed under SFAS No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”), the Company’s
net income would have been reduced to the supplemental unaudited
pro forma amounts indicated as follows:
|
|
|
Year ended December 31,
|
|
Nine months ended
September 30,
|
Unaudited
|
|
1996
|
|
1997
|
|
1998
|
|
1998
|
|
1999
|
|
| Net
income as reported |
|
$220 |
|
$213 |
|
$1,556 |
|
$1,048 |
|
$
28 |
|
| Supplemental pro forma compensation expense, net of
tax |
|
—
|
|
—
|
|
26 |
|
11 |
|
54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Pro
forma net income (loss) |
|
$220 |
|
$213 |
|
$1,530 |
|
$1,037 |
|
$
(26 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) per diluted share, as reported |
|
$0.01 |
|
$0.01 |
|
$
0.08 |
|
$
0.05 |
|
$(0.02 |
) |
| Net
income per diluted share, pro forma |
|
0.01 |
|
0.01 |
|
0.08 |
|
0.05 |
|
0.00 |
|
Because additional stock options are expected to be
granted each year and the pro forma net income (loss) includes
the effect of options granted in 1998 and 1999, the above pro
forma disclosures are not representative of the pro forma
effects on reported financial results for future
years.
The following assumptions were used by the Company
to determine the fair value of stock options granted using the
Black-Scholes options-pricing model: risk free interest rate
ranging from 4.59% to 6.11%; expected option life ranging from
two to six years; zero dividend yield and zero expected
volatility.
The Company granted 1,200 and 2,400 shares of
restricted stock at weighted average grant prices of $0.23 and
$1.35 for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, respectively.
13. Recent Accounting
Pronouncements
During 1997, the FASB issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related
Information”. SFAS No. 131 specifies revised guidelines for
determining an entity’s operating segments and the type and
level of financial information to be disclosed. This standard
requires that management identify operating segments based on
the way that management desegregates the entity for making
internal operating decisions. Management believes that the
Company operates in one business segment.
In June 1998, the FASB issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”. This statement establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and
for hedging activities. In June 1999, the FASB issued SFAS No.
137 which postpones the mandatory adoption of SFAS 133 by the
Company until January 1, 2001. The Company has not entered into
any significant derivative financial instrument
transactions.
LANTE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
(In thousands, except per share
data)
14. Subsequent Events
Subsequent to September 30, 1999, the Company issued
1,755 options and sold 300 shares to recently hired employees,
while 234 options were exercised under the Stock Option
Plan.
The Board of Directors has authorized the Company to
increase the authorized number of shares of common stock to
150,000.
The Board of Directors has authorized the adoption
of a Stock Purchase Plan with 800 shares of common stock
reserved for issuance thereunder.
Upon completion of an engagement for its major
client in November 1999, the Company granted to the client a
fully vested option to purchase up to 400 shares of the Company
’s common stock at an exercise price of $7.00 per share.
Pursuant to an agreement executed simultaneously with this
grant, the Company has a fully vested option to purchase 167
shares of the client’s common shares at $7.625 per share.
The number of shares of common stock issuable upon exercise of
either of the options will not exceed a number of shares having
a fair market value at the time of exercise of $12 million in
the aggregate. The Company and the client agreed not to transfer
any of the shares issuable upon the exercise of the respective
options until after the earlier of 180 days from the date of
completion of the Company’s pending initial public offering
or a change in control, as defined, of either party.
During December 1999, the Board of Directors
authorized the Company to file a registration statement with the
Securities and Exchange Commission for an initial public
offering of shares of its common stock.
15. Subsequent Events
(Unaudited)
On December 8, 1999, the Company and Dell Computer
Corporation (“Dell”) entered into a strategic
alliance. As part of the strategic alliance, Dell has agreed to
buy 1,000 shares of the Company’s common stock at $11 per
share and 1,000 shares from one of the Company’s
stockholders and trusts for the benefit of his family at $11.00
per share at the then estimated fair value. The Company and a
subsidiary of Dell have also entered into a master services
agreement under which the subsidiary guarantees minimum annual
revenues to the Company totaling $40 million over a five-year
period, although the subsidiary may terminate the agreement
after three years. The guaranteed revenues for the first three
years would be $15 million. Pursuant to the shareholders
agreement, certain defined holders of preferred and common stock
have elected to purchase 310 shares of common stock at $11.00
per share. Additionally, certain members of management have
elected to purchase 200 shares of common stock at $11.00 per
share.
|
Amendment to 1998 Stock Option
Plan
|
The Board of Directors authorized an amendment to
the 1998 Stock Option Plan to increase the number of
nonqualified stock options available for grant to
15,000.
[graphic consisting of 11 spheres
organized in a semi-circle, each containing the name of a
strategic partner]
Lante Unleashing e-markets for the new
economy with our strategic alliances]
[High-Impact .com Business
Builders]
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
Set forth below is an estimate of the approximate
amount of fees and expenses (other than underwriting commissions
and discounts) payable by the registrant in connection with the
issuance and distribution of the common stock pursuant to the
prospectus contained in this registration statement. Registrant
will pay all of these expenses.
|
|
|
Approximate
Amount
|
| Securities and Exchange Commission registration
fee |
|
$13,200 |
| NASD
filing fee |
|
5,500 |
| Nasdaq National Market listing fee |
|
95,000 |
| Accountants’ fees and expenses |
|
* |
| Legal
fees and expenses |
|
* |
| Transfer agent and registrar fees and
expenses |
|
* |
| Printing and engraving expenses |
|
* |
| Miscellaneous expenses |
|
* |
| |
|
|
|
Total |
|
$ *
|
| |
|
|
*To be provided by amendment.
Item 14. Indemnification of Directors and
Officers.
The registrant’s certificate of incorporation
provides that the registrant shall indemnify its directors to
the full extent permitted by the General Corporation Law of the
State of Delaware and may indemnify its officers and employees
to such extent, except that the registrant shall not be
obligated to indemnify any such person (1) with respect to
proceedings, claims or actions initiated or brought voluntarily
by any such person and not by way of defense, or (2) for any
amounts paid in settlement of an action indemnified against by
the registrant without the prior written consent of the
registrant. Registrant will enter into indemnity agreements with
each of its directors. These agreements may require the
registrant, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their
status or service as directors, to advance expenses to them as
they are incurred, provided that they undertake to repay the
amount advanced if it is ultimately determined by a court that
they are not entitled to indemnification, and to obtain directors
’ liability insurance if available on reasonable
terms.
In addition, the registrant’s certificate of
incorporation provides that a director of the registrant shall
not be personally liable to the registrant or its stockholders
for monetary damages for breach of his or her fiduciary duty as
a director, except for liability (1) for any breach of the
director’s duty of loyalty to the registrant or its
stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (3) for willful or negligent conduct in paying dividends or
repurchasing stock out of other than lawfully available funds or
(4) for any transaction from which the director derives an
improper personal benefit.
Reference is made to Section 145 of the General
Corporation Law of the State of Delaware which provides for
indemnification of directors and officers in certain
circumstances.
The registrant has obtained directors’ and
officers’ liability insurance and has entered into
indemnity agreements with each of its directors and executive
officers.
Under the terms of the underwriting agreement, the
underwriters have agreed to indemnify, under certain conditions,
the registrant, its directors, certain of its officers and
persons who control the registrant within the meaning of the
Securities Act of 1933.
Item 15. Recent Sales of Unregistered
Securities.
The following information reflects our recent sales
of unregistered securities:
In December 1997, we declared a dividend of 15
shares of both Class A common stock and Class B common stock for
each outstanding share of our common stock. On June 29, 1998, we
declared a 5-for-1 stock dividend on each outstanding share of
common stock.
On June 30, 1998, we issued an aggregate of
1,500,000 shares of common stock to Pantelis Georgiadis and
members of our advisory board in exchange for services to be
provided to us. Exemption from registration for this transaction
was claimed pursuant to Section 4(2) of the Securities Act
regarding transactions not involving a public offering.
On June 30, 1998, we granted options to purchase
1,800,000 shares of common stock to members of our advisory
board under our 1998 Stock Option Plan. Exemption from
registration for this transaction was claimed pursuant to
Section 4(2) of the Securities Act.
On June 30, 1998, we granted options to purchase
1,750,000 shares of common stock to Pantelis Georgiadis under
our 1998 Stock Option Plan. On June 3, 1999, we issued a total
of 1,000,000 shares of common stock to Pantelis Georgiadis
pursuant to the terms of this stock option grant and an
Amendment to Non-Qualified Stock Option Agreement entered into
by us and Mr. Georgiadis. These shares were purchased for an
option exercise price of $225,000 in the aggregate, and
exemption from registration for such issuance was claimed
pursuant to Section 4(2) of the Securities Act.
On or about June 17, 1999, we issued 3,536,069
shares of Series A convertible preferred stock in exchange for
$25,000,000. Exemption from registration for this issuance was
claimed in reliance on Section 4(2) of the Securities Act
regarding transactions not involving a public
offering.
On June 30, 1999, we issued 2,400,000 shares of
common stock to C. Rudy Puryear for a purchase price of
$3,228,000. Exemption from registration for this transaction was
claimed pursuant to Section 4(2) of the Securities Act regarding
transactions made by the issuer not involving a public offering,
in that this transaction was made without general solicitation
or advertising and to a sophisticated investor with access to
all relevant information.
On July 1, 1999, we issued an aggregate of 2,700,000
shares of common stock to holders of our convertible
subordinated notes due 2007, in exchange for cancellation of
such Notes. The price paid for such shares translates to
approximately $0.86 per share. These Notes were issued on June
30, 1998, for the aggregate amount of $2,595,000, in exchange
for monies loaned to us. Exemption from registration for these
transactions was claimed pursuant to Section 4(2) of the
Securities Act regarding transactions made by the issuer not
involving a public offering, in that these transactions were
made without general solicitation or advertising and to
sophisticated investors with access to all relevant
information.
In August 1999, we issued a warrant to purchase up
to 200,000 shares of common stock at an exercise price of $2.02
per share to Heidrick & Struggles, Inc. The warrant will
expire on July 1, 2006. Exemption from registration for this
transaction was claimed pursuant to Section 4(2) of the
Securities Act regarding transactions made by the issuer not
involving a public offering.
On September 2, 1999, we issued 430,000 shares of
common stock in the aggregate to Julie Pokorny and Jamie
Bellanca, in exchange for all of the stock of Ingenious, Inc.
Exemption from registration for this
transaction was claimed pursuant to Section 4(2) of the Securities
Act regarding transactions made by the issuer not involving a
public offering, in that this transaction was made without
general solicitation or advertising and to sophisticated
investors with access to all relevant information. In addition,
Pokorny and Bellanca represented to Lante that the shares were
being acquired for investment and not for resale.
On October 29, 1999, we issued 300,000 shares of
common stock to Brian Henry for a purchase price of $673,500. We
also granted an option to Brian Henry to purchase 700,000 shares
of common stock pursuant to our 1998 Stock Option Plan.
Exemption from registration for this purchase of shares and
option grant was claimed in reliance on Section 4(2) of the
Securities Act regarding transactions not involving a public
offering.
On December 8, 1999, we issued 1,510,186 shares of
common stock to Dell USA, L.P. and certain of our officers,
directors and stockholders for an aggregate purchase price of
$16,612,046. Exemption from registration for this purchase of
shares was claimed in reliance on Section 4(2) of the Securities
Act regarding transactions not involving a public
offering.
Additionally, since June 30, 1998, we have granted
stock options to certain of our employees and advisors pursuant
to our 1998 Stock Option Plan. Other than the option grants to
Pantelis Georgiadis, Brian Henry and to members of our advisory
board as previously described, all such grants were made in
reliance on Rule 701 promulgated under the Securities Act. As of
December 4, 1999, we had granted options to purchase 5,381,257
shares of common stock to employees and advisors pursuant to the
1998 Stock Option Plan.
Item 16. Exhibits and Financial Statement
Schedules.
(a) Exhibits.
|
1* |
|
Form of
Underwriting Agreement |
|
|
|
3.1 |
|
Form of
Amended and Restated Certificate of Incorporation of the
Registrant |
|
|
|
3.2 |
|
Form of
Amended Bylaws of the Registrant |
|
|
|
4* |
|
Specimen stock
certificate representing Common Stock |
|
|
|
5* |
|
Opinion of
Katten Muchin Zavis as to the legality of the securities being
registered
(including consent) |
|
|
| 10.1 |
|
1998 Stock
Option Plan |
|
|
| 10.2* |
|
Registrant
’s Stock Purchase Plan |
|
|
| 10.3 |
|
Form of
Indemnification Agreement |
|
|
| 10.4 |
|
Registration
Agreement |
|
|
| 10.5 |
|
Software
License and Services Agreement between Evolve Software, Inc.
and Registrant
dated September 3, 1999 |
|
|
| 10.6 |
|
Employment,
Confidentiality and Noncompete Agreement between Registrant
and Mark
A. Tebbe |
|
|
| 10.7 |
|
Employment
Agreement between Registrant and C. Rudy Puryear |
|
|
| 10.8* |
|
Employment,
Confidentiality and Noncompete Agreement between Registrant
and Brian
Henry |
|
|
| 10.9 |
|
Restricted
Stock Agreement between Registrant and C. Rudy Puryear dated
as of June
30, 1999 |
|
|
| 10.10 |
|
Pledge
Agreement by and between Registrant and C. Rudy Puryear dated
June 30, 1999 |
|
|
| 10.11 |
|
Promissory
Note in the amount of $2,500,000 by C. Rudy Puryear to the
Registrant,
dated June 30, 1999 |
|
|
| 10.12 |
|
Secured
Promissory Note in the amount of $3,228,000 by C. Rudy Puryear
to the
Registrant dated June 30, 1999 |
|
|
| 10.13 |
|
Amended and
Restated Loan and Security Agreement between Registrant and
Old Kent
Bank, dated December 29, 1998, as amended on June 15,
1999 |
|
|
| 10.14* |
|
Common Stock
Purchase Agreement between Registrant and certain
stockholders |
|
|
| 10.15* |
|
Master
Services Agreement between Registrant and Dell Products,
L.P. |
|
|
| 21 |
|
Subsidiaries
of Registrant |
|
|
| 23.1 |
|
Consent of
PricewaterhouseCoopers, LLP |
|
|
| 23.2* |
|
Consent of
Katten Muchin Zavis (contained in its opinion to be filed as
Exhibit 5
hereto) |
|
|
| 24 |
|
Power of
Attorney (see signature page) |
|
|
| 27 |
|
Financial Data
Schedule |
*to be filed by amendment.
(b) Financial Statement Schedule.
|
Schedule II
—Valuation and Qualifying Accounts
|
Item 17. Undertakings.
(1) 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.
(2) Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(3) For purposes of determining any liability under
the Securities Act, (i) the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) 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 (ii) each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Report of Independent Accountants on
Financial Statement Schedule
December 6, 1999
To the Board of Directors
of Lante Corporation
Our audits of the consolidated financial statements
of Lante Corporation referred to in our report dated December 6,
1999 appearing on page F-2 of the Registration Statement on Form
S-1 of Lante Corporation also included an audit of the financial
statement schedule listed in Item 16(b) of this Form S-1. In our
opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
PRICEWATERHOUSE
COOPERS
LLP
Chicago, Illinois
LANTE CORPORATION
SUPPLEMENTAL FINANCIAL STATEMENT
SCHEDULE
SCHEDULE II—VALUATION AND QUALIFYING
ACCOUNTS
Description
|
|
Balance at
Beg. of Period
|
|
Charged
to Costs
and Expenses
|
|
Charged to
Other Accounts
|
|
Deductions(a)
|
|
Balance at
End of Period
|
1996
Allowance for Doubtful
Accounts |
|
185 |
|
129 |
|
|
|
(94 |
) |
|
220 |
1997
Allowance for Doubtful
Accounts |
|
220 |
|
51 |
|
|
|
(55 |
) |
|
216 |
1998
Allowance for Doubtful
Accounts |
|
216 |
|
106 |
|
|
|
(9 |
) |
|
313 |
1999
Allowance for Doubtful
Accounts |
|
313 |
|
504 |
|
|
|
(16 |
) |
|
801 |
(a)
|
Accounts receivable write-offs, net of
recoveries.
|
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, and State of
Illinois on the 6th day of December, 1999.
|
Chief Executive Officer and
President
|
POWER OF ATTORNEY
Each person whose signature appears below hereby
constitutes and appoints each of Mark Tebbe, C. Rudy Puryear and
Brian Henry his true and lawful attorney-in-fact and agent,
acting alone, with full power of substitution, to sign on his
behalf, individually and in each capacity stated below, all
amendments and post-effective amendments to this Registration
Statement on Form S-1 (including any registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933,
and all amendments thereto) and to file the same, with all
exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the
Securities Act of 1933, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises, as fully and to all intents and purposes as each
might or could do in person, hereby ratifying and confirming
each act that said attorneys-in-fact and agents may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed below
by the following persons in the capacities indicated on December
6, 1999.
Signature
|
|
Title
|
|
|
/S
/ MARK
TEBBE
MARK
TEBBE
|
|
Chairman of
the Board of Directors |
|
|
/S
/ C. RUDY
PURYEAR
C. Rudy Puryear |
|
Chief
Executive Officer, President and Director
(Principal Executive Officer) |
|
|
/S
/ BRIAN
HENRY
Brian Henry |
|
Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
/S
/ PAUL
CARBERY
Paul Carbery |
|
Director |
|
|
/S
/ JAMES
COWIE
James Cowie |
|
Director |
|
|
/S
/ JUDITH
HAMILTON
Judith Hamilton |
|
Director |
|
|
/S
/ JOHN
KRAFT
John Kraft |
|
Director |
|
|
/S
/ JOHN
LANDRY
John Landry |
|
Director |
|
|
/S
/ JOHN
OLTMAN
John Oltman |
|
Director |
|
|
/S
/ PAUL
YOVOVICH
Paul Yovovich |
|
Director |
