<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 2000
REGISTRATION NO. 333-95689
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LIVEPERSON, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 13-3861628
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
462 SEVENTH AVENUE
10TH FLOOR
NEW YORK, NY 10018-7606
(212) 277-8950
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
ROBERT P. LOCASCIO
CHIEF EXECUTIVE OFFICER
LIVEPERSON, INC.
462 SEVENTH AVENUE
10TH FLOOR
NEW YORK, NY 10018-7606
(212) 277-8950
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code of
Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
BRIAN B. MARGOLIS, ESQ. DEANNA L. KIRKPATRICK, ESQ.
MATTHEW F. HERMAN, ESQ. DAVIS POLK & WARDWELL
BROBECK, PHLEGER & HARRISON LLP 450 LEXINGTON AVENUE
1633 BROADWAY, 47TH FLOOR NEW YORK, NY 10017
NEW YORK, NY 10019 (212) 450-4000
(212) 581-1600
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 6, 2000
PROSPECTUS
4,000,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by LivePerson, Inc.
LivePerson is selling 4,000,000 shares of common stock. The estimated initial
public offering price is between $13.00 and $15.00 per share.
----------------
Prior to this offering, there has been no public market for our common
stock. Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol LPSN.
----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to LivePerson, before expenses..................... $ $
</TABLE>
LivePerson has granted the underwriters an option for a period of 30 days to
purchase up to 600,000 additional shares of our common stock.
----------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
--------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CHASE H&Q
THOMAS WEISEL PARTNERS LLC
PAINEWEBBER INCORPORATED
, 2000
<PAGE>
INSIDE FRONT COVER:
- --Entire page contains a photograph of an overturned, empty shopping cart in the
foreground, occupying most of the lower half of the page. The shopping cart
appears alone in a dusty field, with other empty shopping carts in the
background. The text on the page is superimposed over the photograph.
- --Title text reading: " 2/3 of all online shopping carts are abandoned. *"
- --Upper-left quarter of page contains text reading:
"How can you convert an online shopper into a buyer?" (bold text)
"Human interaction." (bold text)
"LivePerson's clients believe in the value of real-time sales and
customer service on the Web. Through an easy-to-use text dialogue window,
they can interact with their customers at crucial moments to solve
problems and assist in closing sales. And with low upfront costs, we've
made it simple to add live customer service to your site."
- --Left middle of page contains the LivePerson Web site address:
"www.liveperson.com"
- --Right middle of page contains the LivePerson logo
- --Bottom right of page includes footnote: "* The Forrester Report: "Making Net
Shoppers Loyal" (June 1999)"
LEFT PAGE OF GATEFOLD:
- --Upper left of page contains picture of woman typing on a computer, with the
following text to the right of the picture:
"Enabling Live Online Customer Service" (bold text)
"LivePerson technology changes the way Web site owners communicate with
their customers."
- --Center and center-right of page contains screen shot of the LivePerson Web
site homepage, with screen shot of sample text dialogue window superimposed over
homepage, indicating button on homepage which leads to the text dialogue window.
The following text is above the screen shots:
"Real-time Interaction" (bold text)
"LivePerson enables its clients to interact with their customers
on a one-to-one basis, answering questions and solving
problems in real time."
<PAGE>
RIGHT PAGE OF GATEFOLD:
- --Upper left of page contains the following text:
"LivePerson is an Outsourced Solution" (bold text)
" - LivePerson hosts, upgrades and maintains the service"
" - The LivePerson service is easy to install"
" - Our clients' information technology resources are free to
focus on other priorities"
- --Lower half of page contains a Y-shaped schematic of the LivePerson service,
with diagrams one and two, two and three, and diagram two and the data
collection diagram, respectively, linked by two-way arrows. The description of
each diagram is as follows:
- --Diagram one is labeled "1. Internet user" and contains an illustration of an
Internet user viewing a LivePerson client Web site, with the text dialogue
window linked to the LivePerson icon on the client Web page. Underneath the
diagram is the following text: "Internet users click on the LivePerson icon"
- --Diagram two is labeled "2. LivePerson" and contains an illustration of
computers labeled "LivePerson Servers."
- --The data collection diagram is a cylinder labeled "LivePerson Data Collection"
with the following text alongside it: "Both users and operators are linked
through LivePerson's server facilities"
- --Diagram three is labeled "3. Operator" and is an illustration of an operator
using a computer, with a supervisor standing over the operator. Underneath the
diagram is the following text: "Customer service operators chat in real-time
with Internet users"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 20
Use of Proceeds............................................. 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 24
Selected Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 37
Management.................................................. 50
Certain Relationships and Related Party Transactions........ 62
Principal Stockholders...................................... 65
Description of Capital Stock................................ 68
Shares Eligible for Future Sale............................. 73
Underwriting................................................ 76
Legal Matters............................................... 80
Experts..................................................... 80
Where You Can Find More Information......................... 80
Index to Financial Statements............................... F-1
</TABLE>
We have applied for federal registration of the marks "Live Person" and
"LivePerson Give Your Site a Pulse". "LivePerson" is a common law trademark of
ours. Other trademarks and service marks appearing in this prospectus are the
property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND
THE RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION.
LIVEPERSON
LivePerson is a provider of technology that facilitates real-time sales and
customer service for companies doing business on the Internet. We are an
application service provider and we offer our proprietary real-time interaction
technology as an outsourced service. Our service appears as a LivePerson-branded
or custom-created icon on our clients' Web sites. When an Internet user clicks
on the icon, a pop-up dialogue window appears, enabling our clients to
communicate directly with Internet users via text-based chat. Our clients can
respond to Internet user inquiries in real time, and can thereby enhance their
online shopping experiences. Our technology requires no software or hardware
installation by our clients or their Internet users.
Based on feedback received from our clients, we believe that our service
offers our clients the opportunity to increase sales, reduce customer service
costs and increase responsiveness to Internet user needs and preferences.
Because we are an application service provider and provide our clients with a
service rather than an in-house technology solution, our clients can devote
their information technology resources to other priorities. We offer low
start-up costs, currently $1,000 per client, and reasonable ongoing monthly
fees, currently $250 per operator access account, or seat. We can implement our
LivePerson service immediately following a two-hour training session. Upgrades
to the LivePerson service are automatic because they are installed on our
servers, without requiring action by either our clients or Internet users. We
also offer our clients the ability to add capacity whenever requested.
We currently have more than 450 clients. Our service benefits companies of
all sizes doing business on the Internet, including online retailers, online
service providers and traditional offline businesses with a Web presence. Our
largest clients in the first two months of 2000 were GMAC's ditech.com,
Homelender.com, MyHome.com, National Discount Brokers, Neiman Marcus, ShopNow,
TradeCapture.com and WhatsHotNow.
Prospective investors should be aware that investing in our common stock
involves many risks, which are described more fully in the section "Risk
Factors" beginning on page 7. In particular, we face risks including, but not
limited to, the facts that:
- we have an unproven business model and will rely on revenue from the
LivePerson service for substantially all of our revenue for the
forseeable future;
- we have a limited operating history related to the LivePerson service and
a history of significant losses, including a net loss of $9.8 million in
1999;
- we have an accumulated deficit of approximately $9.8 million as of
December 31, 1999;
- we anticipate incurring losses in the foreseeable future which may be
substantial; and
- we operate in an emerging and highly competitive marketplace with
relatively low barriers to entry.
We plan to enhance our current position as a provider of real-time sales and
customer service technology for companies doing business on the Internet. The
key elements of our strategy include:
- strengthening our market position by significantly expanding our
installed client base;
3
<PAGE>
- adding features and functionality to our live interaction platform to
increase the value of our service to our clients and their reliance on
its benefits;
- continuing to build brand awareness;
- continuing to develop our technological capabilities by devoting
significant resources to network architecture and software design;
- seeking opportunities to form strategic alliances and make acquisitions
where appropriate; and
- expanding our international presence.
Prospective investors should also be aware of the risks related to achieving
these strategic objectives which are described more fully in "Risk Factors."
Our business was incorporated in the State of Delaware in November 1995
under the name Sybarite Interactive Inc. Prior to November 1998, we generated
programming revenue from services primarily related to Web-based community
programming and media design. In 1998, we shifted our core business focus to the
development of the LivePerson service and phased out our programming and media
design business, which last generated revenue in December 1999 and is not
expected to generate any future revenue. Following our introduction of the
LivePerson service in November 1998, we changed our name in January 1999 to Live
Person, Inc., and on March 8, 2000 to LivePerson, Inc. Our principal executive
offices are located at 462 Seventh Avenue, 10th Floor, New York, New York
10018-7606. Our telephone number is (212) 277-8950. The address of our Web site
is www.liveperson.com. Information contained on our Web site does not constitute
part of this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by LivePerson........... 4,000,000 shares
Common stock to be outstanding after this
offering................................... 29,339,869 shares
Use of proceeds.............................. Various purposes, including product
development costs, sales and marketing
activities, general corporate purposes and
working capital, and strategic alliances and
acquisitions, if any.
Proposed Nasdaq National Market symbol....... LPSN
</TABLE>
------------------------
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of March 31, 2000 and excludes:
- 10,000,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan, of which 5,479,905 shares are issuable upon the
exercise of stock options outstanding as of March 31, 2000 with a
weighted average exercise price of $2.61 per share;
- 94,500 shares of common stock reserved for issuance upon the exercise of
stock options with an exercise price of $1.60 per share granted outside
of the predecessor to our 2000 Stock Incentive Plan;
- 450,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan; and
- 542,968 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 2000, with a weighted average exercise price
of $1.60 per share.
------------------------
Unless otherwise indicated, all information in this prospectus:
- reflects the automatic conversion of all of our outstanding shares of
convertible preferred stock, including the series D redeemable
convertible preferred stock, at a two-for-three ratio, whereby each two
shares of preferred stock are convertible into three shares of common
stock, into an aggregate of 17,962,273 shares of our common stock upon
the closing of this offering;
- reflects a three-for-two stock split of shares of our common stock
effected on March 8, 2000;
- assumes the filing of our amended and restated certificate of
incorporation and the adoption of our amended and restated bylaws, each
as contemplated to be in effect as of the closing of this offering; and
- assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
THE TABLE BELOW SETS FORTH SUMMARY FINANCIAL INFORMATION FOR THE PERIODS
INDICATED. IT IS IMPORTANT THAT YOU READ THIS INFORMATION TOGETHER WITH THE
SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND OUR FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998 1999
---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Service revenue......................................... $ -- $ -- $ 1 $ 576
Programming revenue..................................... 11 245 378 39
---------- ---------- ---------- -----------
Total revenue........................................... 11 245 379 615
---------- ---------- ---------- -----------
Total operating expenses.................................. 42 251 399 10,865
Loss from operations...................................... (31) (6) (20) (10,250)
Net loss.................................................. (30) (6) (20) (9,777)
========== ========== ========== ===========
Basic and diluted net loss per share...................... $ 0.00 $ 0.00 $ 0.00 $ (1.38)
========== ========== ========== ===========
Weighted average basic and diluted shares outstanding..... 7,092,000 7,092,000 7,092,000 7,092,000
========== ========== ========== ===========
Unaudited pro forma basic and diluted net loss per
share................................................... $ (0.63)
===========
Shares used in unaudited pro forma basic and diluted net
loss per share calculation.............................. 15,465,304
===========
</TABLE>
Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of our series A convertible preferred stock,
series B convertible preferred stock and series C redeemable convertible
preferred stock to common stock at a two-for-three ratio, whereby each two
shares of preferred stock are convertible into three shares of common stock, as
if the conversion occurred at the date of their original issuance.
The pro forma balance sheet data summarized below give effect to:
- the receipt of net proceeds of approximately $17.9 million from the sale
of our series D redeemable convertible preferred stock on January 27,
2000;
- the recording of a non-cash preferred stock dividend of $18.0 million,
which relates to the beneficial conversion feature associated with our
series D convertible preferred stock; and
- the automatic conversion into common stock of all of our outstanding
convertible preferred stock (including our series D redeemable
convertible preferred stock) at a two-for-three ratio upon the closing of
this offering.
The pro forma as adjusted balance sheet data summarized below give effect to
our receipt of the estimated net proceeds from the sale of the 4,000,000 shares
of common stock offered hereby at an assumed initial public offering price of
$14.00 per share (the mid-point of the range set forth on the cover page of this
prospectus), after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $14,944 $32,844 $83,924
Working capital........................................... 13,380 31,280 82,360
Total assets.............................................. 19,570 37,470 88,550
Redeemable convertible preferred stock.................... 18,990 -- --
Total stockholders' equity (deficit)...................... (2,046) 34,844 85,924
</TABLE>
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
AS A RESULT OF THE FOLLOWING RISKS, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY PROVIDING THE LIVEPERSON SERVICE AND EXPECT
TO ENCOUNTER DIFFICULTIES FACED BY EARLY STAGE COMPANIES IN NEW AND RAPIDLY
EVOLVING MARKETS.
We have only a limited operating history providing the LivePerson service
upon which to base an evaluation of our current business and future prospects.
We began offering the LivePerson service in November 1998; accordingly, the
revenue and income potential of our business and the related market are
unproven. As a result of our limited operating history as a provider of
real-time sales and customer service technology for companies doing business on
the Internet, we have only one year of historical financial data relating to the
LivePerson service upon which to forecast revenue and results of operations.
In addition, because this market is relatively new and rapidly evolving, we
have limited insight into trends that may emerge and affect our business. Before
investing in us, you should evaluate the risks, expenses and problems frequently
encountered by companies such as ours that are in the early stages of
development and that are entering new and rapidly changing markets. These risks
include our ability to:
- attract more clients and retain existing clients;
- sell additional seats, which generate monthly fees, and other services to
our existing clients;
- effectively market and maintain our brand name;
- respond effectively to competitive pressures;
- continue to develop and upgrade our technology; and
- attract, integrate, retain and motivate qualified personnel.
If we are unsuccessful in addressing some or all of these risks, our
business, financial condition and results of operations would be materially and
adversely affected.
OUR ANNUAL REVENUE HAS NEVER EXCEEDED $620,000, WE HAD AN ACCUMULATED DEFICIT OF
$9.8 MILLION AS OF DECEMBER 31, 1999 AND WE EXPECT TO INCUR SIGNIFICANT
LOSSES FOR THE FORESEEABLE FUTURE.
We have not achieved profitability and, as we expect to continue to incur
significant operating expenses and to make significant capital expenditures, we
expect to continue to experience significant losses and negative cash flow for
the foreseeable future. We recorded a net loss of $20,000 for the year ended
December 31, 1998 (the year in which we commenced offering the LivePerson
service) and a net loss of approximately $9.8 million for the year ended
December 31, 1999. In addition, for the quarter ended March 31, 2000, we expect
to record a non-cash dividend of $18.0 million. The total non-cash amortization
charge we expect to record in connection with our 1999 and 2000 option grants
for the year ended December 31, 2000 is approximately $14.6 million, of which
$5.2 million will be recorded in the quarter ended March 31, 2000. As of
December 31, 1999, our accumulated deficit was approximately $9.8 million. Even
if we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future. Failure to
achieve or maintain profitability may materially and adversely affect the market
price of our common stock.
7
<PAGE>
WE HAVE AN UNPROVEN BUSINESS MODEL AND MAY NOT GENERATE SUFFICIENT REVENUE FOR
OUR BUSINESS TO SURVIVE.
Our business model is based on the delivery of real-time sales and customer
service technology to companies doing business on the Internet, a largely
untested business. Sales and customer service historically have been provided
primarily in person or by telephone. Our business model assumes that companies
doing business on the Internet will choose to provide sales and customer service
via the Internet. Our business model also assumes that many companies will
recognize the benefits of an outsourced application, that Internet users will
choose to engage a customer service representative in a live text-based
interaction, that this interaction will maximize sales opportunities and enhance
the online shopping experience and that companies will seek to have their online
sales and customer service technology provided by us. If any of these
assumptions is incorrect, our business may be harmed.
WE EXPECT THAT ALL OF OUR REVENUE WILL COME FROM THE LIVEPERSON SERVICE FOR THE
FORESEEABLE FUTURE AND IF WE ARE NOT SUCCESSFUL IN SELLING THE SERVICE, OUR
REVENUE WILL NOT INCREASE AND MAY DECLINE.
The success of our business currently depends, and for the foreseeable
future will continue to substantially depend, on the sale of only one service.
Revenue related to the LivePerson service, which will account for all of our
revenue for the forseeable future, is comprised of initial non-refundable set-up
fees and ongoing monthly fees. Ongoing monthly fees, in turn, result from the
sale of seats to new clients and the sale of additional seats to existing
clients. In 1999, revenue from monthly fees has accounted for more than 90% of
LivePerson service revenue. We introduced our LivePerson service in
November 1998, and we currently have more than 450 clients. We cannot be certain
that there will be client demand for our service or that we will be successful
in penetrating the market for real-time sales and customer service technology. A
decline in the price of, or fluctuation in the demand for, the LivePerson
service, is likely to cause our revenue to decline. In addition, if our clients
were to reduce the number of seats used or fail to purchase additional seats,
our revenue might not increase.
THE SUCCESS OF OUR BUSINESS REQUIRES THAT CLIENTS CONTINUE TO USE THE LIVEPERSON
SERVICE AND PURCHASE ADDITIONAL SEATS.
Our LivePerson service agreements typically have no termination date and are
terminable upon 30 to 90 days' notice without penalty. If a significant number
of our clients, or any one client with a significant number of seats, were to
terminate these service agreements, reduce the number of seats purchased or fail
to purchase additional seats, our results of operations may be negatively and
materially affected. We cannot assure you that we will experience high client
retention rates. Our client retention rates may decline as a result of a number
of factors, including competition, consolidation in the Internet industry or
termination of operations by a significant number of our clients.
Dissatisfaction with the nature or quality of our services could also lead
clients to terminate our service. We depend on monthly fees from the LivePerson
service for substantially all our revenue. If our retention rate declines, our
revenue could decline unless we are able to obtain additional clients or
alternate revenue sources. Further, because of the historically small number of
seats sold in initial orders, we depend on sales to new clients and sales of
additional seats to our existing clients.
OUR QUARTERLY REVENUE AND OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS WHICH MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON
STOCK.
We expect our quarterly revenue and operating results to fluctuate
significantly in the future due to a variety of factors, including the following
factors which are in part within our control, and in part outside of our
control:
- market acceptance by companies doing business on the Internet of
real-time sales and customer service technology;
8
<PAGE>
- our clients' business success;
- our clients' demand for seats;
- our ability to attract and retain clients;
- the amount and timing of capital expenditures and other costs relating to
the expansion of our operations, including those related to acquisitions;
- the introduction of new services by us or our competitors; and
- changes in our pricing policies or the pricing policies of our
competitors.
Our revenue and results may also fluctuate significantly in the future due to
the following factors that are entirely outside of our control:
- seasonal factors affecting our clients' businesses;
- economic conditions specific to the Internet, electronic commerce and
online media; and
- general economic conditions.
Many of our clients' businesses are seasonal. Our clients' demand for
real-time sales and customer service technology in general and their demand for
seats, in particular, may be seasonal as well. As a result, our future revenue
and profits may vary from quarter to quarter.
We do not believe that period-to-period comparisons of our operating results
are meaningful. You should not rely upon these comparisons as indicators of our
future performance.
Due to the foregoing factors, it is possible that our results of operations
in one or more future quarters may fall below the expectations of securities
analysts and investors. If this occurs, the trading price of our common stock
would decline.
COMPETITION FOR PERSONNEL QUALIFIED TO DEVELOP AND SUPPORT THE LIVEPERSON
SERVICE IS INTENSE.
We may be unable to retain our key employees or attract, integrate or retain
other highly qualified employees in the future. We have experienced, and expect
to continue to experience, difficulty in hiring highly-skilled employees with
appropriate qualifications, such as employees combining customer service
backgrounds with technical aptitude, and employees with experience developing
scalable computer networks. As we continue to increase our client base and
expand our operations, we expect that we will hire additional technical
personnel, client services personnel and sales and marketing personnel. There is
significant competition for qualified employees in our industry, particularly
employees with such backgrounds. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, or if we are unable
to outsource certain functions, our business, results of operations and
financial condition will be materially and adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.
Since the launch of the LivePerson service in November 1998, we have grown
rapidly. This growth has placed a significant strain on our managerial,
operational, technical and financial resources. In 2000, we intend to replace
our existing accounting and other back-office systems at a cost of approximately
$1.0 million. The new systems will have to be integrated with our operations,
controls and procedures. If we are not able to successfully integrate these new
systems with our existing systems, or if we incur significant costs in order to
achieve such integration, our business could be harmed. In order to manage our
growth, we must also continue to implement new or upgraded operating and
financial systems, procedures and controls. Our failure to expand our operations
in an efficient manner could cause our expenses to grow, our revenue to decline
or grow more slowly than expected and could otherwise have a material adverse
effect on our business, results of operations and financial condition.
Further, as a result of our growth, the number of our employees grew from
six at December 31, 1998 to 136 at March 31, 2000. In the area of technology, we
grew from one
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employee at December 31, 1998, to 19 employees at December 31, 1999 and to 48
employees at March 31, 2000. We expect to nearly double our existing technology
personnel in the remainder of the year; however we cannot assure you that we
will grow by this amount. We also cannot assure you that we will be successful
in integrating these new employees or that such integration will not distract
valuable management resources.
In addition, in January 2000, we hired our Chief Operating Officer, Dean
Margolis, and our Chief Technology Officer, James L. Reagan, who do not have
significant experience working with us or with each other. The process of
integrating new members of our senior management team can be time-consuming and
may distract other members of management from the operation of our business. If
members of our senior management are unable to work together successfully or
manage our growth, our business will be harmed.
OUR REPUTATION DEPENDS, IN PART, ON FACTORS WHICH ARE ENTIRELY OUTSIDE OF OUR
CONTROL.
Our service appears as a LivePerson-branded or custom-created icon on our
clients' Web sites. When an Internet user clicks on the icon, a pop-up dialogue
window appears, which, in nearly all cases, displays the slogan "Powered by
LivePerson." The customer service operators who respond to the inquiries of our
clients' Internet users are employees or agents of our clients; they are not
employees of LivePerson. As a result, we have no way of controlling the actions
of these operators. In addition, an Internet user may not know that the operator
is an employee or agent of our client, rather than a LivePerson employee. If an
Internet user were to have a negative experience in a LivePerson-powered
real-time dialogue, it is possible that this experience could be attributed to
us, which could diminish our brand and harm our business. Finally, we believe
the success of our service depends on the prominent placement of the icon on the
client's Web site, over which we also have no control.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE LIVEPERSON BRAND NAME.
Building recognition of our brand is critical to establishing the advantage
of being among the first application service providers to provide real-time
sales and customer service and to attracting new clients. If we fail to
successfully promote and maintain our brand or incur significant expenses in
promoting our brand without an associated increase in our revenue, our business,
results of operations and financial condition may be materially and adversely
affected.
WE ARE DEPENDENT ON TECHNOLOGY SYSTEMS THAT ARE BEYOND OUR CONTROL.
The success of the LivePerson service depends in part on our clients' online
services as well as the Internet connections of visitors to their Web sites,
both of which are outside of our control. As a result, it may be difficult to
identify the source of problems if they occur. In the past, we have experienced
problems related to connectivity which have resulted in slower than normal
response times to Internet user chat requests and messages and interruptions in
service. The LivePerson service relies both on the Internet and on our
connectivity vendors for data transmission. Therefore, even when connectivity
problems are not caused by the LivePerson service, our clients or Internet users
may attribute the problem to us. This could diminish our brand and harm our
business, divert the attention of our technical personnel from our product
development efforts or cause significant client relations problems.
In addition, we rely on two Web hosting services for Internet connectivity
to deliver our service, power, security and technical assistance. They have, in
the past, experienced problems that have resulted in slower than normal response
times and interruptions in service. If we are unable to continue utilizing the
services of our existing Web hosting providers or if our Web hosting services
experience interruptions or delays, it is possible that our business could be
harmed.
Our service also depends on many third parties for hardware and software,
which products could contain defects. Problems arising from our use of such
hardware or software could require us to incur significant costs or divert the
attention of our technical personnel from our product
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development efforts. To the extent any such problems require us to replace such
hardware or software, we may not be able to do so on acceptable terms, if at
all.
TECHNOLOGICAL DEFECTS COULD DISRUPT OUR SERVICE, WHICH COULD HARM OUR BUSINESS
AND REPUTATION.
We face risks related to the technological capabilities of the LivePerson
service. We expect the number of simultaneous chats between our clients'
operators and Internet users over our system to increase significantly as we
expand our client base. Our network hardware and software may not be able to
accommodate this additional volume. Additionally, we must continually upgrade
our software to improve the features and functionality of the LivePerson service
in order to be competitive in our market. If future versions of our software
contain undetected errors, our business could be harmed. As a result of major
software upgrades at LivePerson, our client sites have, from time to time,
experienced slower than normal response times and interruptions in service. If
we experience system failures or degraded response times, our reputation and
brand could be harmed. We may also experience technical problems in the process
of installing and initiating the LivePerson service on new Web hosting services.
These problems, if unremedied, could harm our business.
The LivePerson service also depends on complex software which may contain
defects, particularly when we introduce new versions onto our servers. We may
not discover software defects that affect our new or current services or
enhancements until after they are deployed. It is possible that, despite testing
by us, defects may occur in the software. These defects could result in:
- damage to our reputation;
- lost sales;
- delays in or loss of market acceptance of our products; and
- unexpected expenses and diversion of resources to remedy errors.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE AND CHANGING
CLIENT PREFERENCES IN THE ONLINE SALES AND CUSTOMER SERVICE INDUSTRY AND
THIS MAY HARM OUR BUSINESS.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions in the online sales and
customer service industry or our clients' or Internet users' requirements, our
business, results of operations and financial condition would be materially and
adversely affected. Business on the Internet is characterized by rapid
technological change. In addition, the market for online sales and customer
service technology is relatively new. Sudden changes in client and Internet user
requirements and preferences, frequent new product and service introductions
embodying new technologies, such as broadband communications, and the emergence
of new industry standards and practices could render the LivePerson service and
our proprietary technology and systems obsolete. The rapid evolution of these
products and services will require that we continually improve the performance,
features and reliability of the LivePerson service. Our success will depend, in
part, on our ability to:
- enhance the features and performance of the LivePerson service;
- develop and offer new services that are valuable to companies doing
business on the Internet and Internet users; and
- respond to technological advances and emerging industry standards and
practices in a cost-effective and timely manner.
If any of our new services, including upgrades to the LivePerson service, do not
meet our clients' or Internet users' expectations, our business may be harmed.
Updating our technology may
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require significant additional capital expenditures and could materially and
adversely affect our business, results of operations and financial condition.
IF WE ARE NOT COMPETITIVE IN THE MARKET FOR REAL-TIME SALES AND CUSTOMER SERVICE
TECHNOLOGY, OUR BUSINESS COULD BE HARMED.
There are no substantial barriers to entry in the real-time sales and
customer service technology market, other than the ability to design and build
scalable software and, with respect to outsourced solution providers, the
ability to design and build scalable network architecture. Established or new
entities may enter this market in the near future, including those that provide
real-time interaction online, with or without the user's request.
We compete directly with companies focused on technology that facilitates
real-time sales and customer service interaction. Our competitors include
customer service enterprise software providers such as eGain Communications
Corp., eShare Technologies, Inc., Kana Communications, Inc. and WebLine
Communications (a part of Cisco Systems' applications technology group), some of
which are beginning to offer hosted solutions. Furthermore, many of our
competitors offer a broader range of customer relationship management products
and services than we currently offer. We may be disadvantaged and our business
may be harmed if companies doing business on the Internet choose sales and
customer service technology from such providers.
We also face potential competition from larger enterprise software companies
such as Oracle Corporation and Siebel Systems. In addition, established
technology companies, including IBM, Hewlett-Packard and Microsoft, may also
leverage their existing relationships and capabilities to offer real-time sales
and customer service applications.
Finally, we face competition from clients and potential clients that choose
to provide a real-time sales and customer service solution in-house as well as,
to a lesser extent, traditional offline customer service solutions, such as
telephone call centers.
We believe that competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. Many of our current and potential competitors have:
- longer operating histories;
- larger client bases;
- greater brand recognition;
- more diversified lines of products and services; and
- significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may be
able to:
- undertake more extensive marketing campaigns;
- adopt more aggressive pricing policies; and
- make more attractive offers to businesses to induce them to use their
products or services.
Any delay in the general market acceptance of the real-time sales and
customer service solution business model would likely harm our competitive
position. Delays would allow our competitors additional time to improve their
service or product offerings, and would also provide time for new competitors to
develop real-time sales and customer service applications and solicit
prospective clients within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market share.
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IF WE DO NOT SUCCESSFULLY INTEGRATE POTENTIAL FUTURE ACQUISITIONS, OUR BUSINESS
COULD BE HARMED.
In the future, we may acquire or invest in complementary companies, products
or technologies. Acquisitions and investments involve numerous risks to us,
including:
- difficulties in integrating operations, technologies, products and
personnel with LivePerson;
- diversion of financial and management resources from efforts related to
the LivePerson service or other then-existing operations;
- risks of entering new markets beyond providing real-time sales and
customer service technology for companies doing business on the Internet;
- potential loss of either our existing key employees or key employees of
any companies we acquire; and
- our inability to generate sufficient revenue to offset acquisition or
investment costs.
These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be dilutive
to our existing stockholders.
WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND OTHER
RISKS AS WE EXPAND INTERNATIONALLY.
We intend to expand internationally. There are risks related to doing
business in international markets, such as changes in regulatory requirements,
tariffs and other trade barriers, fluctuations in currency exchange rates and
adverse tax consequences. In addition, there are likely to be different consumer
preferences and requirements in specific international markets. Furthermore, we
may face difficulties in staffing and managing any foreign operations. One or
more of these factors could harm any future international operations.
OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE TO PROTECT AND ENFORCE
OUR INTELLECTUAL PROPERTY RIGHTS.
Our success and ability to compete depend, in part, upon the protection of
our intellectual property rights relating to the technology underlying the
LivePerson service. We currently have a U.S. patent application pending relating
to such technology and have not filed applications outside the U.S. It is
possible that:
- our pending patent application may not result in the issuance of a
patent;
- any patent issued may not be broad enough to protect our intellectual
property rights;
- any patent issued could be successfully challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the invention claimed in the patent;
- current and future competitors may independently develop similar
technology, duplicate our service or design around any patent we may
have; and
- effective patent protection may not be available in every country in
which we do business.
We also rely upon copyright, trade secret and trademark law, written
agreements and common law to protect our proprietary technology, processes and
other intellectual property, to the extent that protection is sought or secured
at all. We currently have one patent application pending. To the extent that the
invention described in our U.S. patent application was made public prior to the
filing of the application, we may not be able to obtain patent protection in
certain foreign countries. We currently have a common law trademark,
"LivePerson", and three pending U.S. trademark applications. The trademark
examiner assigned to our applications has
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issued non-final office actions with respect to our applications, requesting
additional information and making initial refusals. However, no final
determinations as to the registrability of the marks have been made. We are in
the process of responding to these office actions prior to their respective
deadlines, but ultimately we may not be able to secure registration of our
trademarks. In addition, we do not have any trademarks registered outside the
U.S., nor do we have any trademark applications pending outside the U.S. We
cannot assure you that any steps we might take will be adequate to protect
against infringement and misappropriation of our intellectual property by third
parties. Similarly, we cannot assure you that third parties will not be able to
independently develop similar or superior technology, processes or other
intellectual property. The unauthorized reproduction or other misappropriation
of our intellectual property rights could enable third parties to benefit from
our technology without paying us for it. If this occurs, our business, results
of operations and financial condition would be materially and adversely
affected. In addition, disputes concerning the ownership or rights to use
intellectual property could be costly and time-consuming to litigate, may
distract management from operating our business and may result in our loss of
significant rights.
OUR PRODUCTS AND SERVICES MAY INFRINGE UPON INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES AND ANY INFRINGEMENT COULD REQUIRE US TO INCUR SUBSTANTIAL
COSTS AND MAY DISTRACT OUR MANAGEMENT.
Although we attempt to avoid infringing known proprietary rights of third
parties, we are subject to the risk of claims alleging infringement of
third-party proprietary rights. If we infringe upon the rights of third parties,
we may not be able to obtain licenses to use those rights on commercially
reasonable terms. In that event, we would need to undertake substantial
reengineering to continue offering our service. Any effort to undertake such
reengineering might not be successful. In addition, any claim of infringement
could cause us to incur substantial costs defending against the claim, even if
the claim is invalid, and could distract our management from our business.
Furthermore, a party making such a claim could secure a judgment that requires
us to pay substantial damages. A judgment could also include an injunction or
other court order that could prevent us from selling our products. If any of
these events occurred, our business, results of operations and financial
condition would be materially and adversely affected.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS TO EXECUTE OUR BUSINESS STRATEGY AND
WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
We believe that the net proceeds from this offering, together with the
proceeds from the sale of our series D redeemable convertible preferred stock,
and our current cash and cash equivalents, will be sufficient to fund our
working capital and capital expenditure requirements for at least the next
12 months. To the extent that we require additional funds to support our
operations or the expansion of our business, or to pay for acquisitions, we may
need to sell additional equity, issue debt or convertible securities or obtain
credit facilities through financial institutions. In the past, we have obtained
financing principally through the sale of preferred stock, common stock and
warrants. If additional funds are raised through the issuance of debt or
preferred equity securities, these securities could have rights, preferences and
privileges senior to holders of common stock. The terms of any debt securities
could impose restrictions on our operations. If additional funds are raised
through the issuance of additional equity or convertible securities, our
stockholders could suffer dilution. We cannot assure you that additional
funding, if required, will be available to us in amounts or on terms acceptable
to us. If sufficient funds are not available or are not available on acceptable
terms, our ability to fund our expansion, take advantage of acquisition
opportunities, develop or enhance our services or products, or otherwise respond
to competitive pressures would be significantly limited. Those limitations would
materially and adversely affect our business, results of operations and
financial condition.
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OUR BUSINESS IS DEPENDENT ON A FEW KEY EMPLOYEES, INCLUDING OUR CHIEF EXECUTIVE
OFFICER, ROBERT P. LOCASCIO.
Our future success depends to a significant extent on the continued services
of our senior management team, including Robert P. LoCascio, our founder and
Chief Executive Officer. The loss of the services of any member of our senior
management team, in particular Mr. LoCascio, could have a material and adverse
effect on our business, results of operations and financial condition.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE PERSONAL INFORMATION BELONGING
TO OUR CLIENTS' INTERNET USERS.
We maintain dialogue transcripts of the text-based chats between our clients
and Internet users and store on our servers information supplied voluntarily by
these Internet users in exit surveys which follow the chats. We provide this
information to our clients to allow them to perform Internet user analyses and
monitor the effectiveness of our service. Some of the information we collect in
text-based chats and exit surveys may include personal information, such as
contact and demographic information. If third parties were able to penetrate our
network security or otherwise misappropriate personal information relating to
our clients' Internet users or the text of customer service inquiries, we could
be subject to liability. We could be subject to negligence claims or claims for
misuse of personal information. These claims could result in litigation which
could have a material adverse effect on our business, results of operations and
financial condition. We may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
PROBLEMS RESULTING FROM THE YEAR 2000 PROBLEM COULD REQUIRE US TO INCUR
UNANTICIPATED EXPENSES, DIVERT MANAGEMENT'S TIME AND ATTENTION, AND DISRUPT
OUR BUSINESS.
Many currently installed computer systems and software products produced
before January 1, 2000 were coded to accept or recognize only two-digit entries
in the date code field. These systems may interpret the date code "00" as the
year 1900 rather than as the year 2000. As a result, computer systems and
software in use today may need to be upgraded or replaced to comply with Year
2000 requirements or risk system failure or miscalculations causing disruptions
of normal business activities. We are not aware of any material Year 2000
problems that have harmed or threaten to harm our business, but we cannot assure
you that no such problems will emerge. Our failure to correct a material Year
2000 problem could result in an interruption in, or a failure of, aspects of our
normal business activities or operations. In addition, a significant Year 2000
problem involving the LivePerson service, including our hosting facilities or
equipment provided to us by third-party vendors, could cause our clients to
consider seeking alternate solutions or cause an unmanageable burden on our
internal client service and network support staff. Any significant Year 2000
problem could require us to incur significant unanticipated expenses to remedy
these problems and could divert management from other tasks of operating our
business, which would harm our business, results of operations and financial
condition. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000" for more detailed information
regarding the Year 2000 issue.
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RISKS RELATED TO OUR INDUSTRY
WE ARE DEPENDENT ON CONTINUED GROWTH IN THE USE OF THE INTERNET AS A MEDIUM FOR
COMMERCE.
We cannot be sure that a sufficiently broad base of consumers will adopt,
and continue to use, the Internet as a medium for commerce. Our long-term
viability depends substantially upon the widespread acceptance and development
of the Internet as an effective medium for consumer commerce. Use of the
Internet to effect retail transactions is at an early stage of development.
Convincing our clients to offer real-time sales and customer service technology
may be difficult.
Demand for recently introduced services and products over the Internet is
subject to a high level of uncertainty. Few proven services and products exist.
The development of the Internet into a viable commercial marketplace is subject
to a number of factors, including:
- continued growth in the number of users;
- concerns about transaction security;
- continued development of the necessary technological infrastructure;
- development of enabling technologies;
- uncertain and increasing government regulation; and
- the development of complementary services and products.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INFRASTRUCTURE OF THE INTERNET.
To the extent that the Internet continues to experience growth in the number
of users and frequency of use by consumers resulting in increased bandwidth
demands, we cannot assure you that the infrastructure for the Internet will be
able to support the demands placed upon it. The Internet has experienced outages
and delays as a result of damage to portions of its infrastructure. Outages or
delays, including those resulting from Year 2000 problems, could adversely
affect online sites, email and the level of traffic on the Internet. We also
depend on Internet service providers that provide our clients and Internet users
with access to the LivePerson service. In the past, users have experienced
difficulties due to system failures unrelated to our service. In addition, the
Internet could lose its viability due to delays in the adoption of new standards
and protocols required to handle increased levels of Internet activity.
Insufficient availability of telecommunications services to support the Internet
also could result in slower response times and negatively impact use of the
Internet generally, and our clients' sites (including the LivePerson pop-up
dialogue window) in particular. If the use of the Internet fails to grow or
grows more slowly than expected, if the infrastructure for the Internet does not
effectively support growth that may occur or if the Internet does not become a
viable commercial marketplace, we may not achieve profitability and our
business, results of operations and financial condition will suffer.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Recently, the United
States Congress enacted Internet legislation relating to issues such as
children's privacy, copyright and taxation. The children's privacy legislation
imposes restrictions on the collection, use and distribution of personal
identification information obtained online from children under the age of 13.
The copyright legislation establishes rules governing the liability of Internet
service providers and Web site publishers for the copyright infringement of
Internet users. The tax legislation places a
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moratorium on certain forms of Internet taxes for three years; however, this
moratorium does not apply to sales and use taxes. Additionally, the European
Union recently adopted a directive addressing data privacy which imposes
restrictions on the collection, use and processing of personal data. Existing
legislation and any new legislation could hinder the growth in use of the
Internet generally and decrease the acceptance of the Internet as a medium for
communication, commerce and advertising. The laws governing the Internet remain
largely unsettled, even in areas where legislation has been enacted. It may take
several years to determine whether and how existing laws such as those governing
intellectual property, taxation and personal privacy apply to the Internet and
Internet services. In addition, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws,
both in the U.S. and abroad, which may impose additional burdens on companies
conducting business online. Our business, results of operations and financial
condition could be materially and adversely affected if we do not comply with
recent legislation or laws or regulations relating to the Internet that are
adopted or modified in the future.
For example, the LivePerson service allows our clients to capture and save
information about Internet users, possibly without their knowledge.
Additionally, our service uses a tool, commonly referred to as a "cookie," to
uniquely identify each of our clients' Internet users. To the extent that
additional legislation regarding Internet user privacy is enacted, such as
legislation governing the collection and use of information regarding Internet
users through the use of cookies, the effectiveness of the LivePerson service
could be impaired by restricting us from collecting information which may be
valuable to our clients. The foregoing could harm our business, results of
operations and financial condition.
SECURITY CONCERNS COULD HINDER COMMERCE ON THE INTERNET.
User concerns about the security of confidential information online has been
a significant barrier to commerce on the Internet and online communications. Any
well-publicized compromise of security could deter people from using the
Internet or other online services or from using them to conduct transactions
that involve the transmission of confidential information. If Internet commerce
is inhibited as a result of such security concerns, our business would be
harmed.
RISKS RELATED TO THIS OFFERING
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR GREATER
STOCKHOLDERS WILL EXERCISE CONTROL OVER ALL MATTERS REQUIRING A STOCKHOLDER
VOTE.
After this offering, our executive officers, directors and existing
stockholders who each own greater than 5% of the common stock that was
outstanding immediately before this offering and their affiliates, each of whom
is listed in "Principal Stockholders," will, in the aggregate, beneficially own
approximately 70.6% of our outstanding common stock. As a result, these
stockholders will be able to exercise control over all matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership could
also have the effect of delaying or preventing a change in control.
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OF OUR TOTAL OUTSTANDING SHARES, 25,339,869 ARE RESTRICTED FROM IMMEDIATE RESALE
PURSUANT TO CONTRACTUAL AGREEMENTS AND PROVISIONS OF LAWS, BUT MAY BE SOLD
INTO THE MARKET IN THE NEAR FUTURE. THE SALE OF THESE SHARES COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS
IS DOING WELL.
After this offering, we will have outstanding 29,339,869 shares of common
stock. Of these shares, the 4,000,000 shares sold in this offering will be
freely tradable except for any shares purchased by our "affiliates" as that term
is used in Rule 144 of the Securities Act, who are generally those persons who
directly or indirectly control LivePerson, such as our directors, executive
officers, and significant stockholders. Affiliates may only sell their shares
pursuant to the requirements of Rule 144 or in a registered public offering.
Unless sold earlier pursuant to a registered public offering, the remaining
25,339,869 shares will become available for resale in the public market at
various times in the future, including 20,603,027 shares that are eligible for
resale following the expiration of the 180-day lock-up agreements entered into
among the underwriters and such stockholders. Chase Securities Inc. may waive
the restrictions imposed in such agreements at any time. The following table
illustrates the shares eligible for sale in the public market:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
4,000,000 After the date of this prospectus, freely tradable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up
0 After 90 days from the date of this prospectus, shares
saleable under Rule 144 or Rule 701 that are not subject to
the 180-day lock-up
20,603,027 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations), Rule
144(k) or Rule 701
4,736,842 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year are not yet
saleable under Rule 144
</TABLE>
As restrictions on resale end, the market price of our stock could drop
significantly if the holders of restricted shares sell them or are perceived by
the market as intending to sell them. For more detailed information, see "Shares
Eligible for Future Sale."
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
Fluctuations in market price and volume are particularly common among
securities of Internet and other technology companies. The market price of our
common stock may fluctuate significantly, and may even decline below the initial
public offering price after this offering, in response to the following factors,
some of which are beyond our control:
- variations in our quarterly operating results;
- changes in market valuations of Internet and other technology companies;
- our announcements of significant client contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
- our failure to complete significant sales;
- additions or departures of key personnel;
- future sales of our common stock; and
- changes in financial estimates by securities analysts.
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In the past, companies that have experienced volatility in the market price
of their common stock have been the object of securities class action
litigation. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and distract management from other
aspects of operating our business.
WE MAY SPEND A SUBSTANTIAL PORTION OF THE NET PROCEEDS OF THIS OFFERING IN WAYS
WITH WHICH YOU MAY NOT AGREE.
Our management will have broad discretion to spend the net proceeds from
this offering in ways with which you may not agree. Any currently anticipated
uses of the net proceeds of this offering are subject to change. The failure of
our management to apply these funds effectively could result in unfavorable
returns. This could have a material and adverse effect on our business, results
of operations and financial condition, and could cause the price of our common
stock to decline.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of our amended and restated certificate of incorporation, such as
our staggered board of directors, the manner in which director vacancies may be
filled and provisions regarding the calling of stockholder meetings, could make
it more difficult for a third party to acquire us, even if doing so might be
beneficial to our stockholders. In addition, provisions of our amended and
restated bylaws, such as advance notice requirements for stockholder proposals,
and applicable provisions of Delaware law, such as the application of business
combination limitations, could impose similar difficulties. Further, our amended
and restated certificate of incorporation and our amended and restated bylaws
may not be amended without the affirmative vote of at least 66.67% of our board
of directors or without the affirmative vote of not less than 66.67% of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors (considered for this purpose as a single class) cast at a
meeting of our stockholders called for that purpose.
INVESTORS PURCHASING SHARES IN THIS OFFERING WILL SUFFER IMMEDIATE AND
SUBSTANTIAL DILUTION.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in pro forma net tangible book value, in the amount of
$11.06 per share. To the extent outstanding options to purchase common stock are
exercised, there will be further dilution. Please see "Dilution."
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements, which are usually accompanied
by words such as "may," "might," "will," "should," "could," "intends,"
"estimates," "predicts," "potential," "continue," "believes," "anticipates,"
"plans," "expects" and similar expressions, relate to, without limitation,
statements about our market opportunities, our strategy, our competition, our
projected revenue and expense levels and the adequacy of our available cash
resources. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding Internet business
activity. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and included elsewhere in this prospectus. We undertake
no obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
20
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares of
common stock in this offering of $51.1 million, assuming an initial public
offering price of $14.00 per share (the mid-point of the range set forth on the
cover page of this prospectus) and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that our net proceeds
will be $58.9 million.
The primary purposes of this offering are to create a public market for our
common stock and facilitate future access to public capital markets. We
presently intend to use the proceeds for various purposes, including product
development costs (currently expected to account for approximately 50% of the
proceeds), sales and marketing activities (currently expected to account for
approximately 30% of the proceeds), general corporate purposes and working
capital (currently expected to account for the remaining 20% of the proceeds).
Prospective investors are cautioned that the amounts listed in the prior
sentence reflect our current expectations only and may differ materially from
our actual uses based on certain factors, including, without limitation, our
market opportunities, our strategy, our competition, our revenue and expense
levels and the adequacy of our available cash resources. We undertake no
obligation to update publicly these forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
We also believe opportunities may exist to expand our current business
through strategic alliances and acquisitions, and we may utilize a portion of
the proceeds for such purposes. We are not currently a party to any contracts or
letters of intent with respect to any strategic alliances or acquisitions.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception. We intend to retain future earnings, if any, to finance the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Consequently, stockholders will need to
sell shares of common stock to realize a return on their investment, if any.
21
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents, and
capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to:
- the receipt of net proceeds of approximately $17.9 million from the
sale of our series D redeemable convertible preferred stock on January
27, 2000;
- the recording of a non-cash preferred stock dividend of
$18.0 million, which relates to the beneficial conversion feature
associated with our series D convertible preferred stock; and
- the automatic conversion into common stock of all of our outstanding
convertible preferred stock (including the series D redeemable
convertible preferred stock) at a two-for-three ratio upon the closing
of this offering;
- on a pro forma as adjusted basis to give effect to the sale of 4,000,000
shares of common stock by us in this offering at an assumed initial
public offering price of $14.00 per share (the mid-point of the range set
forth on the cover page of this prospectus), after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
The information set forth in the table below is based on shares outstanding
as of December 31, 1999, and excludes:
- 10,000,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan, of which 5,479,905 shares are issuable upon the
exercise of stock options outstanding as of March 31, 2000 with a
weighted average exercise price of $2.61 per share;
- 109,815 shares of common stock issued upon the exercise of options since
December 31, 1999;
- 94,500 shares of common stock reserved for issuance upon the exercise of
stock options with an exercise price of $1.60 per share granted outside
of the predecessor to our 2000 Stock Incentive Plan;
- 450,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan;
- 542,968 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 2000, with a weighted average exercise price
of $1.60 per share; and
- 175,781 shares of common stock issued upon the exercise of warrants since
December 31, 1999.
22
<PAGE>
This information should be read in conjunction with our financial statements
and the related notes to those statements included in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $14,944 $32,844 $ 83,924
======= ======= ========
Series C redeemable convertible preferred stock, $.001
par value; actual--5,132,433 shares authorized, issued
and outstanding; pro forma and pro forma as
adjusted--no shares authorized, issued or
outstanding............................................ $18,990 $ -- $ --
Series D redeemable convertible preferred stock, $.001
par value; actual, pro forma and pro forma as
adjusted--no shares authorized, issued or
outstanding............................................ -- -- --
Stockholders' equity (deficit):
Series A convertible preferred stock, $.001 par value;
actual--2,541,667 shares authorized, issued and
outstanding; pro forma and pro forma as adjusted--no
shares authorized, issued or outstanding............... 3 -- --
Series B convertible preferred stock, $.001 par value;
actual--1,142,857 shares authorized, issued and
outstanding; pro forma and pro forma as adjusted--no
shares authorized, issued or outstanding............... 1 -- --
Preferred stock, $.001 par value, actual and pro
forma--no shares authorized, issued or outstanding; pro
forma as adjusted--5,000,000 shares authorized and no
shares issued or outstanding........................... -- -- --
Common stock, $.001 par value; actual--30,000,000 shares
authorized and 7,092,000 shares issued and outstanding;
pro forma--100,000,000 shares authorized and 25,054,273
shares issued and outstanding; pro forma as adjusted--
100,000,000 shares authorized and 29,054,273 shares
issued and outstanding................................. 7 25 29
Additional paid-in capital............................... 12,420 49,296 100,372
Deferred compensation.................................... (4,644) (4,644) (4,644)
Accumulated deficit...................................... (9,833) (9,833) (9,833)
------- ------- --------
Total stockholders' equity (deficit)................... (2,046) 34,844 85,924
------- ------- --------
Total capitalization................................... $16,944 $34,844 $ 85,924
======= ======= ========
</TABLE>
23
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
$34.2 million, or $1.37 per share. Pro forma net tangible book value per share
is determined by dividing the amount of our pro forma tangible net worth (pro
forma total tangible assets less total liabilities) by the number of shares of
our common stock outstanding after giving pro forma effect to the receipt of net
proceeds of approximately $17.9 million from the sale of our series D redeemable
convertible preferred stock on January 27, 2000 and to the automatic conversion
of each outstanding share of our convertible preferred stock into common stock
at a two-for-three ratio upon the closing of this offering. Dilution in pro
forma net tangible book value per share represents the difference between the
amount per share paid by investors in this offering and the net tangible book
value per share of common stock immediately after the completion of this
offering. After giving effect to our sale of 4,000,000 shares offered hereby at
an assumed initial public offering price of $14.00 per share (the mid-point of
the range set forth on the cover page of this prospectus) and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
and the application of the estimated net proceeds therefrom, our pro forma net
tangible book value as of December 31, 1999 would have been $85.3 million, or
$2.94 per share. This represents an immediate increase in pro forma net tangible
book value of $1.57 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $11.06 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $ 14.00
Pro forma net tangible book value per share at
December 31, 1999................................... $ 1.37
Increase per share attributable to new investors...... 1.57
-------
Pro forma net tangible book value per share after this
offering.............................................. 2.94
-------
Dilution per share to new investors..................... $ 11.06
=======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1999, after giving effect to the automatic conversion of all outstanding shares
of preferred stock into common stock upon the closing of this offering, the
total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by existing
stockholders and by new investors who purchase shares of common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses, assuming an initial public offering price of
$14.00 per share (the mid-point of the range set forth on the cover page of this
prospectus):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 25,054,273 86.2% $41,600,000 42.6% $ 1.66
New investors............. 4,000,000 13.8 56,000,000 57.4 14.00
---------- ----- ----------- ------
Total............. 29,054,273 100.0% $97,600,000 100.0%
========== ===== =========== ======
</TABLE>
The foregoing tables and calculations assume no exercise of any stock
options or warrants outstanding as of December 31, 1999. Specifically, these
tables and calculations exclude:
- 10,000,000 shares of common stock reserved for issuance under our 2000
Stock Incentive Plan, of which 5,479,905 shares are issuable upon the
exercise of stock options outstanding as of March 31, 2000 with a
weighted average exercise price of $2.61 per share;
24
<PAGE>
- 109,815 shares of common stock issued upon the exercise of options since
December 31, 1999;
- 94,500 shares of common stock reserved for issuance upon the exercise of
stock options with an exercise price of $1.60 per share granted outside
of the predecessor to our 2000 Stock Incentive Plan;
- 450,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan;
- 542,968 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 2000, with a weighted average exercise price
of $1.60 per share; and
- 175,781 shares of common stock issued upon the exercise of warrants since
December 31, 1999.
To the extent that any of these options or warrants are exercised, there
will be further dilution to new investors.
25
<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1998 and 1999 and the
selected statement of operations data for each of the years in the three-year
period ended December 31, 1999 have been derived from our audited financial
statements included elsewhere in this prospectus. The balance sheet data as of
December 31, 1996 and 1997 and the statement of operations data for 1996 have
been derived from our audited financial statements not included in this
prospectus. We were incorporated in 1995 but did not commence operations until
1996. Historical results are not indicative of the results to be expected in the
future and results of interim periods are not necessarily indicative of results
for the entire year. You should read these selected financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our financial statements and the related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998 1999
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Service revenue......................................... $ -- $ -- $ 1 $ 576
Programming revenue..................................... 11 245 378 39
----------- ----------- ----------- -----------
Total revenue......................................... 11 245 379 615
----------- ----------- ----------- -----------
Operating expenses:
Cost of revenue......................................... 6 121 70 856
Product development..................................... -- -- 93 1,637
Sales and marketing, exclusive of $0, $0, $0 and $62
reported below as non-cash expenses................... -- -- 33 3,987
General and administrative, exclusive of $0, $0, $25 and
$2,617 reported below as non-cash expenses............ 36 130 178 1,706
Non-cash expenses....................................... -- -- 25 2,679
----------- ----------- ----------- -----------
Total operating expenses.............................. 42 251 399 10,865
----------- ----------- ----------- -----------
Loss from operations........................................ (31) (6) (20) (10,250)
----------- ----------- ----------- -----------
Other income (expense):
Interest income......................................... 1 -- -- 474
Interest expense........................................ -- -- -- (1)
----------- ----------- ----------- -----------
Total other income (expense), net..................... 1 -- -- 473
----------- ----------- ----------- -----------
Net loss.................................................... $ (30) $ (6) $ (20) $ (9,777)
----------- ----------- ----------- -----------
Basic and diluted net loss per share........................ $ 0.00 $ 0.00 $ 0.00 $ (1.38)
----------- ----------- ----------- -----------
Weighted average basic and diluted shares outstanding....... 7,092,000 7,092,000 7,092,000 7,092,000
=========== =========== =========== ===========
Unaudited pro forma basic and diluted net loss per share.... $ (0.63)
===========
Shares used in unaudited pro forma basic and diluted net
loss per share calculation................................ 15,465,304
===========
</TABLE>
Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of our series A convertible preferred stock,
series B convertible preferred stock and series C redeemable convertible
preferred stock to common stock at a two-for-three ratio as if the conversion
occurred at the date of their original issuance.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1997 1998 1999
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2 $ 10 $ 107 $ 14,944
Working capital (deficit)................................... (29) (35) (30) 13,380
Total assets................................................ 2 30 142 19,570
Redeemable convertible preferred stock...................... -- -- -- 18,990
Total stockholders' equity (deficit)........................ (29) (35) (30) (2,046)
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS
AND THE RELATED NOTES, WHICH APPEAR ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT REFLECT OUR CURRENT PLANS,
ESTIMATES AND BELIEFS AND INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY IN THE SECTION
ENTITLED "RISK FACTORS."
OVERVIEW
We are a provider of technology that facilitates real-time sales and
customer service for companies doing business on the Internet. We are an
application service provider, and we offer our proprietary real-time interaction
technology as an outsourced service. We currently generate revenue from the sale
of our LivePerson service, which enables our clients to communicate directly
with Internet users via text-based chat. Our clients can respond to Internet
user inquiries in real time, and can thereby enhance their Internet users'
online shopping experience.
Our business was incorporated in the State of Delaware in November 1995
under the name Sybarite Interactive Inc.; however, we did not commence
operations until January 1996. We had no significant revenue until 1997, when we
began to generate revenue from services primarily related to Web-based community
programming and media design.
In 1998, we shifted our core business focus to the development of the
LivePerson service and phased out our prior programming efforts, which last
generated revenue in December 1999. We introduced the LivePerson service in
November 1998.
In January 2000, we completed a private placement of 3,157,895 shares of our
series D redeemable convertible preferred stock with an affiliate of, and other
entities associated with, Dell Computer Corporation and with NBC Interactive
Media, Inc. (a division of NBC) at a purchase price of $5.70 per share. We
received net proceeds of approximately $17.9 million from this private
placement. Our series D redeemable convertible preferred stock will convert, at
a two-for-three ratio, into common stock upon the closing of this offering,
whereby each two shares of preferred stock will convert into three shares of
common stock. The common stock has an assumed value of $14.00 per share (the
mid-point of the range set forth on the cover page of this prospectus). In
connection with the issuance of our series D redeemable convertible preferred
stock, we recorded a non-cash preferred stock dividend of $18.0 million, which
relates to the beneficial conversion feature associated with such preferred
stock. The amount of this dividend is limited to the gross proceeds received by
us in connection with the sale of our series D convertible preferred stock and
will be recorded in the first quarter of 2000 because the series D convertible
preferred stock is immediately convertible at the option of the holder.
REVENUE
With respect to the LivePerson service, our clients pay us an initial
non-refundable set-up fee, as well as a monthly fee for each seat. Our set-up
fee is intended to recover certain costs incurred by us (principally customer
service, training and other administrative costs) prior to deployment of our
service. Such fees are recorded as deferred revenue and recognized over a period
of 24 months, representing the estimated expected term of a client relationship.
As a result of recognizing set-up fees in this manner, combined with the fact
that we have more seats on an aggregate basis than clients, in 1999 revenue
attributable to our monthly service fee accounted for 95% of total LivePerson
service revenue. In addition, because we expect the
27
<PAGE>
aggregate number of seats to continue to grow, we expect the set-up fee to
represent a decreasing percentage of total revenue over time. We do not charge
an additional set-up fee if an existing client adds more seats. We recognize
monthly service revenue fees as services are provided. Given the time required
to schedule training for our clients' operators and our clients' resource
constraints, we have historically experienced a lag between signing a client
contract and generating revenue from that client. This lag has generally ranged
from one day to 30 days.
We also have begun to enter into contractual arrangements that complement
our direct sales force. These are primarily with Web hosting and call center
service companies, and are in the form of value-added reseller or referral
agreements pursuant to which the parties are paid a commission based on
generated revenue. Such commissions are paid and accounted for monthly, as
revenue is realized. Commissions generated under such agreements to date have
not, as a percentage of total LivePerson service revenue, been material,
although we expect such commissions to increase in both absolute terms and as a
percentage of total LivePerson service revenue over time.
Prior to November 1998, when the LivePerson service was introduced, we
generated revenue from services primarily related to Web-based community
programming and media design. Revenue from such services was $245,000 for the
year ended December 31, 1997, $378,000 for the year ended December 31, 1998 and
$39,000 for the year ended December 31, 1999. As of January 2000, we no longer
generate any revenue from these services. Revenue generated from Web-based
community programming and media design services is recognized upon completion of
the project, provided that no significant obligations remain outstanding and
collection of the resulting receivable is probable.
OPERATING EXPENSES
Our cost of revenue associated with programming activity consisted primarily
of the personnel expenses associated with outsourced programming and design. We
no longer incurred these costs as of December 1998. We began developing the
LivePerson service in the third quarter of 1998. We did not allocate development
costs of the LivePerson service separately. Accordingly, since November 1998,
our cost of revenue has principally been associated with the LivePerson service
and has consisted of:
- compensation costs relating to employees who provide customer service to
our clients, consisting of 17 people at December 31, 1999;
- compensation costs relating to our network support staff, consisting of
five people at December 31, 1999;
- allocated occupancy costs and related overhead; and
- the cost of supporting our infrastructure, including expenses related to
leasing space and connectivity for our services, as well as depreciation
of certain hardware and software.
Our product development expenses consist primarily of compensation and
related expenses for product development personnel, consisting of 15 people at
December 31, 1999, allocated occupancy costs and related overhead, and expenses
for testing new versions of our software. Product development expenses are
charged to operations as incurred.
Our sales and marketing expenses consist of compensation and related
expenses for sales personnel and marketing personnel, consisting of 21 people at
December 31, 1999, allocated occupancy costs and related overhead, advertising,
sales commissions, marketing programs, public relations, promotional materials,
travel expenses and trade show exhibit expenses.
28
<PAGE>
Our general and administrative expenses consist primarily of compensation
and related expenses for executive, accounting and human resources personnel,
consisting of 15 people at December 31, 1999, allocated occupancy costs and
related overhead, professional fees, provision for doubtful accounts and other
general corporate expenses.
In 1999, we increased our allowance for doubtful accounts from $15,000 to
$85,000, principally due to an increase in accounts receivable as a result of
the growth in our business. We base our allowance for doubtful accounts on
specifically identified known doubtful accounts plus a general reserve for
potential future doubtful accounts. We adjust our allowance for doubtful
accounts when accounts previously reserved have been collected.
NON-CASH EXPENSES
In 1998 and 1999, we recorded an aggregate of $25,000 and $978,000,
respectively, of non-cash expense in connection with our grants to consultants
of options to acquire an aggregate of 458,010 shares of common stock. The
expenses were determined using a Black-Scholes pricing model.
In addition, during May 1999, we issued an option to purchase 94,500 shares
of common stock at an exercise price of $1.60 per share to ShopNow.com Inc., a
client, in connection with an agreement to provide the LivePerson service to
ShopNow for two years. As discussed below, the option was amended in February
2000. The original terms of the option provided that it would vest in or before
May 2001, if revenue generated by ShopNow met certain targets. We granted these
options as an incentive for entering into a two-year service agreement with us
that had no minimum revenue guarantees, at a point in time when the LivePerson
service was very new and its viability was not yet known. At December 31, 1999,
the total value ascribed to this option, using a Black-Scholes pricing model,
was $566,000, which was recorded as a deferred cost in our December 31, 1999
balance sheet. In 1999, we amortized $86,000 of this deferred cost, of which
$24,000 has been offset against the $27,000 of revenue recognized from ShopNow.
The remaining $62,000 constitutes sales and marketing expense and is reflected
as a non-cash expense in our 1999 statement of operations.
In February 2000, we amended the option agreement. Under the amendment, the
option became fully vested and immediately exercisable. ShopNow has agreed,
however, that it will not sell the underlying common stock until the earlier of
February 2005 and, if it has met certain amended revenue targets, between May
and June 2001. The value ascribed to the option at the time the option agreement
was amended, using a Black-Scholes pricing model, was $1,014,000, which will be
ratably amortized over the remaining service period of approximately 18 months
because the vesting of the option does not affect our obligation under the
service agreement. In addition, the ratable amortization of the remaining
deferred cost of $1,014,000 will be recorded as a reduction of the revenue
recognized from ShopNow, with any excess amortization recorded as sales and
marketing expense, which will be reflected as a non-cash expense in our
statement of operations.
Through March 31, 2000, we granted stock options to purchase 5,429,460
shares of common stock to employees, of which options to purchase 5,131,710
shares of common stock at a weighted average exercise price of $2.73 remained
outstanding at March 31, 2000. Certain of these options were granted at less
than the deemed fair value at the date of grant. The deemed fair value of our
common stock ranged from $0.67 to $13.00 for the period during which these
options were granted. In connection with the granting of these options, we
recorded deferred compensation of $6.2 million in 1999 and expect to record
additional deferred compensation of $18.2 million in the first quarter of 2000,
representing the difference between the deemed fair value of the common stock at
the date of grant for accounting purposes and the exercise price of the related
options.
29
<PAGE>
This amount will be recorded as deferred compensation in our financial
statements and will be amortized over the vesting period, typically three to
four years, of the applicable options. In 1999, we amortized $1.6 million of
deferred compensation. We expect to amortize the remaining deferred compensation
annually as follows:
- 2000--$14.6 million, of which $5.2 million is expected to be recorded in
the first quarter;
- 2001--$4.9 million;
- 2002--$2.5 million; and
- 2003--$808,000.
In January 1999, we issued 41,667 shares of series A convertible preferred
stock in the amount of $50,000 in exchange for consulting services provided by
Silicon Alley Venture Partners, LLC.
RESULTS OF OPERATIONS
Due to the phasing out of our programming services and our limited operating
history, we believe that comparisons of our 1999 operating results with those of
prior periods are not meaningful and that our historical operating results
should not be relied upon as indicative of future performance.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE. Total revenue increased to $615,000 in 1999, from $379,000 in
1998. Revenue associated with the LivePerson service increased to $576,000 in
1999 from $1,000 in 1998 and revenue associated with Web-based community
programming and media design services decreased to $39,000 in 1999 from $378,000
in 1998. We no longer provided these services as of January 2000; accordingly,
we believe period-to-period comparisons are not meaningful.
COST OF REVENUE. Cost of revenue increased to $856,000 in 1999, from
$70,000 in 1998. This increase was primarily attributable to $279,000 of costs
associated with the addition of client services staff as well as $65,000 of
depreciation of computer hardware and software. We did not incur any
depreciation expense in 1998 because we rented all of our equipment during that
period, the total cost of which was not significant.
PRODUCT DEVELOPMENT. Product development costs increased to $1.6 million
for 1999, from $93,000 in 1998. This increase was primarily attributable to
$809,000 associated with an increase in the number of LivePerson service product
development personnel, which grew from four to 15 people in 1999, and $342,000
of technology development activities related to the LivePerson service,
consisting of network architecture and software design expenses.
SALES AND MARKETING. Sales and marketing expenses increased to
$4.0 million for 1999, from $33,000 in 1998. This increase was primarily
attributable to $1.1 million associated with an increase in salaries and related
expenses resulting from an increase in sales and marketing personnel, which grew
from two to 21 people in 1999, and to an increase in advertising and promotional
expenses of $1.9 million, both of which related to the LivePerson service.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.7 million for 1999, from $178,000 in 1998. This increase was due primarily
to $711,000 associated with increases in personnel expenses related to support
and administration, occupancy costs, and to an increase of $339,000 in
recruitment costs, principally for our officers. The number of our executive,
accounting and human resources personnel grew from one to 15 in 1999.
30
<PAGE>
NON-CASH EXPENSES. In 1999, non-cash expenses represented amortization of
deferred compensation of $1.6 million and non-cash expense incurred in
connection with options and preferred stock issued to non-employees in lieu of
payment for services rendered of $1.1 million.
OTHER INCOME. Interest income amounted to $474,000 for 1999, and consists
of interest earned on cash and cash equivalents generated by the receipt of
proceeds from our preferred stock issuances. Other income in 1998, representing
interest earned on cash balances, was less than $500.
NET LOSS. Our net loss increased to $9.8 million for 1999, from $20,000 in
1998.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. Revenue increased to $379,000 in 1998 from $245,000 in 1997. This
increase was due to an increase in revenue associated with Web-based community
programming and media design.
COST OF REVENUE. Cost of revenue decreased to $70,000 in 1998 from $121,000
in 1997. This decrease was primarily attributable to a reduction of outsourced
programming and design and related expenses as we performed more functions
internally at lower costs.
PRODUCT DEVELOPMENT. Product development costs increased to $93,000 in 1998
from $0 in 1997. This increase was primarily due to the hiring of our product
development staff related to our programming services.
SALES AND MARKETING. Sales and marketing expenses increased to $33,000 in
1998 from $0 in 1997. This increase was primarily due to our initiating the
sales and marketing efforts related to our programming services.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased to
$178,000 in 1998 from $130,000 in 1997. This increase was primarily due to
increases in personnel expenses and occupancy costs incurred as our operations
grew.
NET LOSS. Our net loss increased to $20,000 in 1998 from $6,000 in 1997.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our financial
information for the four most recent quarters ended December 31, 1999. In our
opinion, this unaudited information has been prepared on a basis consistent with
our annual financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the unaudited
information for the periods presented. This information should be read in
conjunction with the financial statements, including the related notes, included
elsewhere in this prospectus. The results of operations for any quarter are not
necessarily indicative of results that we may achieve for any subsequent
periods.
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<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Service revenue.......................... $ 15 $ 26 $ 139 $ 396
Programming revenue...................... 9 23 4 3
------- ------- ------- -------
Total revenue.......................... 24 49 143 399
------- ------- ------- -------
Operating expenses:
Cost of revenue.......................... 24 51 173 608
Product development...................... 139 147 478 873
Sales and marketing, exclusive of $0, $0,
$0 and $62 reported below as non-cash
expenses............................... 51 396 1,429 2,111
General and administrative, exclusive of
$50, $117, $170 and $2,966 reported
below as non-cash expenses............. 158 189 422 937
Non-cash expenses........................ 50 117 170 2,342
------- ------- ------- -------
Total operating expenses............... 422 900 2,672 6,871
------- ------- ------- -------
Loss from operations....................... (398) (851) (2,529) (6,472)
------- ------- ------- -------
Other income (expense):
Interest income.......................... 20 38 199 217
Interest expense......................... (1) -- -- --
------- ------- ------- -------
Total other income (expense), net...... 19 38 199 217
------- ------- ------- -------
Net loss................................... $ (379) $ (813) $(2,330) $(6,255)
======= ======= ======= =======
</TABLE>
Our revenue from the LivePerson service has increased in each of the last
four quarters, from $15,000 to $396,000, due primarily to increased market
acceptance of our service, which is in part attributable to the growth of our
direct sales force. The growth of our sales force has allowed us to solicit more
prospective clients and to respond more quickly and effectively to their
inquiries. We cannot assure you that we will achieve similar growth in future
periods.
Programming revenue, which has decreased from $9,000 to $3,000 during the
last four quarters, represents income from business activities which we are no
longer pursuing. We do not anticipate any significant programming revenue in the
future.
Our total operating expenses have increased significantly in absolute terms
in each of the last four quarters, increasing from $422,000 to $6.9 million. As
a percentage of revenue, operating expenses declined slightly over the period.
We expect our operating expenses to continue to increase as we expand our
business.
The increase in our cost of revenue has been primarily due to the addition
of client services personnel and the expansion of our technological
infrastructure. We expect the cost of our client services department to continue
to increase as we continue to hire additional personnel. We also expect to
continue to expend significant amounts to expand our technological
infrastructure and to incur increased depreciation expenses related to such
spending. As a result, we expect cost of revenue as a percentage of revenue to
increase in the short term.
Product development costs increased significantly in absolute dollar terms
in each of the last four quarters, from $139,000 to $873,000, principally as a
result of increased headcount and allocated occupancy costs and related
overhead. As a percentage of revenue, however, product development costs in each
of the three quarters declined.
Our sales and marketing expense has increased significantly in each of the
last four quarters, from $51,000 to $2.1 million, due to increases in the size
of our sales and marketing staff and an increase in marketing-related
activities. The increase in sales staff headcount is attributable to
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the expansion of our sales efforts. The increase in our marketing headcount and
related expenses is due to our increasing efforts to enhance our brand
recognition. We expect sales and marketing expense to continue to increase as we
expand our business.
General and administrative costs increased in absolute dollar terms in each
of the last four quarters, from $158,000 to $937,000, principally due to an
increase in the number of employees and, to a lesser extent, to professional
fees. We expect general and administrative costs to increase in connection with
our becoming a public company and as our business grows.
Other income (expense), which is principally comprised of interest income
earned on cash and cash equivalents, has increased in each of the last four
quarters. The increase, particularly in the third quarter of 2000, is due
primarily to interest earned on the net proceeds from the July 1999 private
placement of our series C redeemable convertible preferred stock. We expect
interest income to increase with the investment of the proceeds from the
issuance of our series D redeemable convertible preferred stock and of this
offering in short-term, interest-bearing, investment-grade securities, pending
our use of such proceeds.
The increase in non-cash compensation expense during 1999 was due to
deferred compensation recognized in connection with employee options and
compensation expense incurred in connection with options and preferred stock
issued to non-employees in lieu of payment for services rendered.
We have experienced substantial increases in our expenses since our
introduction of the LivePerson service and we anticipate that our expenses will
continue to grow in the future. Although our revenue from the LivePerson service
has grown in each of the quarters since its introduction, we cannot assure you
that we can sustain this growth or that we will generate sufficient revenue to
achieve profitability. Consequently, we believe that period-to-period
comparisons of our operating results may not be meaningful, and as a result, you
should not rely on them as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations principally through
cash generated by private placements of our convertible preferred stock. Through
December 31, 1999, we have raised a total of $23.5 million in aggregate net
proceeds in three private placements. As of December 31, 1999, we had
$14.9 million in cash and cash equivalents, an increase of $14.8 million from
December 31, 1998. In addition, on January 27, 2000, we issued 3,157,895 shares
of series D redeemable convertible preferred stock at $5.70 per share, raising
total net proceeds of approximately $17.9 million. Since December 31, 1999, we
have entered into two letters of credit, which serve as the security deposits
for our new leases of office space, in an aggregate amount of $2.3 million for
2000. We expect to enter into an additional letter of credit for $2.2 million in
2001.
Net cash used in operating activities was $6.0 million for the year ended
December 31, 1999. Net cash provided by operating activities was $19,000 and
$42,000 for the years ended December 31, 1998 and 1997, respectively. Net cash
used in operating activities for the year ended December 31, 1999 consisted
primarily of net operating losses, depreciation expense, non-cash compensation
and changes in accounts receivable, prepaid expenses and other current assets,
security deposits, accounts payable and accrued expenses and deferred revenue.
Net cash provided by operating activities for the years ended December 31, 1998
and 1997 was primarily due to changes in accounts receivable, prepaid expenses
and other current assets, security deposits, accounts payable and accrued
expenses and deferred revenue, partially offset by net operating losses and
non-cash compensation charges.
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Net cash used in investing activities was $2.6 million for the year ended
December 31, 1999 and $0 for each of the years ended December 31, 1998 and 1997.
Net cash used in investing activities for the year ended December 31, 1999 was
related to purchases of property and equipment. There were no investments in
fixed assets for the years ended December 31, 1998 or 1997.
Net cash provided by financing activities was $23.4 million for the year
ended December 31, 1999 and $78,000 for the year ended December 31, 1998. Net
cash used in financing activities was $34,000 for the year ended December 31,
1997. Net cash provided by financing activities for the year ended December 31,
1999 was attributable to proceeds from the sale of our convertible preferred
stock. Net cash provided by financing activities for 1998 was principally
attributable to $100,000 in proceeds from the issuance of a note payable, which
was converted into 83,333 shares of our series A convertible preferred stock in
January 1999. Net cash used in financing activities in 1997 was attributable to
an advance made to an officer.
As of December 31, 1999, our principal commitments consisted of $70,000 due
per month under operating leases. During the year ending December 31, 2000, we
anticipate an increase in capital expenditures and lease commitments consistent
with our anticipated growth in operations, infrastructure and personnel. We do
not currently expect that our principal commitments for the year ended
December 31, 2000 will exceed $5.0 million.
In the first quarter of 2000, we entered into two additional leases for
office space, one in San Francisco and one in New York City. The lease for our
San Francisco office space, entered into in February 2000, provides for annual
aggregate payments of $275,000. In February 2000, we also entered into a
sublease for approximately 8,000 square feet in New York City expiring in
September 2000, providing for annual aggregate payments of $238,000. In March
2000, we entered into a lease for an aggregate of approximately 83,500 square
feet on two floors at a location in New York City. The lease provisions with
respect to one floor, consisting of approximately 40,500 square feet, commence
in June 2000, with rent of approximately $1.4 million per year in the first
three years, $1.5 million per year in years four through seven and $1.6 million
per year in years eight through ten. The related security deposit is $2.0
million for the first three years, $1.3 million for years four through seven and
$670,000 for years eight through ten. The other floor consists of approximately
43,000 square feet, and the lease provisions relating to that floor commence in
August 2001, with rent of approximately $1.5 million per year in the first three
years, $1.6 million per year in years four through seven and $1.7 million per
year in years eight through ten. The related security deposit is $2.2 million
for the first three years, $1.5 million for years four through seven and
$747,000 for years eight through ten. At our option, we have provided the
security deposit by a letter of credit.
We have incurred significant net losses and negative cash flows from
operations since inception, and as of December 31, 1999, had an accumulated
deficit of $9.8 million. These losses have been funded primarily through the
issuance of our convertible preferred stock. We intend to continue to invest
heavily in sales, marketing, promotion, technology and infrastructure
development as we grow. As a result, we expect to continue to incur operating
losses and negative cash flows for the foreseeable future.
We believe that the net proceeds from the sale of our series D redeemable
convertible preferred stock and our current cash and cash equivalents will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. This is regardless of whether or
not the anticipated proceeds from this offering are received, and is based on
our current business plan. Thereafter, we anticipate that such amounts, together
with the net proceeds of this offering and cash generated from operations, if
any, will be sufficient to satisfy our liquidity requirements for the next 18
months. However, we cannot
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assure you that we will not require additional funds prior to such time, and we
would then seek to sell additional equity or debt securities or seek alternative
sources of financing. If we are unable to obtain this additional financing, we
may be required to reduce the scope of our planned sales and marketing and
product development efforts, which could harm our business, financial condition
and operating results.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
or hardware that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Prior to January 1, 2000, there was a
great deal of concern that this could result in system failures or
miscalculations, causing disruptions of operations for any company using such
computer programs or hardware, including, among other things, a temporary
inability to process transactions, send invoices or engage in normal business
activities. Most reports to date, however, are that computer systems are
functioning normally and the compliance and remediation work accomplished
leading up to the Year 2000 was effective to prevent any problems. Computer
experts have warned, however, that there may still be residual consequences. We
cannot assure you that any Year 2000 problems will not disrupt our service and
thereby result in a decrease in sales of the LivePerson service, an increase in
allocation of resources to address Year 2000 problems or an increase in
litigation costs.
We designed our internal systems as well as our software, hardware and
network architecture to be Year 2000 compliant, and we believe, based on our
initial reports, that such systems are Year 2000 compliant.
To date, we have not experienced any significant problems relating to the
Year 2000 compliance of our major suppliers. However, we cannot assure you that
these suppliers will not experience a Year 2000 problem in the future. In the
event that any such suppliers experience a Year 2000 problem, and we are unable
to replace it with an alternate source, our business would be harmed.
Our clients' online services may be affected by Year 2000 issues if they
need to expend significant resources to remedy a Year 2000 problem that may
arise. This may reduce funds available to purchase the LivePerson service.
We have not incurred any significant expenses to date, and we do not
anticipate that the total costs associated with our Year 2000 remediation
efforts, including both expenses incurred and any to be incurred in the future,
will be material.
It remains impossible to determine with complete certainty that all Year
2000 problems that may affect us have been identified or corrected. The number
of devices that could be affected and the interactions among these devices are
simply too numerous. In addition, no one can accurately predict how many Year
2000 problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. As a result, we believe that
the following consequences, among others, are possible:
- operational inconveniences and inefficiencies for us, our suppliers and
our clients that may divert management's time and attention from ordinary
business activities; and
- some clients may postpone their purchases of our service and we will
experience a decrease in revenue.
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Based on our initial assessment of our Year 2000 readiness, we do not
anticipate being required to implement any material aspects of a contingency
plan to address Year 2000 readiness of our critical operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-5, "Reporting on the Costs of Start-Up Activities,"
which provides guidance on the financial reporting of start-up costs. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. We adopted SOP 98-5 on January 1, 1999. As we had not capitalized such
costs, the adoption of SOP 98-5 did not have an impact on our consolidated
financial statements.
In April 1998, AICPA issued Statement of position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use
("SOP 98-1")." SOP 98-1 provides guidance for determining whether computer
software is internal-use software and on accounting for the proceeds of computer
software originally developed or obtained for internal use and then subsequently
sold to the public. It also provides guidance on capitalization of the costs
incurred for computer software developed or obtained for internal use. We
adopted SOP 98-1 in the first quarter of 1999, which did not have a material
effect on our financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133. SFAS
No. 137 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. We have not yet analyzed the impact of this pronouncement on our
financial statements.
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BUSINESS
OVERVIEW
LivePerson is a provider of technology that facilitates real-time sales and
customer service for companies doing business on the Internet. We change the way
Web site owners communicate with Internet users by enabling live text-based
chat. Historically, Internet users have had limited ways to communicate with
online businesses to inquire about matters such as product features, transaction
security and shipping details. The LivePerson service enables our clients to
communicate with Internet users via text-based chat. They can respond to these
and other Internet user inquiries in real time via text-based chat, and can
thereby enhance online shopping experiences.
We are an application service provider, and we offer our proprietary
real-time interaction technology as an outsourced service. Our technology
requires no software or hardware installation by our clients or Internet users.
We can implement our LivePerson service immediately following a two-hour
training session. Upgrades to the LivePerson service are automatic because they
are installed on our servers, without requiring action by either our clients or
Internet users. We also offer our clients the ability to add capacity whenever
requested.
Based on feedback received from our clients, we believe that our service
offers our clients the opportunity to increase sales by answering Internet user
questions and solving Internet user problems at critical points in the buying
process. It also enables our clients to reduce customer service costs by
allowing them to enhance operating efficiency and to improve Internet user
response times. Further, information captured in transcripts of live text-based
interactions can be used by our clients to increase their responsiveness to
Internet user needs and preferences, thereby improving Internet user
satisfaction, loyalty and retention.
We currently have more than 450 clients, including numerous online
retailers, online service providers and traditional offline businesses with a
Web presence. Our largest clients in the first two months of 2000 were GMAC's
ditech.com, Homelender.com, MyHome.com, National Discount Brokers, Neiman
Marcus, ShopNow, TradeCapture.com and WhatsHotNow.
INDUSTRY BACKGROUND
The Internet is evolving from primarily a static information source to a
widely accepted medium for commerce. Approximately 850,000 businesses currently
offer goods, services and information over the Web, according to an eMarketer
report of December 1999. Competition among online businesses is intense, with
new companies launching commercial Web sites every day. eMarketer estimates that
the number of actively maintained business Web sites will grow to 2.3 million
worldwide by the year 2002.
To compete effectively in this environment, online businesses are
increasingly striving to provide high quality service to attract and retain
customers. This increased focus is in turn leading to heightened expectations
for online service by Internet users. Whether to ask questions about product
features or transaction security, or to get help with completing an online
application, Internet users today expect effective, timely answers. Companies
that do not provide this level of service risk losing customers to competitors.
Companies are also increasingly focused on gathering information to improve
responsiveness and increase the rate of conversion from Web visitor to buyer.
Online shoppers have many purchasing options, with easy access to competitive
pricing, feature and distribution information. According to a Forrester Research
report of June 1999, 70% of all online merchants experience sales conversion
rates of less than 2%. In this environment, online businesses that collect
substantial information about Internet users are better able to serve them
effectively. Internet
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users feedback provides Web site owners with input on product and service
offerings, preferences and Web site usability.
LIMITATIONS OF EXISTING SALES AND CUSTOMER SERVICE SOLUTIONS. Online
businesses currently use several methods to provide service and support to, and
gather information from, Internet users. Common methods include toll-free
telephone call centers, email response systems and listings of frequently asked
questions and answers.
Telephone support, while similar in some ways to an in-store experience,
typically requires that a person using the Internet with a single telephone line
log off the Web. Internet users, who know that competition is literally a
mouse-click away, may prefer to move quickly to a competitor's Web site rather
than take the time to place a telephone call and face a potentially lengthy wait
time.
Email support eliminates the need for the Internet user to log off to make a
telephone call and may result in lower telecommunication and support costs for
online businesses; however, email does not satisfy the real-time needs of
Internet users who desire communication at key points in the shopping process.
Frequently asked questions, though available to Internet users on demand,
are typically general in content and may also be unsuitable for transactions
involving expensive or complex products and services. Internet users may desire
the comfort of an active communication with a customer service representative
before actually making such a purchase. In addition, because frequently asked
questions provide only one-way communication, they provide a limited means for
companies to gather Internet user feedback.
In order to provide high quality service to Internet users, companies
require an interaction solution that:
- provides real-time responses;
- maximizes sales opportunities;
- strengthens relationships with Internet users;
- allows companies to gather information to remain responsive to Internet
user needs;
- can be implemented quickly and easily; and
- can be operated in a cost-effective manner.
THE LIVEPERSON SOLUTION
LivePerson is a provider of technology that facilitates real-time sales and
customer service for companies doing business on the Internet. We are an
application service provider offering this technology as an outsourced service
to companies of all sizes. Our technology enables our clients to interact with
customers in real time at the user's request through live text-based chat. This
improves Web site communication and enhances the online shopping experience.
To implement the LivePerson service, our clients simply place a
LivePerson-branded or custom-created icon on one or more pages of their Web
sites and give their operators access to our service via the Internet. When an
Internet user browsing a client's Web site desires assistance, the user simply
clicks on the icon. This causes a pop-up dialogue window to appear on the user's
screen. The Internet user and our client's operator then engage in a real-time
online conversation in this dialogue window. The operator may incorporate
graphics and links to Web pages into the dialogue window. Our service enables
this live conversation by linking the Internet user and our clients' operators
through our proprietary technology, which resides on our servers.
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We create and store conversation transcripts and related data, and we also
enable our clients to generate optional Internet user exit surveys, which our
clients can use to collect additional information about Internet users. Stored
data include the Internet user's name, browser type, Internet Protocol (IP)
address and responses to exit surveys, the operator's identity and time stamps
for each chat transmission. In addition, we provide our clients with tools to
analyze the stored information. These tools include summary reports of the
number of chats in certain periods and the duration of such chats, filters to
sort data from exit surveys, statistical summaries of those data and statistical
summaries of operator performance.
We believe the LivePerson service gives our clients the opportunity to:
- MAXIMIZE SALES OPPORTUNITIES. Our clients are able to respond to Internet
user inquiries in real time. Live interaction with Internet users creates
opportunities to:
- answer questions on demand and resolve Internet user issues as they
occur;
- assist in closing sales that might otherwise have been abandoned
without direct one-to-one real-time interaction; and
- market additional products and services in order to increase average
order sizes.
- STRENGTHEN RELATIONSHIPS WITH INTERNET USERS. Personalized service
generates increased Internet user satisfaction. Our service enables our
clients to build relationships with Internet users and offers our clients
the opportunity to market to Internet users on a one-to-one basis.
Furthermore, transcripts from LivePerson conversations and optional exit
surveys often provide relevant Internet user data and valuable real-time
feedback. Our clients may then use this information to modify product
offerings and marketing efforts, improve Web site navigation and refine
their frequently asked questions listings.
- REDUCE OPERATING COSTS. Our clients' experience has shown that a single
operator can interact with as many as four users simultaneously. As a
result, an operator can provide service to more Internet users, thereby
reducing costs per interaction. In addition, our clients can create
pre-formatted responses to Internet user questions, allowing them to
improve response time and operator efficiency. An operator can simply
choose and, where appropriate, slightly modify a pre-formatted response
to answer many questions.
Because we are an application service provider and provide our clients with
a service rather than an in-house technology solution, we provide our clients
with the following additional benefits:
- LOW SET-UP COSTS AND REASONABLE ONGOING FEES. We charge our clients a low
set-up fee and reasonable ongoing monthly fees.
- EFFECTIVE USE OF INTERNAL RESOURCES. Because the LivePerson service is an
outsourced application, our clients can devote their information
technology resources to other priorities.
- RAPID DEPLOYMENT. We provide the technology needed to facilitate
real-time sales and customer service without plug-ins or customization.
Our clients do not need to install any hardware or software in order to
immediately provide the LivePerson service, other than any hardware or
software they might need to install in order to connect to the Internet
generally. In addition, our clients' operators and Internet users can use
our service with any standard Web browser.
- AUTOMATIC UPGRADES. We install all upgrades to the LivePerson service on
our servers. As a result, upgrades are immediately available for use and
require no action by either our clients or Internet users.
- EASE OF EXPANSION. Our clients can add additional operator seats simply
by requesting them, enabling the LivePerson service to meet our clients'
growth needs.
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OUR STRATEGY
Our objective is to enhance our current position as a provider of real-time
sales and customer service technology for companies doing business on the
Internet. The key elements of our strategy include:
STRENGTHENING OUR MARKET POSITION AND GROWING OUR RECURRING REVENUE
BASE. We intend to extend our market position by significantly increasing our
installed client base. We intend to capitalize on our growing base of existing
clients by selling them additional seats and other services as Internet users
are increasingly exposed to the benefits and functionality of live text-based
interaction. Increasing our client base will enable us to continue to strengthen
our recurring revenue stream. We also believe that greater exposure of Internet
users to our service will create additional demand for real-time sales and
customer service solutions. We plan to continue expanding into all areas of
Internet commerce which could benefit from real-time sales and customer service
technology.
INCREASING THE VALUE OF OUR SERVICE TO OUR CLIENTS. We strive to
continuously add new features and functionality to our live interaction
platform. Because we host our service, we can make new features available
immediately to our clients without client or end-user installation of software
or hardware. We currently offer a suite of reporting and administrative tools as
part of the LivePerson service. Over time, we intend to develop richer tools for
appropriate sectors of our client base, while adding further interactive
capabilities. We also intend to develop additional services that will provide
value to our clients. For example, we intend to provide advisory services to our
clients that enable improved reporting capabilities, data storage and bridges to
existing client systems. Our clients may use these capabilities to increase
productivity, manage call center staffing, develop one-to-one marketing tactics
and pinpoint sales opportunities. Through these and other initiatives, we intend
to increase the value of our service to clients and their reliance on its
benefits, which we believe will result in additional revenue from both new and
existing clients over time.
CONTINUING TO BUILD STRONG BRAND RECOGNITION. The LivePerson brand name is
prominently displayed on the pop-up dialogue window that appears when an
Internet user has requested assistance. We believe that high visibility
placement of our brand name will create greater brand awareness and increase
demand for the LivePerson service. In addition, we intend to leverage increasing
awareness of our brand and our reputation as a provider of real-time sales and
customer service technology to become a well-recognized solution for companies
doing business on the Internet. We intend to expand our traditional and online
marketing activities to achieve these goals.
MAINTAINING OUR TECHNOLOGICAL LEADERSHIP POSITION. We focus on the
development of tightly integrated software design and network architecture that
is both reliable and scalable. We continue to devote significant resources to
technological innovation. Specifically, we plan to expand the features and
functionality of our existing service, develop broader applications for our
service and create new products and services that will benefit our expanding
client base. We evaluate emerging technologies and industry standards and
continually update our technology in response to changes in the real-time
customer service industry. We believe that these efforts will allow us to
effectively anticipate changing client and end-user requirements in our rapidly
evolving industry.
EVALUATING STRATEGIC ALLIANCES AND ACQUISITIONS WHERE APPROPRIATE. We
intend to seek opportunities to form strategic alliances with or to acquire
other companies that will enhance our business. We have entered into selected
strategic alliances with customer service call centers and may enter into
additional alliances in the future. We have no present plans or commitments with
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respect to any strategic alliances or acquisitions and we are not currently
engaged in any material negotiations with respect to these opportunities.
EXPANDING OUR INTERNATIONAL PRESENCE. We currently have more than 35
non-U.S. based clients in Europe, Asia, South America and the Middle East, all
of which were sold and are serviced by our U.S. offices. We have also translated
the user interface for the LivePerson service into a variety of languages,
presently including Dutch, French, German, Italian, Portuguese, Spanish and
Swedish, and are currently making them available for our international clients.
We intend to expand our international presence to better penetrate these markets
and are evaluating strategies to implement international expansion.
THE LIVEPERSON SERVICE
The LivePerson service appears on our clients' Web sites as a
LivePerson-branded or custom-created icon. An Internet user browsing a client's
Web site who desires assistance simply clicks on the icon, causing the
LivePerson pop-up dialogue window to appear on the user's screen. An operator
prompts the user with an offer of assistance, commencing a live text-based
interaction. In many instances, pre-formatted responses are used to respond to
Internet user inquiries.
In addition, an operator may offer hyperlinks to other parts of a client's
Web site, product photos and graphics in the dialogue window. This allows an
operator to easily present additional products or services, thereby maximizing
sales opportunities.
The LivePerson technology consists of five integrated components that
form a comprehensive real-time interaction platform. We currently offer the
features and functionality outlined below to all clients and intend to add more
features in the future. These may include additional reporting and
administrative tools, new interactive capabilities and data bridges to existing
client systems.
[GRAPHIC APPEARS HERE]
The graphic is a three-dimensional diagram surrounded by a box comprised of
two layers. The first layer is subdivided into five equal sized cubes numbered 1
to 5 from left to right with the following titles: "Internet User Interaction",
"Direct Marketing", "Operator Control", "Administrator Control" and "Internet
User Data Collection" and a sixth cube titled "Future Components" that is raised
slightly higher than cubes 1 to 5. The second layer is an undivided layer
positioned directly below the first layer labelled "Integrated Network
Infrastructure".
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[GRAPHIC APPEARS HERE]
The graphic, positioned to the left of the text, is a larger cube positioned
upon a smaller three-dimensional cube, with the number 1 in the larger cube.
INTERNET USER INTERACTION. The Internet user interaction
component is the core of real-time communication between our
clients' operators and Internet users.
- REAL-TIME TEXT-BASED INTERACTION. Real-time text-based
interaction is the communication vehicle between our clients'
operators and Internet users. Text is currently the preferred
method of communication because it requires no special
plug-ins or hardware and it can be stored and analyzed.
- IMAGE / LINK / PAGE PRESENTER. An operator may present
photographs, images or links to other Web pages or sites in
the dialogue window in response to Internet user queries. An
operator may also "push" Web pages to an Internet user's
screen.
- SHOPPING CART CONVERTER. The shopping cart converter is a
pop-up window feature that is often used to help prevent
shopping cart abandonment. Typically, after an Internet user
has been at a shopping cart for a set period, a pop-up window
will appear offering assistance. This enables the Internet
user to instantly ask a question before completing or
potentially abandoning a transaction.
- EXIT SURVEY. A customizable exit survey is presented to the
Internet user after each conversation. The survey can be
modified in real time and is used by our clients primarily for
gathering Internet user feedback, creating Internet user
profiles and quality control.
[GRAPHIC APPEARS HERE]
The graphic, positioned to the left of the text, is a larger cube positioned
upon a smaller three-dimensional cube, with the number 2 in the larger cube.
DIRECT MARKETING. The direct marketing component enables Web site
owners to classify Internet users and target outbound email to
selected groups.
- GROUP PROFILER. The group profiler provides administrators
with the power to analyze, profile and classify Internet users
based on various data collected in an exit survey. This is
used by the administrator to understand Internet user patterns
and to create Internet user groups.
- EMAIL TARGETER. Based on information collected in exit
surveys, the email targeter allows clients to target sales and
marketing campaigns to selected Internet user groups.
[GRAPHIC APPEARS HERE]
The graphic, positioned to the left of the text, is a larger cube positioned
upon a smaller three-dimensional cube, with the number 3 in the larger cube.
OPERATOR CONTROL. The operator control component enables
operators to efficiently manage interactions with multiple
Internet users.
- SKILL-BASED ROUTING. Internet users can be routed to specific
operators based on the operator's particular knowledge of
specific products or services. For example, many of our
clients have specialized operator groups focusing separately
on sales or customer service to whom they selectively route
inquiries. This routing complements and partially automates
the alternative operator transfer capability.
- ALTERNATIVE OPERATOR TRANSFER. The operator can transfer an
Internet user to another operator or to an administrator with
unique skills or knowledge.
- PRE-FORMATTED RESPONSES. The operator can use and modify
pre-formatted responses to assist in responding to an Internet
user, rather than manually typing a response. Pre-formatted
responses are usually created by administrators and may be
accessed and modified on a real-time basis to
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continuously improve response time and quality. Operators
preview and may edit pre-formatted responses to respond
appropriately to Internet user inquiries.
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<PAGE>
[GRAPHIC APPEARS HERE]
The graphic, positioned to the left of the text, is a larger cube positioned
upon a smaller three-dimensional cube, with the number 4 in the larger cube.
ADMINISTRATOR CONTROL. The administrator control component
enables administrators to manage operators.
- OPERATOR EVALUATION TOOL. The administrator can view operator
call activity by date, time, length and number of dialogues,
and operator response time, enabling real time operator
evaluation.
- REAL-TIME OPERATOR CONTROL CENTER. The administrator can view
the conversations between all operators online and Internet
users. Administrators can also participate in conversations to
help operators respond to inquiries.
[GRAPHIC APPEARS HERE]
The graphic, positioned to the left of the text, is a larger cube positioned
upon a smaller three-dimensional cube, with the number 5 in the larger cube.
INTERNET USER DATA COLLECTION. The Internet user data collection
component captures, stores and processes all Internet user
information.
- TEXT-BASED TRANSCRIPTS. All textual data, including exit
survey data, are archived in an indexed database which can be
queried on several criteria. Multiple transcripts from
conversations with the same Internet user are saved within one
record set, ensuring that an exact history of the Internet
user's interaction is accurately maintained. Transcripts of
prior conversations can be viewed by operators in real time as
they interact with Internet users.
- LAST-PAGE VIEWED TRACKER. The specific page that the Internet
user viewed before entering into a LivePerson text-based
interaction is captured and saved with the transcript of the
dialogue.
- BROWSER / IP ADDRESS TRACKER. The Internet user's browser type
and IP address are captured and saved with the transcript of
the dialogue.
- EXIT SURVEY ANALYZER. Survey results and summaries can be
instantly displayed, queried and graphed.
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CLIENTS
We currently have more than 450 clients, including dedicated Internet
companies, Fortune 1000 companies and other companies with established
commercial Web sites. Our service benefits companies of all sizes doing business
on the Internet.
The following is a representative list of our clients among those generating
at least $2,000 in revenue during the first two months of 2000:
<TABLE>
<S> <C> <C>
Adatom.com GMAC's ditech.com National Discount Brokers
APC Hand Technologies Neiman Marcus
betmaker.com Harris Interactive Playboy.com
clickandmove HealthAxis.com PlayersOnly.com
CMC Group Plc Homelender.com Priceline.com
CollegeClub.com IGoGolf PrintNation, Inc.
CyBerCorp IMX Exchange Professional Shopper
DigitalWork.com Internet Financial Network ScreamingMedia
Drake Software Solutions Intuit ShopAtHome
EarthLink iOwn.com ShopNow
ephones iQVC TechnoScout.com
eScore JB Oxford & Company The boxLot Company
evesta.com Laidlaw Global Services TradeCapture.com
ExpressAutoparts.com Last Minute Network USABancShares
Financial Times LookSmart Warrior Insurance Group
firstsource.com M&I Mortgage WebHosting.com
Forextrading.com Miadora WhatsHotNow
giftpoint.com MyHome.com
</TABLE>
SALES, CLIENT SUPPORT AND MARKETING
SALES. The sales cycle for the LivePerson service has historically been 30
to 45 days, but has recently been shorter than that. We sell LivePerson
primarily via telephone as a monthly fee service. Due to the relatively low
start-up costs of the LivePerson service, our experience has shown that purchase
approval comes from customer service, sales or marketing managers, and requires
little or no involvement on the part of a client's information technology staff.
We sell primarily through a direct sales organization and target companies
seeking to improve customer relations and increase Internet commerce activity.
Additionally, potential clients have contacted us as a result of our
participation in trade shows, press releases, news articles, online and offline
advertising campaigns or visits to our Web site. We demonstrate the LivePerson
service online and, for larger accounts, we provide in-person service
demonstrations.
We also have begun to enter into contractual arrangements that complement
our direct sales force. These are primarily with Web hosting and call center
service companies, and are in the form of value-added reseller or referral
agreements pursuant to which the parties are paid a commission based on
generated revenue. Such commissions are paid and accounted for monthly, as
revenue is realized. Commissions generated under such agreements to date have
not, as a percentage of total LivePerson service revenue, been material,
although we expect such commissions to increase in both absolute terms and as a
percentage of total LivePerson service revenue over time.
CLIENT SUPPORT. Our client services group assists the client in launching
the LivePerson service, and manages our ongoing relationship with the client.
Each client is assigned a client services manager who is responsible for
day-to-day client interaction.
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The following steps are required to launch a new LivePerson client:
- ACCOUNT SETUP. We create operator names and passwords for our client.
- SITE SETUP. Our client places our HTML link on its Web site.
- TRAINING. We provide telephone-based training of operators and
administrators.
Setup and training can generally be accomplished within the same day. We
also maintain a 24-hour per day / seven-day per week help desk to assist clients
with any technical concerns or issues.
MARKETING. Our marketing strategy is focused on building brand awareness of
LivePerson as a provider of real-time sales and customer service technology for
companies doing business on the Internet. Our marketing targets dedicated
Internet companies, Fortune 1000 companies and other companies with established
commercial Web sites.
Our strategic advertising campaigns utilize both traditional and online
media. Our print advertising focuses on targeted trade publications, including
Internet commerce and other categories, while our online advertising targets
decision makers of companies doing business on the Internet. We also exhibit
prominently at key industry trade shows.
Our marketing strategy also includes aggressive public relations efforts.
These initiatives include interviews with media and industry analysts which
often result in published articles and studies. They also include speaking
engagements and byline articles featuring our executives.
COMPETITION
The market for real-time sales and customer service technology is new and
intensely competitive. There are no substantial barriers to entry in this
market, other than the ability to design and build scalable software and, with
respect to outsourced solution providers, the ability to design and build
scalable network architecture. Established or new entities may enter this market
in the near future, including those that provide real-time interaction online,
with or without the user's request.
We compete directly with companies focused on technology that facilitates
real-time sales and customer service interaction. Our competitors include
customer service enterprise software providers such as eGain Communications
Corp., eShare Technologies, Inc., Kana Communications, Inc. and WebLine
Communications (a part of Cisco Systems' applications technology group), some of
which are beginning to offer hosted solutions. Furthermore, many of our
competitors offer a broader range of customer relationship management products
and services than we currently offer. We may be disadvantaged and our business
may be harmed if companies doing business on the Internet choose sales and
customer service technology from such providers.
We also face potential competition from larger enterprise software companies
such as Oracle and Siebel Systems. In addition, established technology
companies, including IBM, Hewlett-Packard and Microsoft, may also leverage their
existing relationships and capabilities to offer real-time sales and customer
service applications.
Finally, we face competition from clients and potential clients that choose
to provide a real-time sales and customer service solution in-house as well as,
to a lesser extent, traditional offline customer service solutions, such as
telephone call centers.
We believe that competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. Many of our current and potential competitors have:
- longer operating histories;
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- larger client bases;
- greater brand recognition;
- more diversified lines of products and services; and
- significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may be
able to:
- undertake more extensive marketing campaigns;
- adopt more aggressive pricing policies; and
- make more attractive offers to businesses to induce them to use their
products or services.
Any delay in the general market acceptance of the real-time sales and
customer service solution business model would likely harm our competitive
position. Delays would allow our competitors additional time to improve their
service or product offerings, and would also provide time for new competitors to
develop real-time sales and customer service applications and solicit
prospective clients within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market share.
TECHNOLOGY
Three key technological features distinguish the LivePerson service:
- All of our customers share the same servers, databases, and network
connections. We are therefore able to accommodate our expanding customer
base and increasing system usage without incrementally adding new
hardware or network infrastructure.
- Our network, hardware and software are designed to accommodate our
clients' demand for high-quality 24-hours per day / seven-days per week
service.
- As a hosted service we are able to add additional capacity and new
features quickly and efficiently. This has enabled us to immediately
provide these benefits simultaneously to our entire client base. In
addition, it allows us to maintain a relatively short development and
implementation cycle of several weeks.
As an application service provider, we focus on the development of tightly
integrated software design and network architecture. We have dedicated
significant resources to designing our software and network architecture based
on the fundamental principles of reliability and scalability.
SOFTWARE DESIGN. Our software design provides a reliable store-and-forward
message delivery solution that actively routes messages between operators and
Internet users.
The LivePerson real-time interaction platform can efficiently accommodate
additional features and functionality due to its distributed processes, which
can be replicated on several servers. In some cases, key processes are run
independently to enhance performance. Our software design is also based on open
standards. These standard protocols facilitate integration with our clients'
legacy and third-party systems, and include:
- Java
- XML (Extensible Mark-up Language)
- HTML (Hypertext Mark-up Language)
- SQL (Structured Query Language)
- Internet Protocol (IP)
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NETWORK ARCHITECTURE. The software underlying our service is integrated
with a scalable and reliable network architecture. Our network is scalable in
that we do not need to incrementally add new hardware or network capacity for
each new LivePerson client. This network architecture is supported by data
centers that have redundant network connections, servers and other features,
ensuring a high level of reliability.
Our network architecture is also based on proprietary packet routing and
server clustering techniques and superior network connectivity. Requests are
routed among several servers dynamically to ensure uninterrupted service. In
addition, we use a "multi-homed" Internet access system, which incorporates
multiple direct Internet connections to reduce the impact of latency that may
occur on different parts of the Internet. This design enables our clients and
Internet users to efficiently connect to our servers.
We also use advanced load-balancing techniques to ensure that each
LivePerson conversation is connected at an optimal speed and that no single
point of failure can affect the LivePerson service.
GOVERNMENT REGULATION
We are subject to federal, state and local regulation, including laws and
regulations applicable to access to or commerce over the Internet. Due to the
increasing popularity and use of the Internet and various other online services,
it is likely that a number of new laws and regulations will be adopted with
respect to the Internet or other online services covering issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights and information
security. The nature of such legislation and the manner in which it may be
interpreted and enforced cannot be fully determined and, therefore, such
legislation could subject us and/or our clients or Internet users to potential
liability, which in turn could have an adverse effect on our business, results
of operations and financial condition. The adoption of any such laws or
regulations might also impair the growth of Internet use, which in turn could
decrease the demand for our service or increase the cost of doing business or in
some other manner have a material adverse effect on our business, results of
operations and financial condition. In addition, applicability to the Internet
of existing laws governing issues such as intellectual property, taxation and
personal privacy is uncertain. The vast majority of such laws were adopted prior
to the advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
As a result of collecting data from live online Internet user dialogues, our
clients may be able to analyze the commercial habits of Internet users. Privacy
concerns may cause Internet users to avoid online sites that collect such
behavioral information and even the perception of security and privacy concerns,
whether or not valid, may indirectly inhibit market acceptance of our services.
In addition, our clients may be harmed by any laws or regulations that restrict
their ability to collect or use this data. Several states have proposed
legislation that would govern the collection and use of personal user
information gathered online or require online services to establish privacy
policies. The Federal Trade Commission has initiated actions against online
services regarding the manner in which information is collected from users, used
by online services and/or provided to third parties, and has begun
investigations into the privacy practices of companies that collect information
about individuals on the Internet. The European Union has enacted its own
privacy regulations that may result in limits on the collection and use of some
user information. Changes to existing domestic or international laws or the
passage of new laws intended to address these or other issues, including some
recently proposed changes, could create uncertainty in the marketplace that
could reduce demand for our services or increase the cost of
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doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner have a material adverse effect on our
business, results of operations and financial condition.
It may take years to determine how existing laws apply to the Internet. Any
new legislation or regulation regarding the Internet, or the application of
existing laws and regulations to the Internet, could harm us. Additionally, as
we expand outside the U.S., the international regulatory environment relating to
the Internet could have a material and adverse effect on our business, results
of operations and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely upon a combination of patent, copyright, trade secret and trademark
law, written agreements and common law to protect our proprietary technology,
processes and other intellectual property, to the extent that protection is
sought or secured at all. We currently have one U.S. patent application pending.
To the extent that the invention described in our U.S. patent application was
made public prior to the filing of the application, we may not be able to obtain
patent protection in certain foreign countries. In addition, we have a common
law trademark, "LivePerson", and three pending U.S. trademark applications. The
trademark examiner assigned to our applications has issued non-final office
actions with respect to our applications, requesting additional information and
making initial refusals. However, no final determinations as to the
registrability of the marks have been made. We are in the process of responding
with respect to our applications, to these office actions prior to their
respective deadlines, but ultimately we may not be able to secure registration
of our trademarks. We do not have any trademarks registered outside the U.S.,
nor do we have any trademark applications pending outside the U.S.
Although we rely on patent, copyright, trade secret and trademark law,
written agreements and common law, we believe that factors such as the
technological and creative skills of our personnel, new service developments,
frequent enhancements and reliable maintenance are more essential to
establishing and maintaining a technology leadership position. We cannot assure
you that others will not develop technologies that are similar or superior to
our technology. We enter into confidentiality and other written agreements with
our employees, consultants and strategic partners, and through written
agreements, control access to and distribution of our software, documentation
and other proprietary information. Despite our efforts to protect our
proprietary rights, third parties may, in an unauthorized manner, attempt to
copy or otherwise obtain and use our service or technology or otherwise develop
a service with the same functionality as our products. Policing unauthorized use
of our products is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect proprietary rights as fully as do the
laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. Our service may be increasingly subject to third-party
infringement claims as the number of competitors in our industry segment grows
and the functionality of services in different industry segments overlaps. Some
of our competitors in the market for real-time sales and customer service
solutions may have filed or may intend to file patent applications covering
aspects of their technology. Although we believe that our service and technology
do not infringe upon the intellectual property rights of others and that we have
all rights necessary to utilize the intellectual property employed in our
business, we may be subject to claims alleging infringement of third-party
intellectual property rights. Any such claims could require us to spend
significant amounts in litigation, distract management from other tasks of
operating our business, pay damage awards, delay delivery of the LivePerson
service, develop non-infringing intellectual property or acquire licenses to the
intellectual property that is the subject of any such
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infringement. Therefore, such claims could have a material adverse effect on our
business, results of operations and financial condition.
EMPLOYEES
As of March 31, 2000, we had 136 full-time employees. Members of senior
management have entered into employment agreements with us, some of which are
described in "Management--Employment Agreements." None of our employees are
covered by collective bargaining agreements. We believe our relations with our
employees are good.
FACILITIES
We currently lease an aggregate of approximately 25,000 square feet at our
headquarters location in New York City, consisting of a lease for approximately
17,000 square feet expiring in October 2006 and a sub-lease for approximately
8,000 square feet expiring in September 2000. We also have a lease for an
additional, approximately 6,000 square foot location in New York City, expiring
in April 2000. In addition, in March 2000, we entered into a lease for an
aggregate of approximately 83,500 square feet on two floors at a location in New
York City which we expect to occupy in the third quarter of 2000.
We currently maintain offices in San Francisco subleased to us by one of our
investors, which we expect to vacate upon relocation to our new facility of
approximately 7,850 square feet. We expect to relocate in the second quarter of
2000. The lease for our new facility expires in January 2005.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. We may be subject to
various claims and legal actions arising in the ordinary course of business.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of LivePerson, and their
ages and positions as of March 31, 2000, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ----------- --------
<S> <C> <C>
Robert P. LoCascio*............. 31 President, Chief Executive Officer and Chairman of the Board
Dean Margolis*.................. 42 Chief Operating Officer
Timothy E. Bixby*............... 35 Executive Vice President, Chief Financial Officer, Secretary and
Director
Scott E. Cohen*................. 41 Executive Vice President, Sales/Client Services
James L. Reagan*................ 34 Chief Technology Officer
Vincent Beese................... 34 Vice President, Sales
Victor K. Cheng................. 26 Vice President, Product Management
Dwight D. Foster................ 37 Vice President, West Coast Sales
Christopher L. Smith............ 32 Vice President, Client Services
Lawrence A. Wasserman........... 34 Vice President, Marketing
Richard L. Fields............... 43 Director
Wycliffe K. Grousbeck........... 38 Director
Kevin C. Lavan.................. 47 Director
Robert W. Matschullat........... 52 Director
Edward G. Sim................... 29 Director
</TABLE>
- ----------------------------
* Denotes Executive Officer.
ROBERT P. LOCASCIO has been our President, Chief Executive Officer and
Chairman of our board of directors since our inception in November 1995.
Mr. LoCascio founded our company as Sybarite Interactive Inc., which developed a
community-based web software platform known as TOWN. Before founding Sybarite
Interactive, through November 1995, Mr. LoCascio was the founder and Chief
Executive Officer of Sybarite Media Inc. (known as IKON), a developer of
interactive public kiosks that integrated interactive video features with
advertising and commerce capabilities. Mr. LoCascio received a B.B.A. from
Loyola College.
DEAN MARGOLIS has been our Chief Operating Officer since January 2000. From
December 1996 until August 1999, Mr. Margolis was the founder and Chief
Executive Officer of Comet Systems, Inc., a Web site tools company which
licenses technology that allows a Web site publisher to change the appearance of
its cursor. Mr. Margolis was a consultant to several Internet companies between
August 1999 and January 2000, and between October 1995 and December 1996. From
November 1993 to October 1995, Mr. Margolis was President of Blackberry
Technologies, Inc., a software development firm. From April 1989 until November
1993, Mr. Margolis held various sales management positions with ABT Corporation,
a project management software company. Mr. Margolis received a M.B.A. and a M.S.
from Harvard University, and a B.A. from Columbia University.
TIMOTHY E. BIXBY has been our Chief Financial Officer since June 1999, our
Secretary and a director since October 1999 and an Executive Vice President
since January 2000. From March 1999 until May 1999, Mr. Bixby was a private
investor. From January 1994 until February 1999, Mr. Bixby was Vice President of
Finance for Universal Music & Video Distribution Inc., a manufacturer and
distributor of recorded music and video products, where he was responsible for
internal financial operations, third party distribution deals and strategic
business development.
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From October 1992 through January 1994, Mr. Bixby was Associate Director,
Business Development, with the Universal Music Group. Prior to that, Mr. Bixby
spent three years in Credit Suisse First Boston's mergers and acquisitions group
as a financial analyst. Mr. Bixby received a M.B.A. from Harvard University and
an A.B. from Dartmouth College.
SCOTT E. COHEN has been our Executive Vice President, Sales/Client Services
since November 1999 and was our Executive Vice President of Sales from
March 1999 until November 1999. Mr. Cohen was a consultant to several Internet
companies between January 1999 and March 1999. From February 1998 to
December 1998, Mr. Cohen was Senior Vice President, Strategic Alliances and
Direct Marketing at 24/7 Media, Inc., an online advertising network. Mr. Cohen
was Senior Vice President of Sales for Petry Interactive, Inc. from August 1997
until February 1998, and Vice President of Business Development from
November 1996 until August 1997. From November 1992 through November 1996,
Mr. Cohen held various positions with companies held by MacAndrews & Forbes
Holdings Inc., including Sales Executive and Manager of Business Development at
New World Communications Inc. and Director of Real Estate at Revlon Consumer
Products Corporation. Mr. Cohen received a M.B.A. from the University of
Rochester.
JAMES L. REAGAN has been our Chief Technology Officer since January 2000.
Prior to joining us, Mr. Reagan was Vice President, Technology Risk Management
for First Union National Bank, from June 1998 through December 1999, where he
led the risk management process associated with the strategy, use and deployment
of First Union's Internet commerce technology. From September 1996 through
June 1998, Mr. Reagan was Director of Strategic Information Technology for
AverStar, Inc., a systems and software development company, where he managed
strategic information technology products. From February 1985 through
September 1996, Mr. Reagan was in the United States Army, where most recently he
was a senior project manager in charge of management and operations for military
intelligence projects. Mr. Reagan received a M.S. from Bowie State University
and a B.A. from the State University of New York.
VINCENT BEESE has been our Vice President, Sales since May 1999. Prior to
joining us, from August 1996 through April 1999, Mr. Beese was the Advertising
and Alliance Director for AT&T's Interactive Group, concentrating on developing
strategic partnerships, as well as Internet commerce and advertising
opportunities. Prior to that, from April 1994 through August 1996, Mr. Beese
held various positions at BPI Communications Inc. including Marketing Associate
and Product Manager for Billboard Electronic Publishing Group, responsible for
product development, generating revenue and increasing new subscribers. Mr.
Beese received a B.A. from the University of Maryland.
VICTOR K. CHENG has been our Vice President, Product Management since
January 2000 and was Assistant to the Chief Executive Officer from September
1999 through January 2000. Prior to joining us, Mr. Cheng founded and was Chief
Executive Officer of eHaHa.com, Inc., a Web site serving online communities,
from January 1999 through August 1999. From March 1998 through December 1998,
Mr. Cheng founded and was Chief Executive Officer of Small Biz Media, Inc., an
online purchasing alliance for small businesses. Between September 1995 and
February 1998, Mr. Cheng worked for the consulting firm McKinsey & Company, as
an Associate from July 1997 through February 1998, and as a Business Analyst
between September 1995 and June 1997. Mr. Cheng received a M.A. and a B.A. from
Stanford University.
DWIGHT D. FOSTER has been our Vice President, West Coast Sales since August
1999. Prior to joining us, Mr. Foster was Western Region Account Manager for Net
Perceptions, Inc., from December 1997 through July 1999, responsible for
southern California as well as strategic accounts in the San Francisco area.
Prior to that, from November 1996 through December 1997, Mr. Foster was an
Account Executive with Careerbuilder.com. From July 1995 through November
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1996, Mr. Foster was Director of Business Development for Genwell Corp., a
systems integrator. From January 1994 through July 1995, Mr. Foster was Director
of Sales and Marketing for RangeStar International, an antenna manufacturer. Mr.
Foster received a B.A. from the University of Colorado.
CHRISTOPHER L. SMITH has been our Vice President, Client Services since
September 1999. Before joining us, Mr. Smith was Manager of Strategic
Development at Comcast Online Communications, a division of Comcast Corporation,
from March 1996 to September 1999, responsible for launching and developing
InYourTown.com, a network of city guides. Before that, Mr. Smith founded Travel
Media Services, Inc., a provider of travel products distributed by television
infomercials, serving as President from March 1995 to March 1996. From
September 1990 to July 1993, Mr. Smith was a Relationship Manager at The Chase
Manhattan Bank, responsible for small and middle market commercial clients. Mr.
Smith received a M.B.A. from Columbia University and a B.A. from Duke
University.
LAWRENCE A. WASSERMAN has been our Vice President, Marketing since March
1999. Prior to joining us, from March 1998 through January 1999, Mr. Wasserman
was Director, U.S. Marketing for Bertelsmann AG, helping develop the business
and marketing strategy for their online book retailer, BOL.com. Prior to that,
from March 1997 through February 1998, Mr. Wasserman was Director, Interactive
Media in the Interactive Media Department for Bertelsmann's Doubleday Direct,
Inc. Prior to that, from May 1994 through February 1997, Mr. Wasserman was
Director, Current Member Marketing, for Doubleday Direct's Specialty Clubs
division. Mr. Wasserman received a M.B.A. from the University of Michigan and a
B.S. from the State University of New York.
RICHARD L. FIELDS has been a director since July 1999, having been elected
pursuant to the terms of the Second Amended and Restated Stockholders' Agreement
dated as of July 19, 1999. Mr. Fields is a Managing Director of the investment
banking firm Allen & Company Incorporated, where he has been employed since
1986. Mr. Fields is a director of VoiceStream Wireless Corporation and the
Telecommunications Development Fund. Mr. Fields received a J.D. from Harvard
University, a M.B.A. from Stanford University and a B.S. from the Massachusetts
Institute of Technology.
WYCLIFFE K. GROUSBECK has been a director since July 1999, having been
elected pursuant to the terms of the Second Amended and Restated Stockholders'
Agreement dated as of July 19, 1999. Mr. Grousbeck has been a General Partner of
Highland Capital Partners, Inc. since August 1996 and joined as an Associate in
May 1995. Mr. Grousbeck was the founder, and President from September 1993 to
May 1995, of Grousbeck Medical Resources Inc., a start-up consumer medical
information and research company. Mr. Grousbeck is a director of EXACT
Laboratories, Inc., GuruNet Corporation, Mantra Software Corporation and Odyssey
Healthcare, Inc. Mr. Grousbeck received a M.B.A. from Stanford University, a
J.D. from the University of Michigan and an A.B. from Princeton University.
KEVIN C. LAVAN has been a director since January 2000. Mr. Lavan is
currently an Executive Vice President of Wunderman Cato Johnson, the direct
marketing and customer relationship marketing division of Young & Rubicam Inc.
From February 1997 to March 1999, Mr. Lavan was Senior Vice President of Finance
at Young & Rubicam. From January 1995 to February 1997, Mr. Lavan held various
positions at Viacom Inc., including Controller, and Chief Financial Officer for
Viacom's subsidiary, MTV Networks. Mr. Lavan received a B.S. from Manhattan
College.
ROBERT W. MATSCHULLAT has been a director since March 2000. Since October
1995, Mr. Matschullat has been Vice Chairman of the board of directors of The
Seagram Company Ltd., and also served as Chief Financial Officer of Seagram from
October 1995 to December 1999. Previously, he was Managing Director and Head of
Worldwide Investment Banking for Morgan
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Stanley & Co., Inc. and a director of Morgan Stanley Group, Inc., from 1991
through October 1995. Mr. Matschullat is currently a director of The Clorox
Company, The Seagram Company Ltd. and USA Networks, Inc. Mr. Matschullat
received a M.B.A. and a B.A. from Stanford University.
EDWARD G. SIM has been a director since January 1999, having been elected
pursuant to the terms of the Stockholders' Agreement dated as of January 21,
1999. Since October 1999, Mr. Sim has been a Managing Director of Wit Capital
Corporation's Venture Capital Fund Group. Since April 1998, Mr. Sim has been a
Managing Director and Senior Vice President of DT Advisors LLC, which is the
managing entity of Dawntreader Fund I LP, and whose members now manage Wit
Capital's venture capital funds. From April 1996 to April 1998, Mr. Sim was an
Associate with Prospect Street Ventures, a New York venture capital firm, and
from May 1994 to April 1996, he was a member of the Structured Derivatives Group
at J.P. Morgan Investment Management Inc. Mr. Sim is a director of
expertcity.com, inc., Flashbase, Inc., GuruNet Corporation and MaterialNet, Inc.
Mr. Sim received an A.B. from Harvard University.
COMPOSITION OF THE BOARD
Prior to the closing of this offering, we intend to file an amended and
restated certificate of incorporation pursuant to which our board of directors
will be divided into three classes, each of whose members will serve for a
staggered three-year term. Upon the expiration of the term of a class of
directors, directors in that class will be elected for three-year terms at the
annual meeting of stockholders in the year in which their term expires. Our
board of directors has resolved that Mr. Fields and Mr. Sim will be Class I
Directors whose terms expire at the 2001 annual meeting of stockholders.
Mr. Grousbeck and Mr. Bixby will be Class II Directors whose terms expire at the
2002 annual meeting of stockholders. Messrs. Lavan, Matschullat and LoCascio
will be Class III Directors whose terms expire at the 2003 annual meeting of
stockholders. With respect to each class, a director's term will be subject to
the election and qualification of their successors, or their earlier death,
resignation or removal.
BOARD COMMITTEES
The Audit Committee of our board of directors reviews, acts on and reports
to our board of directors with respect to various auditing and accounting
matters, including the recommendations of our independent auditors, the scope of
the annual audits, the fees to be paid to the auditors, the performance of our
auditors and our accounting practices. The members of the Audit Committee are
Mr. Fields, Mr. Lavan and Mr. Sim.
For our common stock to be included in the Nasdaq National Market, each
member of the Audit Committee of our board of directors must be considered
independent under Nasdaq's rules. Among other things, a director is not
independent under Nasdaq rules if he or she has been employed by us or our
affiliates in the current year or past three years. One non-independent director
may serve on the Audit Committee if our board determines it to be in the best
interests of our company and our stockholders, but our current officers or other
employees are not able to serve on the Audit Committee under this exception.
The Compensation Committee of the board of directors recommends, reviews and
oversees the salaries, benefits and stock option plans for our employees,
consultants, directors and other individuals whom we compensate. The
Compensation Committee also administers our compensation plans. The members of
the Compensation Committee are Mr. Fields, Mr. Grousbeck and Mr. Lavan.
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DIRECTOR COMPENSATION
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will not
receive a fee for attendance in person at meetings of the board of directors or
committees of the board of directors, but they will be reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with attendance at
meetings. Non-employee directors who are elected following the completion of
this offering will be granted options to purchase 15,000 shares of our common
stock upon their election. In addition, non-employee directors will be granted
options to purchase 5,000 shares of our common stock on each anniversary of
their election to the board of directors. Upon the completion of this offering,
we will grant options to purchase 15,000 shares of our common stock to each of
Messrs. Fields, Grousbeck, Lavan and Sim, at an exercise price equal to the
price of our common stock in this offering, which options will vest one year
from the date of the grant. In addition, upon the completion of this offering we
will grant options to purchase 30,000 shares of our common stock to Mr.
Matschullat at an exercise price equal to the price of our common stock in this
offering, 15,000 of which will vest one year from the date of grant and 15,000
of which will vest in equal installments over the next three years.
EMPLOYMENT AGREEMENTS
Robert P. LoCascio, our President and Chief Executive Officer, is employed
pursuant to an employment agreement entered into as of January 1, 1999. After
its initial term, which expires on January 1, 2002, our agreement with
Mr. LoCascio will extend automatically for one-year terms on each of January 1,
2002 and January 1, 2003, unless either we or Mr. LoCascio gives notice not to
extend the term of the agreement. Mr. LoCascio is entitled to receive an annual
base salary of $125,000, plus an annual discretionary bonus of up to $50,000,
determined by our board based upon achievement of performance objectives. If
Mr. LoCascio is terminated by us without cause or following a material change or
diminution in his duties, a reduction in his salary or bonus, or if we are sold
or following a change in control of our company, or if we relocate him to a
location outside the New York metropolitan area, we must pay him an amount equal
to the amount of his salary for the 12 months following the date of termination,
and the pro rata portion of the bonus he would have been entitled to receive for
the fiscal year in which the termination occurred. These amounts are payable in
three monthly installments beginning 30 days after his termination. Pursuant to
the agreement, for a period of one year from the date of termination of
Mr. LoCascio's employment, he may not directly or indirectly compete with us,
including, but not limited to, being employed by any business which competes
with us, or otherwise acting in a manner intended to advance an interest of a
competitor of ours in a way that will or may injure an interest of ours.
On January 28, 2000, we entered into a three-year employment agreement with
Dean Margolis, our Chief Operating Officer. We will pay Mr. Margolis a fixed
annual base salary of $175,000, plus an annual discretionary bonus.
Mr. Margolis is also eligible under the agreement to receive a long-term
incentive award, determined by our board, consisting of options to purchase
common stock, with the initial award of options to purchase up to 510,000 shares
of common stock at a purchase price of $3.33 per share. These options will begin
vesting on July 1, 2000 in four equal annual installments. If, within 24 months
after a change in control of our company, we terminate Mr. Margolis without
cause or if he terminates his employment with us because we have reduced his
compensation or materially changed his duties or responsibilities, we will pay
him a lump-sum amount equal to one-half of his annual base salary and any
unvested options will vest immediately. In addition, if Mr. Margolis otherwise
terminates his employment following a change in control of our company, any
options which would have vested within 12 months after such termination will
continue to vest under the original vesting schedule.
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Pursuant to the agreement, for a period of one year from the date of termination
of Mr. Margolis's employment, he may not directly or indirectly compete with us
including, but not limited to, being employed by any business which competes
with us, or otherwise acting in a manner intended to advance an interest of a
competitor of ours in a way that will or may injure an interest of ours.
Timothy E. Bixby, our Chief Financial Officer, is employed pursuant to an
employment agreement entered into as of June 23, 1999, which shall continue
until it is terminated by either party. Pursuant to the agreement, Mr. Bixby
receives an annual base salary of $140,000 and an annual discretionary bonus.
Mr. Bixby is also eligible to receive a long-term incentive award determined by
our board consisting of options to purchase common stock, with the initial award
of options to purchase up to 202,500 shares of common stock at a purchase price
of $0.67 per share. Twenty-five percent of those options vested on January 1,
2000 and the remaining options will vest in three equal annual installments
starting on January 1, 2001. In October 1999, Mr. Bixby was granted options to
purchase up to an additional 97,500 shares of common stock at a purchase price
of $2.00 per share. These options begin vesting on July 1, 2000 in four equal
annual installments. In January 2000, Mr. Bixby was granted options to purchase
up to an additional 75,000 shares of common stock at a purchase price of $3.33
per share. These options begin vesting on July 1, 2000 in four equal annual
installments. If Mr. Bixby is terminated following a change in control of our
company or if he terminates his employment with us following a reduction in his
salary, a material change or diminution in his duties or if Robert LoCascio is
no longer our President or Chief Executive Officer, all of his options will vest
immediately, and we must pay him a lump-sum amount equal to his annual salary,
and the pro rata portion of the bonus he would have been entitled to receive for
the year in which the termination occurred. Pursuant to the agreement, for a
period of one year from the date of termination of Mr. Bixby's employment, he
may not directly or indirectly compete with us, including, but not limited to,
being employed by any business which competes with us, or otherwise acting in a
manner intended to advance an interest of a competitor of ours in a way that
will or may injure an interest of ours.
Scott E. Cohen, our Executive Vice President, Sales/Client Services, is
employed pursuant to an employment agreement entered into as of March 29, 1999.
The agreement's initial term expires on March 31, 2000 and has been extended for
one year. Mr. Cohen receives an annual base salary of $185,000 and an annual
discretionary bonus. For the first year of the agreement's term, we have agreed
to pay Mr. Cohen commissions on a quarterly basis in the amount of 10% of the
portion of our gross sales (consisting of revenues from sales invoiced by us,
net of tax and other surcharges payable by us and amounts rebated or refunded)
in excess of $1,000,000 during the first year of his employment. For the second
year of the agreement's term, we will pay him commissions on a quarterly basis
in the amount of 10% of the first $1,000,000 of gross sales in excess of the
amount of gross sales in the first year, plus 7.5% of all gross sales in excess
of that amount. Additionally, we granted Mr. Cohen options to purchase up to
588,960 shares of common stock at a purchase price of $0.80 each. Fifty percent
of these options vested on March 31, 2000 with the remainder vesting on
March 31, 2001. We also, in March 2000, granted Mr. Cohen options to purchase an
additional 240,000 shares of common stock at a purchase price of $6.67 per
share, which options vested upon grant. If (1) Mr. Cohen is terminated following
a sale or a change in control of our company or (2) if Mr. Cohen chooses to
terminate his employment because he is no longer serving in a senior executive
capacity or because Robert LoCascio is no longer our President or Chief
Executive Officer, we must pay him the salary and the amount of commissions that
he would have earned for a period of four months after the date of termination
had we not terminated him, reduced by any amount he earns as a result of his
employment by any business in that four-month period. In addition, any options
which would have vested on the first vesting date following the date of
termination as a result of a change in control will vest
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immediately upon such termination. Pursuant to the agreement, for a period of
one year from the date of termination of Mr. Cohen's employment, he may not
directly or indirectly compete with us, including, but not limited to, being
employed by any business which competes with us, or otherwise acting in a manner
intended to advance an interest of a competitor of ours in a way that will or
may injure an interest of ours.
On January 3, 2000, we entered into a three-year employment agreement with
James L. Reagan, our Chief Technology Officer. We will pay Mr. Reagan a fixed
annual base salary of $165,000, plus an annual discretionary bonus, of which
$20,000 was paid upon commencement of his employment. In addition, Mr. Reagan
received a starting bonus of $20,000. Mr. Reagan is also eligible under the
agreement to receive a long-term incentive award, determined by our board,
consisting of options to purchase common stock, with the initial award of
options to purchase up to 300,000 shares of common stock at a purchase price of
$2.00 per share. These options will begin vesting on January 1, 2001 in four
equal annual installments. If, within 24 months after a change in control of our
company, we terminate Mr. Reagan without cause, we will pay him a lump sum
amount equal to two-thirds of his annual base salary. In addition, any options
which would have vested within 24 months after such termination will vest
immediately. Pursuant to the agreement, for a period of one year from the date
of termination of Mr. Reagan's employment, he may not directly or indirectly
compete with us including, but not limited to, being employed by any business
which competes with us, or otherwise acting in a manner intended to advance an
interest of a competitor of ours in a way that will or may injure an interest of
ours.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for all services
rendered to us in all capacities during 1999 by our Chief Executive Officer and
our most highly compensated executive officers, other than our Chief Executive
Officer, who earned more than $100,000 in 1999 and who served as executive
officers at the end of 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
------------------- ---------------------
SALARY BONUS SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION ($) ($) OPTIONS (#)
- --------------------------- -------- -------- ---------------------
<S> <C> <C> <C>
Robert P. LoCascio...................................... 125,000 50,000 --
Chief Executive Officer
Timothy E. Bixby(1)..................................... 73,231 -- 300,000
Chief Financial Officer
Scott E. Cohen(2)....................................... 138,250 -- 588,960
Executive Vice President,
Sales/Client Services
</TABLE>
- ----------------------------
(1) Mr. Bixby became our Chief Financial Officer in June 1999. His annualized
salary for 1999 was $140,000.
(2) Mr. Cohen became our Executive Vice President in March 1999. His annualized
salary for 1999 was $185,000.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding exercisable and
unexercisable stock options granted to each of the named executive officers in
the last fiscal year. No stock appreciation rights were granted to the named
executive officers during the year ended December 31, 1999. Potential realizable
values are computed by (1) multiplying the number of shares of common stock
subject to a given option by the assumed market value on the date of grant,
(2) assuming that the aggregate stock value derived from that calculation
compounds annually for the entire term of the option and (3) subtracting from
that result the aggregate option exercise price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
-----------------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE OR TERM (2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ------------------------------------
NAME GRANTED (#) YEAR (%) ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ---- ------------ ----------- ----------- ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert P. LoCascio... -- -- -- -- -- -- --
Timothy E. Bixby..... 202,500 6.7 0.67 June 23, 2009 35,100 142,075 306,196
97,500 3.2 2.00 October 25, 2009 466,050 881,781 1,519,593
Scott E. Cohen....... 588,960 19.4 0.80 March 31, 2004 -- 70,041 211,771
</TABLE>
- --------------------------------
(1) Each option represents the right to purchase one share of common stock.
Mr. Bixby's 202,500 options which expire on June 23, 2009 vested 25% on
January 1, 2000 and will vest an additional 25% on each anniversary thereof.
Mr. Bixby's 97,500 options which expire on October 25, 2009 will vest 25% on
July 1, 2000 and will vest an additional 25% on each anniversary thereof.
Fifty percent of Mr. Cohen's options vested on March 31, 2000 and the
remaining 50% will vest on March 31, 2001.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by rules of the Securities and Exchange Commission and do not represent our
estimate or projection of our future common stock prices. These amounts
represent assumed rates of appreciation in the value of our common stock
from the assumed fair market value on the date of grant. The assumed fair
market values on the dates of grant relevant to this table were $0.72 per
share for options granted between January 21, 1999 and May 3, 1999, $0.84
per share for options granted between May 4, 1999 and July 18, 1999 and
$6.78 per share for options granted on October 25, 1999. Actual gains, if
any, on stock option exercises are dependent on the future performance of
our common stock. The amounts reflected in the table may not necessarily be
achieved. See "Risk Factors."
AGGREGATED OPTION EXERCISES IN THE YEAR
ENDED DECEMBER 31, 1999 AND YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
options held as of December 31, 1999 by each of the named executive officers. No
options were exercised during fiscal 1999 by any of the named executive
officers. The value of the unexercised in-the-money options at December 31, 1999
is based on the assumed fair market value of our common stock at December 31,
1999, less the exercise price of the option, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($) (1)
----------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---------------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
Robert P. LoCascio................. -- -- -- --
Timothy E. Bixby................... -- 202,500 -- 2,700,000
-- 97,500 -- 1,170,000
Scott E. Cohen..................... -- 588,960 -- 7,774,272
</TABLE>
- --------------------------
(1) There was no public trading market for our common stock as of December 31,
1999. The value of unexercised in-the-money options has been calculated
using an assumed value of $14.00 per share, the mid-point of the range set
forth on the cover page of this prospectus.
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2000 STOCK INCENTIVE PLAN
We adopted the 2000 Stock Incentive Plan (the "2000 Plan"), which will serve
as the successor equity incentive program to our Stock Option and Restricted
Stock Purchase Plan (the "1998 Plan"). The 2000 Plan became effective upon its
adoption by our board of directors on March 21, 2000 and will be ratified by our
stockholders prior to the date of this offering.
10,000,000 shares of common stock have been authorized for issuance under
the 2000 Plan. This share reserve consists of the shares which were available
for issuance under the 1998 Plan on the effective date of the 2000 Plan plus an
additional increase of approximately 4,150,000 shares. The share reserve will
automatically be increased on the first trading day of January each calendar
year, beginning in January 2001, by a number of shares equal to 3% of the total
number of shares of common stock outstanding on the last trading day of the
immediately preceding calendar year, but no such annual increase will exceed
1,500,000 shares. However, in no event may any one participant in the 2000 Plan
receive option grants or direct stock issuances for more than 500,000 shares in
the aggregate per calendar year.
Outstanding options under the 1998 Plan will be incorporated into the 2000
Plan upon the date of this offering, and no further option grants will be made
under that plan. The incorporated options will continue to be governed by their
existing terms, unless the compensation committee extends one or more features
of the 2000 Plan to those options. However, except as otherwise noted below, the
outstanding options under the 1998 Plan contain substantially the same terms and
conditions summarized below for the discretionary option grant program under the
2000 Plan.
The 2000 Plan has five separate programs:
- the discretionary option grant program under which eligible individuals
in our employ or service (including officers, non-employee board members
and consultants) may be granted options to purchase shares of our common
stock;
- the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares or
as a bonus tied to the performance of services;
- the salary investment option grant program under which executive officers
and other highly compensated employees may elect to apply a portion of
their base salary to the acquisition of special below-market stock option
grants;
- the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members; and
- the director fee option grant program under which non-employee board
members may elect to apply a portion of their retainer fee to the
acquisition of special below-market stock option grants.
The discretionary option grant and stock issuance programs will be
administered by our Compensation Committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the exercise or purchase price
for each such grant or issuance (which may be less than, equal to or greater
than the fair market value of the shares), the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding. The committee will also select the executive officers and other
highly compensated employees who may participate in the salary investment option
grant program in
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the event that program is activated for one or more calendar years. Neither the
Compensation Committee nor the board will exercise any administrative discretion
with respect to option grants made under the salary investment option grant
program or under the automatic option grant program or director fee option grant
program for the non-employee board members.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Compensation Committee may allow a participant to pay
the option exercise price or direct issue price (and any associated withholding
taxes incurred in connection with the acquisition of shares) with a
full-recourse, interest-bearing promissory note.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by our stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the
discretionary option grant and stock issuance programs will immediately vest,
except to the extent the repurchase rights with respect to those shares are to
be assigned to the successor corporation or otherwise continued in effect. The
Compensation Committee may grant options and issue shares which will accelerate
(i) in the acquisition even if the options are assumed and repurchase rights
assigned, (ii) in connection with a hostile change in control (effected through
a successful tender offer for more than 50% of our outstanding voting stock or
by proxy contest for the election of board members) or (iii) upon a termination
of the individual's service following a change in control or hostile takeover.
In the event of an acquisition of our company (by merger or asset sale),
options currently outstanding under the 1998 Plan will be assumed by the
successor corporation. Such options are not by their terms subject to
acceleration in connection with any other change in control or hostile takeover.
Stock appreciation rights may be issued under the discretionary option grant
program which will provide the holders with the election to surrender their
outstanding options for an appreciation distribution from us equal to the fair
market value of the vested shares subject to the surrendered option less the
aggregate exercise price payable for such shares. Such appreciation distribution
may be made in cash or in shares of common stock. There are currently no
outstanding stock appreciation rights under the 1998 Plan.
The Compensation Committee has the authority to cancel outstanding options
under the discretionary option grant program (including options incorporated
from the 1998 Plan), with the consent of the holder, in return for the grant of
new options for the same or different number of option shares with an exercise
price per share based upon the fair market value of our common stock on the new
grant date.
In the event our Compensation Committee elects to activate the salary
investment option grant program for one or more calendar years, each of our
executive officers and other highly compensated employees selected for
participation may elect to reduce his or her base salary for that calendar year
by a specified dollar amount not less than $5,000 nor more than $50,000. In
return, the individual will automatically be granted, on the first trading day
in the calendar year for which the salary reduction is to be in effect, a
non-statutory option to purchase that number of shares of common stock
determined by dividing the salary reduction amount by two-thirds of the fair
market value per share of our common stock on the grant date. The option
exercise price will be equal to one-third of the fair market value of the option
shares on the grant date. As a result, the fair market value of the option
shares on the grant date less the exercise price payable for those shares will
be equal to the salary reduction amount. The option will become exercisable
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<PAGE>
in a series of 12 equal monthly installments over the calendar year for which
the salary reduction is to be in effect and will be subject to full and
immediate vesting in the event of an acquisition or change in control of the
company.
Under the automatic option grant program, each individual who first joins
the board after the date of this offering as a non-employee board member will
automatically be granted an option for 15,000 shares of our common stock at the
time of his or her commencement of board service, provided such individual has
not been in our prior employ. In addition, on the date of each of our annual
stockholders' meeting held after the date of this offering, each individual who
is to continue to serve as a non-employee board member after such meeting will
receive an option grant to purchase 5,000 shares of common stock. Each automatic
grant will have an exercise price equal to the fair market value per share of
our common stock on the grant date and will have a maximum term of 10 years,
subject to earlier termination following the optionee's cessation of board
service. Each option will be immediately exercisable, subject to our right to
repurchase any unvested shares, at the original exercise price, at the time of
the board member's cessation of service. Each 15,000-share option grant will
vest, and the repurchase right will lapse, in a series of three equal successive
annual installments upon the optionee's completion of each year of board service
over the three-year period measured from the grant date. Each 5,000-share option
grant will vest, and the repurchase right will lapse, upon the optionee's
completion of one year of board service measured from the grant date. However,
each such outstanding option will immediately vest upon a change in control, a
hostile takeover or the death or disability of the optionee while serving as a
board member.
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the non-employee board member would otherwise be
paid the cash retainer fee in the absence of his or her election. The option
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date, and the number of shares subject
to the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of
common stock on the grant date. As a result, the fair market value of the option
shares on the grant date less the exercise price payable for those shares will
be equal to the portion of the retainer fee applied to that option. The option
will become exercisable in a series of 12 equal monthly installments over the
calendar year for which the election is in effect. However, the option will
become immediately exercisable for all the option shares upon the death or
disability of the optionee while serving as a board member.
Limited stock appreciation rights will automatically be included as part of
each grant made under the automatic option grant and salary investment option
grant programs and may be granted to one or more officers as part of their
option grants under the discretionary option grant program. Options with such a
limited stock appreciation right may be surrendered to the company upon the
successful completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the optionee
will be entitled to a cash distribution from us in an amount per surrendered
option share equal to the highest price per share of common stock paid in
connection with the tender offer less the exercise price payable for such share.
The board may amend or modify the 2000 Plan at any time, subject to any
required stockholder approval. The 2000 Plan will terminate no later than
March 20, 2010.
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EMPLOYEE STOCK PURCHASE PLAN
We adopted the Employee Stock Purchase Plan (the "ESPP"), which is intended
to serve (along with the 2000 Plan) as the successor program to the 1998 Plan.
The ESPP was adopted by our board of directors on March 21, 2000 and will be
ratified by our stockholders prior to the date of this offering. The ESPP will
become effective immediately upon the execution of the underwriting agreement
for this offering. The ESPP is designed to allow our eligible employees and
eligible employees of our participating subsidiaries, if any, to purchase shares
of common stock, at semi-annual intervals, through their periodic payroll
deductions. Up to 450,000 shares of our common stock will initially be issued
under the ESPP. The share reserve will automatically increase on the first
trading day of January of each year beginning in January 2001, by 0.50% of the
total shares of common stock outstanding on the last trading day of the
immediately preceding calendar year, but no such annual increase will exceed
150,000 shares. In no event, however, may any participant purchase more than
1,000 shares, nor may all participants in the aggregate purchase more than
112,500 shares on any one semi-annual purchase date.
The ESPP will have a series of successive offering periods, each with a
maximum duration of 24 months. However, the initial offering period will begin
on the day the underwriting agreement is executed in connection with this
offering and will end on the last business day in April 2002. The next offering
period will begin on the first business day in May 2002, and subsequent offering
periods will be set by the Compensation Committee. Shares will be purchased for
the participants semi-annually (the last business day of October and April each
year) during the offering period. The first purchase date will occur on
October 31, 2000. Should the fair market value of the common stock on any
semi-annual purchase date be less than the fair market value on the first day of
the offering period, then the current offering period will automatically end and
a new offering period will begin, based on the lower fair market value.
Individuals who are eligible employees on the start date of any offering
period may enter the ESPP on that start date or on any subsequent semi-annual
entry date (generally May 1 or November 1 of each year). Individuals who become
eligible employees after the start date of the offering period may join the ESPP
on any subsequent semi-annual entry date within that period.
A participant may contribute up to 15% of his or her cash compensation
through payroll deductions and the accumulated payroll deductions will be
applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date. The purchase price per share will be 85% of the lower
of the fair market value of our common stock on the participant's entry date
into the offering period or the fair market value on the semi-annual purchase
date.
The board may at any time amend or modify the ESPP. The ESPP will terminate
no later than the last business day in April 2010.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PREFERRED STOCK INVESTMENTS
We issued 2,541,667 shares of series A convertible preferred stock in
January 1999; 1,142,857 shares of series B convertible preferred stock in
May 1999; 5,132,433 shares of series C redeemable convertible preferred stock in
July 1999 and 3,157,895 shares of series D redeemable convertible preferred
stock in January 2000. Substantially all of our shares of convertible preferred
stock have been sold to venture capital funds. The detailed description of the
beneficial ownership within each venture capital fund, and cumulative ownership
information for entities that hold a 5% or more beneficial interest, is
contained in "Principal Stockholders," and the footnotes thereto, to the extent
not described below. Each share of convertible preferred stock will
automatically convert into common stock upon closing of this offering at a
two-for-three ratio.
SERIES A CONVERTIBLE PREFERRED STOCK. We sold 2,500,000 shares of series A
convertible preferred stock in January 1999 at a purchase price per share of
$1.20 for gross proceeds of $3,000,000. In these transactions, we sold:
- 937,500 shares to Dawntreader Fund I LP;
- 937,500 shares to FG-LP, an entity affiliated with FGII;
- 416,667 shares to Sterling Payot Capital, LP; and
- 208,333 shares to an affiliate of Silicon Alley Venture Partners, LLC.
A portion of the series A convertible preferred stock issued to FG-LP was issued
in satisfaction of a promissory note made by us in the amount of $100,000, plus
interest. In addition, we issued 41,667 shares to Silicon Alley Venture
Partners, LLC in exchange for consulting services related to the sale of the
series A convertible preferred stock.
We also issued warrants to these investors at an exercise price of $1.60 per
share. These warrants have a purchase price of $0.003 per warrant, expire in
January 2004 and are exercisable at any time. The expiration date of the
warrants may be accelerated in certain circumstances, if the managing
underwriter of this offering determines that the failure to accelerate the
expiration or exercise of the warrant could adversely affect this offering;
however, we have been informed by Chase Securities Inc. that they do not intend
to do so. These warrants are exercisable for:
- 175,781 shares by Dawntreader Fund I LP;
- 175,781 shares by FG-LP;
- 78,124 shares by Sterling Payot Capital, LP; and
- 39,063 shares by an affiliate of Silicon Alley Venture Partners, LLC.
SERIES B CONVERTIBLE PREFERRED STOCK. We sold 1,142,857 shares of series B
convertible preferred stock in May 1999 at a purchase price per share of $1.40
for gross proceeds of $1,600,000. In these transactions, we sold:
- 892,857 shares to Allen & Company Incorporated;
- 35,714 shares to Alan Braverman; and
- 214,286 shares to Sculley Brothers LLC.
We also issued warrants to these investors at an exercise price of $1.60 per
share. These warrants have a purchase price of $0.003 per warrant, expire in
May 2004 and are exercisable at any time. The expiration date of the warrants
may be accelerated in certain circumstances, if the managing underwriter of this
offering determines that the failure to accelerate the warrant could
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<PAGE>
adversely affect this offering; however, we have been informed by Chase
Securities Inc. that they do not intend to do so. These warrants are exercisable
for:
- 195,313 shares by Allen & Company Incorporated;
- 7,812 shares by Alan Braverman; and
- 46,875 shares by Sculley Brothers LLC.
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK. We sold 5,132,433 shares
of series C redeemable convertible preferred stock in July 1999 at a purchase
price per share of $3.70 for gross proceeds of $18,990,000. In these
transactions, we sold:
- 2,162,162 shares to Highland Capital Partners IV Limited Partnership and
an affiliated entity;
- 608,108 shares to FG-LPC, an entity affiliated with FGII;
- 540,540 shares to Dawntreader Fund I LP;
- 67,568 shares to Allen & Company Incorporated;
- 810,811 shares to The Goldman Sachs Group, Inc. and an affiliated entity;
- 202,703 shares to Sterling Payot Capital, LP;
- 121,622 shares to entities affiliated with Silicon Alley Venture
Partners, LLC;
- 108,108 shares to entities which are affiliates of Chase Securities Inc.;
- 432,432 shares to Access Technology Partners, L.P., a fund of outside
investors that is managed by an affiliate of Chase Securities Inc.;
- 67,568 shares to Henry R. Kravis;
- 8,108 shares to Esther Dyson; and
- 2,703 shares to Mark Lipschultz.
SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK. We sold 3,157,895 shares
of series D redeemable convertible preferred stock in January 2000, at a
purchase price per share of $5.70 for gross proceeds of $18,000,000. In these
transactions, we sold:
- 1,754,386 shares to Dell USA L.P.;
- 350,878 shares to entities affiliated with MSD Capital, L.P.; and
- 1,052,631 shares to NBC Interactive Media, Inc.
OPTION GRANTS
In April 1999, we granted options to purchase up to 16,065 shares of common
stock, which vested on July 1, 1999, to Kevin Lavan, a director, for advisory
services rendered prior to his appointment to our board of directors. In
addition, upon the completion of this offering, we will grant options to our
non-employee directors as described in "Management--Director Compensation."
SAN FRANCISCO LEASE
Since August 1999, we have leased our San Francisco office space pursuant to
a month-to-month agreement with Sterling Payot Capital, LP, one of our
investors. Our monthly payments for rent and shared services are approximately
$11,000 and, to date, we have paid an aggregate of
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approximately $82,500 under the lease. We believe that this lease is on terms no
less favorable to us than could be obtained from unaffiliated third parties. We
expect to terminate this agreement upon relocation into our new San Francisco
offices, which is expected to occur in the second quarter of 2000.
CHIEF OPERATING OFFICER CONSULTING SERVICES
From April 1999 through January 2000, as we developed our management team,
E. Kirk Shelton acted as our Chief Operating Officer on a consulting basis. For
these services, we granted Mr. Shelton options to purchase our common stock.
Prior to joining us as a consultant, Mr. Shelton was Vice Chairman and a
director of Cendant Corporation from December 1997 through April 1998, and prior
thereto, he was President and Chief Operating Officer of CUC International, Inc.
from May 1991 through December 1997.
REGISTRATION RIGHTS
We have granted registration rights to certain holders of our convertible
preferred stock. See "Description of Capital Stock--Registration Rights."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock as of March 31, 2000, as adjusted to
reflect the sale of the shares of common stock offered hereby by:
- each person or group of affiliated persons whom we know to beneficially
own 5% or more of the common stock;
- each of our directors;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed
below is c/o LivePerson, Inc., 462 Seventh Avenue, 10th Floor, New York, New
York 10018-7606.
The following table gives effect to the shares of common stock issuable
within 60 days of March 31, 2000 upon the exercise of all options and other
rights beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
shares. Unless otherwise indicated, the persons named in the table have sole
voting and sole investment control with respect to all shares beneficially
owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
BEFORE THE ----------------------------------------
HOLDERS OFFERING(1) BEFORE THE OFFERING AFTER THE OFFERING
- ------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Highland Capital Partners IV
Limited Partnership and an
affiliated entity(2)................. 3,243,243 12.8% 11.1%
2 International Place
Boston, Massachusetts 02110
Dell USA L.P......................... 2,631,579 10.4% 9.0%
c/o Dell Computer Corporation
One Dell Way
Round Rock, Texas 78682
Entities affiliated with FGII(3)..... 2,494,193 9.8% 8.5%
20 Dayton Avenue
Greenwich, Connecticut 06830
Dawntreader Fund I LP(4)............. 2,392,841 9.4% 8.2%
118 West 22nd Street, 11th Floor
New York, New York 10011
Allen & Company Incorporated(5)...... 1,635,950 6.4% 5.5%
711 Fifth Avenue
New York, New York 10022
NBC Interactive Media, Inc........... 1,578,946 6.2% 5.4%
30 Rockefeller Plaza
New York, New York 10112
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
BEFORE THE ----------------------------------------
HOLDERS OFFERING(1) BEFORE THE OFFERING AFTER THE OFFERING
- ------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Robert P. LoCascio................... 6,835,713 27.0% 23.3%
Dean Margolis........................ -- * *
Timothy E. Bixby(6).................. 50,625 * *
Scott E. Cohen(7).................... 534,480 2.1% 1.8%
James L. Reagan...................... -- * *
Wycliffe K. Grousbeck(2)............. 3,243,243 12.8% 11.1%
Edward G. Sim(4)..................... 2,392,841 9.4% 8.2%
Richard L. Fields(5)................. 1,635,950 6.4% 5.5%
Kevin C. Lavan(8).................... 16,065 * *
Robert W. Matschullat................ -- * *
Directors and Executive Officers as
a Group (10 persons)(9).............. 14,708,917 56.3% 48.8%
</TABLE>
- --------------------------
* Less than one percent.
(1) The table and related footnotes assume the automatic conversion of all of
our outstanding shares of convertible preferred stock at a two-for-three
ratio into common stock upon the closing of this offering and reflect a
three-for-two stock split of shares of our common stock effected on
March 8, 2000. Percentage of beneficial ownership prior to this offering is
based on 25,339,869 shares of common stock outstanding at March 31, 2000.
Percentage of beneficial ownership after this offering is based on
29,339,869 shares of common stock outstanding, which includes the foregoing
plus 4,000,000 shares of common stock to be sold in this offering.
(2) Includes 3,113,513 shares of common stock owned by Highland Capital Partners
IV Limited Partnership ("Highland Capital Partners IV") and 129,730 shares
of common stock owned by Highland Entrepreneurs' Fund IV Limited Partnership
("Highland Entrepreneurs' Fund IV"). Mr. Grousbeck, a member of our board of
directors, is a managing member of Highland Management Partners IV, LLC, the
general partner of Highland Capital Partners IV and is a managing member of
Highland Entrepreneurs' Fund IV LLC, the general partner of Highland
Entrepreneurs' Fund IV. Mr. Grousbeck may be deemed to have beneficial
ownership of the shares owned by Highland Capital Partners IV and Highland
Entrepreneurs' Fund IV and disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest, if any.
(3) Includes 1,406,250 shares of common stock owned by FG-LP and 912,162 shares
of common stock owned by FG-LPC. Also includes 175,781 shares of common
stock issuable upon exercise of warrants owned by FG-LP. FGII is the general
partner of both limited partnerships.
(4) Mr. Sim, a member of our board of directors, is a Managing Director of DT
Advisors LLC, which is the general partner of Dawntreader Fund I LP.
Mr. Sim may be deemed to have beneficial ownership of the shares owned by
Dawntreader Fund I LP and disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest, if any.
(5) Includes 195,313 shares of common stock issuable upon exercise of warrants.
Mr. Fields is a Managing Director of Allen & Company Incorporated ("Allen &
Company"). Mr. Fields does not exercise voting or investment power over, and
disclaims beneficial ownership of, 1,119,177 shares and 148,426 shares
issuable upon exercise of warrants which are held by Allen & Company, other
of its officers and related persons. Allen & Company disclaims
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<PAGE>
beneficial ownership of 503,137 shares and 58,594 shares issuable upon
exercise of warrants which are beneficially owned by certain officers of
Allen & Company and related persons.
(6) Consists of 50,625 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 31, 2000.
(7) Consists of 534,480 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 31, 2000.
(8) Consists of 16,065 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 31, 2000.
(9) Includes 601,170 shares of common stock issuable upon exercise of options
exercisable within 60 days of March 31, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our common stock and preferred stock and the
relevant provisions of our amended and restated certificate of incorporation and
amended and restated bylaws to be in effect upon the closing of this offering
are summaries thereof and are qualified by reference to our amended and restated
certificate of incorporation and amended and restated bylaws, copies of which
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement, of which this prospectus forms a part.
Upon the closing of our offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.001 per share, and 5,000,000
shares of preferred stock, par value $0.001 per share.
COMMON STOCK
As of March 31, 2000, there were 7,377,596 shares of our common stock
outstanding held of record by eight stockholders, without giving effect to the
conversion of our convertible preferred stock. Holders of common stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably those dividends, if any, as may be
declared by our board of directors out of funds legally available therefor,
subject to any preferential dividend rights of any outstanding preferred stock.
Upon our liquidation, dissolution or winding up, our common stockholders are
entitled to receive ratably our net assets available, if any, after the payment
of all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of our
common stock are, and the shares offered in this offering will be, when issued
in consideration for payment thereof, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Our board of directors will be authorized, without further
stockholder approval, to issue from time to time up to an aggregate of 5,000,000
shares of preferred stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
including sinking fund provisions, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designation of
series. The issuance of preferred stock could decrease the amount of earnings
and assets available for distribution to holders of common stock or adversely
affect the rights and powers, including voting rights, of the holders of common
stock. Such issuance could also have the effect of delaying, deferring or
preventing a change in control of our company. For more information, see
"--Anti-Takeover Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and Bylaws."
OPTIONS
We have 10,000,000 shares of our common stock reserved for issuance, upon
exercise of stock options, under our 2000 Stock Incentive Plan. As of March 31,
2000, there were outstanding
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options to purchase a total of 5,479,905 shares of common stock, of which
options to purchase approximately 1,444,288 will be exercisable upon the closing
of this offering. Because we intend to file a registration statement on
Form S-8 as soon as practicable following the closing of this offering, any
shares issued upon exercise of these options will be immediately available for
sale in the public market, subject to the terms of lock-up agreements entered
into with the underwriters. For more information, see "Management--2000 Stock
Incentive Plan" and "Shares Eligible for Future Sale." We also have 94,500
shares of our common stock reserved for issuance, upon exercise of an option
granted to a client. For more information, please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
REGISTRATION RIGHTS
Pursuant to the terms of a registration rights agreement, beginning 180 days
after the effective date of the Registration Statement of which this prospectus
is a part, the holders of 25,824,772 shares of common stock and warrants to
acquire common stock have the right to demand registration of their shares of
common stock under the Securities Act of 1933. We are not required to effect
more than two registrations pursuant to these demand registration rights (unless
we are eligible to file a registration statement on Form S-3, in which case we
may be required to effect up to three registrations). In addition, these holders
are entitled, subject to limitations, to require us to register the common stock
held by them when we register common stock for our own account or for the
account of other stockholders. This type of registration right is known as a
"piggyback" registration right. These registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares of common stock held by stockholders with
registration rights to be included in a registration. Generally, we are required
to bear all of the expenses of all of these registrations, except underwriting
discounts and selling commissions. Registration of any shares of common stock
held by security holders with registration rights would result in shares
becoming freely tradable without restriction under the Securities Act of 1933
immediately upon effectiveness of such registration.
LIMITATIONS ON LIABILITY
Our amended and restated certificate of incorporation limits or eliminates
the liability of our directors to us or our stockholders for monetary damage to
the fullest extent permitted by the Delaware General Corporation Law. As
permitted by the Delaware General Corporation Law, our amended and restated
certificate of incorporation provides that our directors shall not be personally
liable to us or our stockholders for monetary damages for a breach of fiduciary
duty as a director, except for liability:
- for any breach of such person's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- for payment of dividends or approval of stock repurchases or redemptions
that are prohibited by Section 174 of the Delaware General Corporation
Law; and
- for any transaction resulting in receipt by such person of an improper
personal benefit.
Our amended and restated certificate of incorporation also contains
provisions indemnifying our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law. We currently have directors'
and officers' liability insurance to provide our directors and officers with
insurance coverage for losses arising from claims based on breaches of duty,
negligence, errors and other wrongful acts.
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We have also entered into agreements to indemnify our directors and
executive officers, in addition to the indemnification provided for in our
amended and restated certificate of incorporation. We believe that these
agreements are necessary to attract and retain qualified directors and executive
officers.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to some exceptions, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares); or
- on or subsequent to such date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative vote of a least 66.67%
of the outstanding voting stock that is not owned by the interested
stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Except as
otherwise specified in Section 203 of the Delaware General Corporation Law, an
interested stockholder is defined to include (x) any person that owns (or,
within the prior three years, did own) 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the corporation
at any time within three years immediately prior to the date of determination
and (y) the affiliates and associates of any such person. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts to
acquire us.
In addition, various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect upon the closing of the offering and are summarized in the following
paragraphs, may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by stockholders.
STAGGERED BOARD. Our amended and restated certificate of incorporation
provides for division of our board into three classes, with each class as nearly
equal in number as possible. Each class must serve a three-year term. The terms
of each class are staggered so that each term ends in a different year in the
three-year period.
BOARD OF DIRECTORS VACANCIES. Our amended and restated certificate of
incorporation authorizes our board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
removing incumbent directors and simultaneously
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gaining control of our board of directors by filling the vacancies created by
this removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our amended and
restated certificate of incorporation provides that stockholders may not take
action by written consent, but only at duly called annual or special meetings of
stockholders. Our amended and restated bylaws further provide that special
meetings of our stockholders may be called only by the chairman of the board of
directors, our president or at the request of two-thirds of the board of
directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS'
NOMINATIONS. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide us timely notice thereof in writing. To be timely, a stockholder's
notice must be delivered to or mailed and received at our principal executive
offices, not less than 90 days nor more than 120 days prior to the first
anniversary of the date of the preceding year's annual meeting provided with
respect to the previous year's annual meeting of stockholders; provided,
however, that if no annual meeting of stockholders was held in the previous year
or the date of the annual meeting of stockholders has been changed to be more
than 30 calendar days earlier than or 70 calendar days after this anniversary,
notice by the stockholder, to be timely, must be so received not more than
120 days prior to the annual meeting of stockholders nor later than the later
of:
- 90 days prior to the annual meeting of stockholders; and
- the close of business on the 10th day following the date on which notice
of the date of the meeting is made public.
Our amended and restated bylaws also specify certain requirements as to the
form and content of a stockholders' notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of our
common stock and preferred stock are available for future issuance without
stockholder approval, subject to various limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could make
more difficult or discourage an attempt to obtain control of us by means of a
proxy context, tender offer, merger or otherwise.
Our amended and restated certificate of incorporation requires the
affirmative vote of not less than 66.67% of the outstanding shares of our
capital stock entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of our
stockholders called for that purpose, to repeal, alter, amend or rescind the
provisions in our amended and restated certificate of incorporation relating to:
- directors;
- stockholder meetings;
- limitations on director liability;
- indemnification;
- amendment of our bylaws; or
- business combinations.
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Our amended and restated certificate of incorporation requires the
affirmative vote as specified in the Delaware General Corporation Law to amend
any other provision of our amended and restated certificate of incorporation.
To repeal, alter, amend or rescind our amended and restated bylaws, our
amended and restated certificate incorporation and our amended and restated
bylaws require the affirmative vote of not less than 66.67% of the outstanding
shares of our capital stock entitled to vote generally in the election of
directors (considered for this purpose as a single class) cast at a meeting of
our stockholders called for that purpose, or the affirmative vote of at least
66.67% of our board of directors. This provision may have the effect of making
it difficult for a third party to acquire us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since substantially all outstanding shares of our common stock (other than those
shares offered in this offering) will not be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of common stock in the public
market after these restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
Upon the closing of this offering, we will have outstanding an aggregate of
29,339,869 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act of 1933 unless such shares are
purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act of 1933. Unless sold earlier pursuant to a registered public
offering, the remaining 25,339,869 shares of common stock held by existing
stockholders are "restricted securities" as defined in Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144, Rule 144(k) or 701
under the Securities Act of 1933, which rules are summarized below. The
following table illustrates the shares eligible for sale in the public market:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
4,000,000 After the date of this prospectus, freely tradable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up
0 After 90 days from the date of this prospectus, shares
saleable under Rule 144 or Rule 701 that are not subject to
the 180-day lock-up
20,603,027 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations), Rule
144(k) or Rule 701
4,736,842 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year are not yet
saleable under Rule 144
</TABLE>
LOCK-UP AGREEMENTS
Our directors, executive officers, and substantially all of our existing
stockholders and optionholders have signed lock-up agreements under which they
have agreed that, without the prior written consent of Chase Securities Inc. on
behalf of the underwriters, they will not, during the period ending 180 days
after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
73
<PAGE>
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in the preceding paragraph do not apply to:
- transfers to certain persons or entities of shares of our common stock or
any securities convertible into or exercisable or exchangeable for our
common stock, provided that the transferees agree in writing to be bound
by the foregoing restrictions;
- non-derivative sales in open market transactions of shares of our common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares; and
- non-derivative sales in open market transactions of shares of our common
stock reserved by the underwriters for, and sold at the initial public
offering price to, our directors, employees other than executive
officers, business associates, and their family members.
Chase Securities Inc. may waive the restrictions imposed by the lock-up
agreements at any time.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of
(i) 1% of the number of shares of common stock then outstanding, which will
equal approximately 293,399 shares immediately after the offering, and (ii) the
average weekly trading volume of the common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner other than an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise contractually
restricted, "144(k)" shares may be sold immediately upon completion of this
offering.
RULE 701
In general, under Rule 701 of the Securities Act of 1933 as currently in
effect, each of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the date of this prospectus in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of 25,824,772 shares of our common stock
and warrants to acquire common stock will be entitled to certain rights with
respect to the registration of those shares under the Securities Act of 1933.
For more information, see "Description of Capital Stock--Registration Rights."
After such registration, these shares of our common stock become
74
<PAGE>
freely tradable without restriction under the Securities Act. These sales could
have a material adverse effect on the trading price of our common stock.
STOCK PLANS AND OTHER OPTIONS
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 10,450,000 shares of common stock reserved for
issuance under our
2000 Stock Incentive Plan and our Employee Stock Purchase Plan. We expect this
registration statement to be filed and to become effective as soon as
practicable after the effective date of this offering.
As of March 31, 2000, options to purchase 5,479,905 shares of common stock
were issued and outstanding under our 2000 Plan, of which 1,449,188 are
exercisable within 60 days of March 31, 2000. Upon exercise, the shares
underlying these options will be eligible for sale in the public market from
time to time, subject to vesting provisions, Rule 144 volume limitations
applicable to our affiliates and, in the case of some options, the expiration of
lock-up agreements. In addition, an option to purchase 94,500 shares of common
stock was issued and outstanding outside of our 2000 Plan, which is currently
fully vested and immediately exercisable; however the sale of the shares of
common stock underlying this option is subject to restrictions described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Compensation."
75
<PAGE>
UNDERWRITING
Chase Securities Inc., Thomas Weisel Partners LLC and PaineWebber
Incorporated are the representatives of the underwriters. Subject to the terms
and conditions of the underwriting agreement, the underwriters named below,
through their representatives, have severally agreed to purchase from LivePerson
the following respective number of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Chase Securities Inc........................................
Thomas Weisel Partners LLC..................................
PaineWebber Incorporated....................................
---------
Total..................................................... 4,000,000
=========
</TABLE>
DISCOUNTS AND COMMISSIONS. The underwriting agreement provides that the
obligations of the underwriters are subject to certain conditions precedent,
including the absence of any material adverse change in our business and the
receipt of certain certificates, opinions and letters from us, our counsel and
the independent auditors. The underwriters are committed to purchase all of the
shares of common stock offered by us if they purchase any shares.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. The underwriting discounts and
commissions were determined through negotiations with the underwriters, and
equal the public offering price per share of common stock, less the amount paid
by the underwriters to us per share of common stock. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS
<TABLE>
<CAPTION>
WITHOUT OVER- WITH OVER-
ALLOTMENT EXERCISE ALLOTMENT EXERCISE
------------------ ------------------
<S> <C> <C>
Per Share.............................. $ $
Total.................................. $ $
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $1,000,000.
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $ per share. The underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the representatives of the underwriters.
The representatives have advised us that the underwriters do not intend to
confirm discretionary sales in excess of 5% of the shares of common stock
offered by this prospectus.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable no later than 30 days after the date of this prospectus, to purchase
up to 600,000 additional shares of common stock at the initial public offering
price, less the underwriting discount set forth on the cover page of this
prospectus. To the extent that the underwriters exercise this option, each of
76
<PAGE>
the underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares of common stock
offered hereby. We will be obligated, pursuant to the option, to sell shares to
the underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by us.
DELIVERY OF SHARES. The offering of the shares is made for delivery when,
as and if accepted by the underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the offering without notice. The
underwriters reserve the right to reject an order for the purchase of shares in
whole or in part.
INDEMNIFICATION. We have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, and
to contribute to payments the underwriters may be required to make in respect of
these liabilities.
LOCK-UP AGREEMENTS. We and our directors, executive officers and
substantially all of our existing stockholders and optionholders have agreed
that, without the prior written consent of Chase Securities Inc. on behalf of
the underwriters, we and they will not, during the period ending 180 days after
the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance of shares of our common stock upon the exercise of an option
or a warrant, or the conversion of a security outstanding on the date of
this prospectus of which the underwriters have been advised in writing;
- the issuance of shares of our common stock in connection with
acquisitions and commercial or credit arrangements, provided that Chase
Securities Inc. is given prior written notice of the issuance, and the
recipients agree in writing to be bound by the foregoing restrictions;
- the grant of additional options under our 2000 Plan and our ESPP;
- transfers to certain persons or entities of shares of our common stock or
any securities convertible into or exercisable or exchangeable for our
common stock, provided that the transferees agree in writing to be bound
by the foregoing restrictions;
- non-derivative sales in open market transactions by any person other than
us relating to shares of our common stock or other securities acquired in
open market transactions after the completion of the offering of the
shares; and
77
<PAGE>
- non-derivative sales in open market transactions of shares of our common
stock reserved by the underwriters for, and sold at the initial public
offering price to, our directors, employees other than executive
officers, business associates, and their family members.
Without the prior written consent of Chase Securities Inc., any options
granted outside of our 2000 Plan shall not be exercisable during this 180-day
period. In addition, if Chase Securities Inc. agrees to release any of our
stockholders (except any employee or consultant that is not one of our officers
or directors) from the foregoing restrictions prior to the expiration of the
180-day period referred to above, with respect to all or a percentage of the
shares of our common stock or any securities convertible into or exercisable or
exchangeable for our common stock subject to the foregoing restrictions, then
all of our other stockholders subject to the foregoing restrictions shall be
released from such restrictions to the same extent and on the same terms and
conditions.
STABILIZATION. Certain persons participating in this offering may
over-allot or effect transactions which stabilize, maintain or otherwise affect
the market price of the common stock at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the common stock. A syndicate
covering transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created in
connection with the offering. A penalty bid means an arrangement that permits
the underwriters to reclaim a selling concession from a syndicate member in
connection with the offering when shares of common stock sold by the syndicate
member are purchased in syndicate covering transactions. Such transactions may
be effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
DETERMINATION OF OFFERING PRICE. Prior to this offering, there has been no
public market for our common stock. The initial public offering price for the
common stock will be determined by negotiations among us and the
representatives. Among the factors to be considered in determining the initial
public offering price will be prevailing market and economic conditions, our
revenue and earnings, market valuations of other companies engaged in activities
similar to our business operations, and our management. The estimated initial
public offering price range set forth on the cover of this preliminary
prospectus is subject to change as a result of market conditions or other
factors.
RESERVED SHARES. At our request, the underwriters have reserved up to
400,000 shares of common stock for sale at the initial public offering price to
our directors, officers, employees, business associates, and their family
members. The number of shares of common stock available for sale to the general
public will be reduced if such persons purchase the reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
UNDERWRITER'S BENEFICIAL OWNERSHIP. Chase Securities Inc. may be deemed to
have beneficial ownership of an aggregate of 108,108 shares of our series C
redeemable convertible preferred stock. Additionally, Access Technology
Partners, L.P., a fund of outside investors that is managed by an affiliate of
Chase Securities Inc., owns 432,432 shares of our series C redeemable
convertible preferred stock. All shares of convertible preferred stock issued by
us, including the series C redeemable convertible preferred stock, will
automatically convert into shares of common stock upon completion of this
offering, at a two-for-three ratio. Upon such conversion, Chase Securities Inc.
may be deemed to have beneficial ownership of 0.6% of the shares of common stock
outstanding.
78
<PAGE>
NEW UNDERWRITER. 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 been named as a
lead or co-manager of 131 filed public offerings of equity securities, of which
99 have been completed, and has acted as a syndicate member in an additional 69
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
79
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, New York, New York. A partner of Brobeck,
Phleger & Harrison LLP is the brother of our Chief Operating Officer. Attorneys
at Brobeck, Phleger & Harrison LLP have indicated an interest in purchasing an
aggregate of up to 4,900 shares of common stock in this offering as part of the
shares reserved by the underwriters referred to in "Underwriting--Reserved
Shares." Certain legal matters in connection with the offering will be passed
upon for the underwriters by Davis Polk & Wardwell.
EXPERTS
The financial statements of LivePerson, Inc. as of December 31, 1998 and
1999 and for each of the years in the three-year period ended December 31, 1999
have been included in this prospectus and elsewhere in the registration
statement in reliance upon the report of KPMG LLP, independent accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits and schedules thereto) under the
Securities Act of 1933 with respect to the common stock to be sold in this
offering. This prospectus does not contain all of the information set forth in
this registration statement. For further information about us and the shares of
common stock to be sold in the offering, please refer to the registration
statement and the exhibits and schedules thereto. Statements contained in this
prospectus about the contents of any contract or other document filed as an
exhibit to the registration statement are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement. To have a complete understanding of
any such document, you should read the entire document filed as an exhibit.
You may read and copy all or any portion of the registration statement or
any other document we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our Securities and Exchange Commission filings, including the
registration statement, are also available to you on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
As a result of this offering, we will become subject to the Securities
Exchange Act of 1934, as amended, and, in accordance with the requirements of
this Act, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements and make available quarterly reports for the
first three quarters of each year containing unaudited consolidated financial
information.
80
<PAGE>
LIVEPERSON, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report .............................. F-2
Balance Sheets as of December 31, 1998 and 1999 ........... F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999 ..................................... F-4
Statements of Stockholders' Deficit for the years ended
December 31, 1997, 1998 and 1999 ........................ F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 ..................................... F-6
Notes to Financial Statements ............................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
LivePerson, Inc.:
We have audited the accompanying balance sheets of LivePerson, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' deficit, and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LivePerson, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 27, 2000
F-2
<PAGE>
LIVEPERSON, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $107 $14,944
Accounts receivable, less allowance for doubtful
accounts of $15, and $85, as of December 31, 1998 and
1999 and $85 pro forma................................. 10 465
Prepaid expenses and other current assets............... -- 597
Due from officer........................................ 25 --
---- -------
Total current assets................................ 142 16,006
Property and equipment, net................................. -- 2,457
Security deposits........................................... -- 487
Deferred offering costs..................................... -- 140
Deferred costs, net......................................... -- 480
---- -------
Total assets........................................ $142 $19,570
==== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 17 $ 1,776
Accrued expenses........................................ 55 689
Note payable............................................ 100 --
Deferred revenue........................................ -- 161
---- -------
Total current liabilities........................... 172 2,626
---- -------
Commitments and contingencies
Series C redeemable convertible preferred stock, $.001 par
value; 5,132,433 shares authorized, issued and
outstanding; with an aggregate liquidation preference of
$18,990................................................... -- 18,990
Series D redeemable convertible preferred stock, $.001 par
value; no shares authorized, issued and outstanding....... -- --
Stockholders' equity (deficit):
Series A convertible preferred stock, $.001 par value;
2,541,667 shares authorized, issued and outstanding;
with an aggregate liquidation preference of $3,000..... -- 3
Series B convertible preferred stock $.001 par value;
1,142,857 shares authorized, issued and outstanding;
with an aggregate liquidation preference of $1,600..... -- 1
Common stock, $0.001 par value; 100,000,000 shares
authorized; 7,092,000 shares issued and outstanding.... 7 7
Additional paid-in capital.............................. 19 12,420
Deferred compensation................................... -- (4,644)
Accumulated deficit..................................... (56) (9,833)
---- -------
Total stockholders' equity (deficit)................ (30) (2,046)
---- -------
Total liabilities and stockholders' equity
(deficit)........................................... $142 $19,570
==== =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
LIVEPERSON, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Service revenue................................... $ -- $ 1 $ 576
Programming revenue............................... 245 378 39
---------- ---------- -----------
Total revenue................................. 245 379 615
---------- ---------- -----------
Operating expenses:
Cost of revenue................................... 121 70 856
Product development............................... -- 93 1,637
Sales and marketing, exclusive of $0, $0 and $62
reported below as non-cash expenses............. -- 33 3,987
General and administrative, exclusive of $0, $25
and $2,617 reported below as non-cash
expenses........................................ 130 178 1,706
Non-cash expenses................................. -- 25 2,679
---------- ---------- -----------
Total operating expenses...................... 251 399 10,865
---------- ---------- -----------
Loss from operations.................................. (6) (20) (10,250)
---------- ---------- -----------
Other income (expense):
Interest income................................... -- -- 474
Interest expense.................................. -- -- (1)
---------- ---------- -----------
Total other income (expense), net............. -- -- 473
---------- ---------- -----------
Net loss.............................................. $ (6) $ (20) $ (9,777)
========== ========== ===========
Basic and diluted net loss per share.................. $ 0.00 $ 0.00 $ (1.38)
========== ========== ===========
Weighted average shares outstanding used in basic and
diluted net loss per share calculation.............. 7,092,000 7,092,000 7,092,000
========== ========== ===========
Unaudited pro forma basic and diluted net loss per
share............................................... $ (0.63)
===========
Shares used in unaudited pro forma basic and diluted
net loss per share calculation...................... 15,465,304
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
LIVEPERSON, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B PREFERRED
STOCK STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- -------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ -- $ -- -- $ -- 7,092,000 $ 7 $ (6)
Net loss................................ -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- -------
Balance at December 31, 1997............ -- -- -- -- 7,092,000 7 (6)
Issuance of stock options in lieu of
payment for services.................. -- -- -- -- -- -- 25
Net loss................................ -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- -------
Balance at December 31, 1998............ -- -- -- -- 7,092,000 7 19
Issuance of stock options in lieu of
payment for services.................. -- -- -- -- -- -- 978
Issuance of stock options to employees
below fair market value............... -- -- -- -- -- -- 6,233
Amortization of deferred compensation... -- -- -- -- -- -- --
Issuance of stock options to a client... -- -- -- -- -- -- 566
Issuance of Class A preferred stock and
warrants.............................. 2,416,667 3 -- -- -- -- 2,899
Issuance of Class A preferred stock in
lieu of payment for services.......... 41,667 -- -- -- -- -- 50
Conversion of note payable into shares
of Class A preferred stock............ 83,333 -- -- -- -- -- 100
Issuance of Class B preferred stock and
warrants, net of $15 issuance costs... -- -- 1,142,857 1 -- -- 1,585
Offering costs in connection with Series
C redeemable preferred stock.......... -- -- -- -- -- -- (10)
Net loss................................ -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- -------
Balance at December 31, 1999............ 2,541,667 $ 3 1,142,857 $ 1 7,092,000 $ 7 $12,420
========= ==== ========= ==== ========= ==== =======
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996............ $ -- $ (30) $ (29)
Net loss................................ -- (6) (6)
------- ------- -------
Balance at December 31, 1997............ -- (36) (35)
Issuance of stock options in lieu of
payment for services.................. -- -- 25
Net loss................................ -- (20) (20)
------- ------- -------
Balance at December 31, 1998............ -- (56) (30)
Issuance of stock options in lieu of
payment for services.................. -- 978
Issuance of stock options to employees
below fair market value............... (6,233) -- --
Amortization of deferred compensation... 1,589 -- 1,589
Issuance of stock options to a client... -- -- 566
Issuance of Class A preferred stock and
warrants.............................. -- -- 2,902
Issuance of Class A preferred stock in
lieu of payment for services.......... -- -- 50
Conversion of note payable into shares
of Class A preferred stock............ -- -- 100
Issuance of Class B preferred stock and
warrants, net of $15 issuance costs... -- -- 1,586
Offering costs in connection with Series
C redeemable preferred stock.......... -- -- (10)
Net loss................................ -- (9,777) (9,777)
------- ------- -------
Balance at December 31, 1999............ $(4,644) $(9,833) $(2,046)
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
LIVEPERSON, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (6) $ (20) $(9,777)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Non-cash expenses................................... -- 25 2,703
Depreciation........................................ -- -- 98
Provision for doubtful accounts..................... -- 15 85
Changes in operating assets and liabilities:
Accounts receivable..................................... (17) (8) (540)
Prepaid expenses and other current assets............... -- -- (597)
Security deposits....................................... -- -- (487)
Accounts payable........................................ 40 (23) 1,759
Accrued expenses........................................ 25 30 634
Deferred revenue........................................ -- -- 161
------ ----- -------
Net cash provided by (used in) operating
activities.......................................... 42 19 (5,961)
------ ----- -------
Cash flows from investing activities:
Purchases of property and equipment..................... -- -- (2,555)
------ ----- -------
Net cash used in investing activities............... -- -- (2,555)
------ ----- -------
Cash flows from financing activities:
Net proceeds from issuance of Class A, B and C preferred
stock and warrants..................................... -- -- 23,468
Proceeds from issuance of note payable.................. -- 100 --
Due to (from) officer................................... (34) (22) 25
Deferred offering costs................................. -- -- (140)
------ ----- -------
Net cash provided by (used in) financing
activities.......................................... (34) 78 23,353
------ ----- -------
Net increase in cash and cash equivalents........... 8 97 14,837
Cash and cash equivalents at the beginning of the
period................................................. 2 10 107
------ ----- -------
Cash and cash equivalents at the end of the period...... $ 10 $ 107 $14,944
====== ===== =======
</TABLE>
Supplemental disclosure of non-cash information:
The Company did not pay interest or income taxes for any period presented.
Non-cash financing activities:
During the year ended December 31, 1999, the Company issued 83,333 shares
of its Series A preferred stock at $1.20 per share in settlement of a $100
note payable. This transaction resulted in a non-cash financing activity of
$100.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) SUMMARY OF OPERATIONS
LivePerson, Inc. (the "Company" or "LivePerson"), was incorporated in the
State of Delaware in 1995 under the name of Sybarite Interactive, Inc. The
Company, which commenced operations in 1996, changed its name to Live Person,
Inc. in January 1999 and to LivePerson, Inc. in March 2000. The Company offers
the LivePerson service, which facilitates real-time sales and customer service
for companies doing business on the Internet.
The Company generates revenues from the sale of the LivePerson service.
Prior to November 1998, when the LivePerson service was introduced, the Company
provided services primarily related to Web-based community programming and media
design.
(B) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities, with original maturities
of three months or less when acquired, to be cash equivalents.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets, generally ranging from three to seven years.
(E) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. To date, no
impairment has occurred.
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to
F-7
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
results of operations in the period that the tax change occurs. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
(G) REVENUE RECOGNITION
Prior to November 1998, when the LivePerson service was introduced, the
Company generated revenue from services primarily related to Web-based community
programming and media design. Revenues from such services are recognized upon
completion of the project provided that no significant Company obligations
remain and collection of the resulting receivable is probable.
During 1998, the Company began offering the LivePerson service. The
LivePerson service facilitates real-time sales and customer service for
companies doing business on the Internet. The Company charges an initial
non-refundable set-up fee as well as a monthly fee for each operator access
account ("seat") using the LivePerson service.
The initial set-up fee principally represents customer service, training and
other administrative costs related to the deployment of the LivePerson service.
Such fees are recorded as deferred revenue and recognized over a period of
24 months, representing the Company's current estimate of the expected term of a
client relationship. This estimate may change in the future.
The Company also records revenue based upon a monthly fee charged for each
seat using the LivePerson service provided that no significant Company
obligations remain and collection of the resulting receivable is probable. The
Company recognizes monthly service revenue fees as services are provided. The
Company's service agreements typically have no termination date and are
terminable by either party upon 30 to 90 days' notice without penalty. The
Company does not charge an additional set-up fee if an existing client adds more
seats.
(H) PRODUCT DEVELOPMENT COSTS
The Company accounts for product development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," under which certain software development costs incurred
subsequent to the establishment of technological feasibility are capitalized and
amortized over the estimated lives of the related products. Technological
feasibility is established upon completion of a working model. To date,
completion of a working model of the Company's products and general release have
substantially coincided. As a result, the Company has not capitalized any
software development costs since
F-8
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
such costs have not been significant. Through December 31, 1999, all development
costs have been charged to product development expense in the accompanying
statements of operations.
(I) ADVERTISING COSTS
The Company expenses the cost of advertising and promoting its services as
incurred. Such costs totaled approximately $0, $1 and $1,935 for the years
ending December 31, 1997, 1998 and 1999, respectively.
(J) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, accounts
receivable, accounts payable and note payable. At December 31, 1998 and 1999,
the fair value of these instruments approximated their financial statement
carrying amount because of the short-term maturity of these instruments. The
Company has not experienced any significant credit loss to date. In 1997, two
customers accounted for all of the Company's accounts receivable, and revenue
from the Company's three largest customers accounted for 86% of the Company's
revenue. Two customers accounted for 80% of the Company's accounts receivable in
1998. No single customer accounted for or exceeded 10% of either revenue or
accounts receivable in 1999.
(K) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(L) BASIC AND DILUTED NET LOSS PER SHARE
The Company calculates earnings per share in accordance with the provisions
of SFAS No. 128, "Earnings Per Share", and the Securities and Exchange
Commission Staff Accounting Bulletin No. 98. Under SFAS No. 128, basic EPS
excludes dilution for common stock equivalents and is computed by dividing
income or loss available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock and resulted in the issuance of
common stock. Diluted net loss per
F-9
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
share is equal to basic loss per share since all common stock equivalents are
anti-dilutive for each of the periods presented.
Diluted net loss per common share for the year ended December 31, 1998 and
1999, does not include the effects of options to purchase 197,100 and 3,612,345
shares of common stock, respectively, 0 and 718,749 common stock warrants,
respectively, and 0 and 13,225,431 shares of Series A, Series B and Series C
convertible preferred stock on an "as if" converted basis, respectively, as the
effect of their inclusion is anti-dilutive during each period. There were no
dilutive securities outstanding in 1997.
The pro forma net loss per share for the year ended December 31, 1999, is
computed by dividing the net loss by the sum of the weighted average number of
shares of common stock outstanding and the shares resulting from the automatic
conversion of all of our outstanding convertible preferred stock, totalling
13,225,431, as if such conversion occurred at the date of original issuance
during 1999. The number of pro forma weighted average shares used in computing
basic and diluted net loss per share is as follows:
<TABLE>
<S> <C>
Actual weighted average shares outstanding.................. 7,092,000
Series A Convertible Preferred Stock........................ 3,655,821
Series B Convertible Preferred Stock........................ 1,089,628
Series C Convertible Preferred Stock........................ 3,627,855
----------
Shares used in unaudited pro forma basic and diluted net
loss per share calculation................................ 15,465,304
==========
</TABLE>
(M) STOCK SPLIT
Effective January 20, 1999, the Company authorized and implemented a
10-for-1 stock split in the form of a common stock dividend. Accordingly, all
share and per share information in the accompanying financial statements have
been retroactively restated to reflect the effect of the stock split.
Effective March 8, 2000, the Company authorized and implemented a 3-for-2
split of shares of the Company's common stock in the form of a common stock
dividend. Accordingly, all common share and per common share information,
warrants and options, in the accompanying financial statements has been
retroactively restated to reflect the effect of the stock split.
(N) COMPREHENSIVE LOSS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" in 1998. SFAS No. 130
requires the Company to report in its financial statements, in addition to its
net income (loss), comprehensive income (loss), which includes all changes in
equity during a period from non-owner sources including, as
F-10
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. There were no differences between the Company's comprehensive loss
and its net loss for all periods presented.
(O) SEGMENT REPORTING
During 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes annual and interim reporting standards for operating
segments of a company. SFAS No. 131 requires disclosures of selected
segment-related financial information about products, major customers, and
geographic areas. The Company is organized in a single operating segment for
purposes of making operating decisions and assessing performance. The chief
operating decision maker evaluates performance, makes operating decisions, and
allocates resources based on financial data consistent with the presentation in
the accompanying financial statements.
The Company's revenues have been earned primarily from customers in the
United States. In addition, all significant operations and assets are based in
the United States. No customer accounted for or exceeded more than 10% of
revenues for the years ended December 31, 1998 and 1999.
(P) RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. SOP 98-5 was adopted by the Company on
January 1, 1999. As the Company had not capitalized such costs, the adoption of
SOP 98-5 did not have an impact on the consolidated financial statements of the
Company.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. The Company adopted SOP 98-1 in the first quarter of
1999, the effect of which did not have a material effect on the financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133. SFAS
No. 137 is effective for all fiscal quarters of fiscal years beginning after
June 15,
F-11
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2000. The Company has not yet analyzed the impact of this pronouncement on its
financial statements.
(2) BALANCE SHEET COMPONENTS
Property and equipment is stated at cost and is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Computer equipment and software............................. $2,367
Furniture and equipment..................................... 188
------
2,555
Less accumulated depreciation............................... 98
------
Total................................................... $2,457
======
</TABLE>
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Professional services and consulting fees................... $ 55 $554
Sales commissions........................................... -- 68
Other....................................................... -- 67
---- ----
Total................................................... $ 55 $689
==== ====
</TABLE>
Prepaid expenses and other current assets at December 31, 1999 principally
included prepayments for various advertising and promotional activities.
(3) NOTE PAYABLE
On December 17, 1998, the Company received a $100 loan from a venture
capital firm bearing interest at 8% due on February 1, 1999. Interest expense on
the note payable amounted to less than $1 for the year ended December 31, 1998.
The loan was converted into 83,333 shares of Series A convertible preferred
stock as part of the issuance of Series A preferred stock in January 1999 (see
note 4).
(4) CAPITALIZATION
The Company had 30,000,000 shares of common stock authorized and 9,000,000
shares of preferred stock authorized as of December 31, 1999. On January 27,
2000, the Company increased the number of its authorized shares of common stock
to 35,000,000 and the number of its authorized shares of preferred stock to
12,274,852. On March 8, 2000, the Company increased the number of its authorized
shares of common stock to 100,000,000.
F-12
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) CAPITALIZATION (CONTINUED)
In January 1999, the Company completed a private placement of 2,500,000
shares of Series A Convertible Preferred Stock ("Series A") with 468,749 common
stock warrants at an offering price of $1.20 per Series A share and $0.001 per
warrant. Total proceeds amounted to $2,902. The warrants are exercisable at a
price of $2.40 per common share and have a term of 5 years. None of these
warrants have been exercised. As part of the Series A private placement, a $100
note payable was converted into 83,333 shares of Series A preferred stock.
In January 1999, the Company issued an additional 41,667 shares of Series A
preferred stock to a financial advisor in exchange for services. The Company
recorded compensation expense of $50 in connection with the issuance of the
shares at $1.20 per share.
In May 1999, the Company completed a private placement of 1,142,857 shares
of Series B Convertible Preferred Stock ("Series B") with 250,000 common stock
warrants at an offering price of $1.40 per Series B share and $0.001 per
warrant. The warrants are exercisable at a price of $1.60 per common share and
have a term of 5 years. None of these warrants have been exercised. Total
proceeds, net of offering costs of $15, amounted to $1,586.
The managing underwriter of the Company's IPO can request the Company to
accelerate the expiration of the Series A and Series B warrants to the day
immediately preceding the date on which the Company's registration statement is
declared effective by the SEC. The Company has been informed by the managing
underwriter that it does not intend to do so.
In July 1999, the Company completed a private placement of 5,132,433 shares
of Series C Redeemable Convertible preferred stock ("Series C") at $3.70 per
share. Total proceeds, net of offering costs of $10, amounted to $18,980. Such
stock is redeemable at $3.70 per share at the option of the holder. 33% of such
shares are subject to mandatory redemption beginning on July 19, 2004, an
additional 17% on July 19, 2005 and the remaining 50% on July 19, 2006.
In January 2000, LivePerson issued an aggregate of 3,157,895 shares of
Series D Redeemable Convertible preferred stock ("Series D") at $5.70 per share.
Total proceeds, net of offering costs of $100, amounted to $17,900. The
difference between the price of the Series D on an as if converted basis of
$3.80 and $11.70 (the fair value on the date of issuance), or $7.90, multiplied
by the number of shares of Series D on an as if converted basis represents the
intrinsic value of the beneficial conversion feature, which totaled
$37.4 million. However, as the intrinsic value of the beneficial conversion
feature is greater than the $18.0 million in gross proceeds received from the
Series D preferred stock issuance, the amount of the discount attributed to the
beneficial conversion feature is limited to the $18.0 million of gross proceeds
received. The $18.0 million beneficial conversion feature will be recorded in
the quarter ended March 31, 2000 as a non-cash preferred stock dividend because
the Series D convertible preferred stock is immediately convertible at the
option of the preferred stockholders. The $18.0 million non-cash dividend will
increase the Company's net loss attributable to common stockholders for the
quarter ended March 31, 2000 by the same amount.
F-13
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) CAPITALIZATION (CONTINUED)
Each share of common stock and Series A, Series B, Series C and Series D
preferred stock has one vote per share. In the event of any liquidation or
winding up of the Company, holders of the Series A, Series B, Series C, and
Series D preferred stock will be entitled, (ranking in preference among
preferred stockholders in the reverse order of issuance), in preference to the
holders of the common stock, to an amount equal to the applicable purchase price
per share plus any accrued but unpaid dividends.
If the IPO is consummated, upon the closing, 2,541,667, 1,142,857, 5,132,433
and 3,157,895 shares of Series A, Series B, Series C and Series D convertible
preferred stock, respectively, representing all of the outstanding shares of the
convertible preferred stock, shall automatically convert at a ratio of two
shares of preferred stock for three shares of common stock, into an aggregate of
17,962,273 shares of common stock.
(5) STOCK OPTIONS
During 1998, the Company established the Stock Option and Restricted Stock
Purchase Plan (the "1998 Plan"). Under the 1998 Plan, the Board of Directors may
issue incentive stock options or nonqualified stock options to purchase up to
5,850,000 shares of common stock.
A summary of the Company's stock option activity and weighted average
exercise prices is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- --
Options granted............................................. 197,100 $0.67
Options cancelled........................................... -- --
--------- -----
Options outstanding at December 31, 1998.................... 197,100 $0.67
Options granted............................................. 3,496,245 $1.37
Options cancelled........................................... (81,000) $0.94
--------- -----
Options outstanding at December 31, 1999.................... 3,612,345 $1.33
========= =====
Options exercisable at December 31, 1998.................... -- --
Options exercisable at December 31, 1999.................... 479,960 $1.09
========= =====
</TABLE>
F-14
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
The Company applies APB No. 25 and related interpretations in accounting for
its stock option grants to employees. Accordingly, except as mentioned below, no
compensation expense has been recognized relating to these stock option grants.
Had compensation cost for the Company's stock option grants been determined
based on the fair value at the grant date for awards consistent with the method
of SFAS No. 123, the Company's net loss for each year is presented below. The
Company did not have any employee stock options outstanding prior to January 1,
1998.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Net loss:
As reported........................................ $ (20) $ (9,777)
======== ========
Pro forma.......................................... $ (28) $(12,259)
======== ========
Basic and diluted net loss per share:
As reported........................................ $ 0.00 $ (1.38)
======== ========
Pro forma.......................................... $ (0.01) $ (1.73)
======== ========
</TABLE>
The resulting effect on the pro forma net loss disclosed for the years ended
December 31, 1998 and 1999 is not likely to be representative of the effects on
the net loss on a pro forma basis in future years, because the pro forma results
include the impact of only one period of grants and related vesting, while
subsequent years will include additional grants and vesting.
The per share weighted average fair value of stock options granted during
1998 and 1999, was $0.26 and $1.40, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in 1998
and 1999: dividend yield of zero percent for both years, risk-free interest
rates of 5.4 and 6.0%, respectively and expected life of 5 years for both years.
As permitted under the provisions of SFAS No. 123 and based on the historical
lack of a public market for the Company's stock, no factor for volatility has
been reflected in the option pricing calculation. No employee stock options were
granted in 1997.
During December 1998, the Company granted options to purchase 93,750 shares
of common stock at an exercise price of $0.67 per share, the then fair market
value of the Company's common stock, to a consultant for services performed.
These options are exercisable for a period of 5 years. The Company recorded an
expense of $25 in connection with the issuance of the fully vested options using
a Black-Scholes pricing model using a volatility factor of 40%.
During April 1999, the Company granted options to purchase an aggregate of
64,260 shares of common stock at an exercise price of $0.67 per share, to four
consultants for services performed. These options are exercisable for a period
of 10 years. The Company recorded an expense of $32 in connection with the
issuance of the fully vested options using a Black-Scholes pricing model using a
volatility factor of 50% and a deemed fair value of $1.08 per share.
F-15
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
During May 1999, the Company issued an option to purchase 94,500 shares of
common stock at an exercise price of $1.60 per share to a client in connection
with an agreement by the Company to provide services to the client for a
two-year period. The Company is receiving subscription revenue from the client
over the two-year period based on the number of seats the client is using. There
is no minimum guarantee. This option originally provided that it would vest in
or before May 2001 if the client met certain defined revenue targets and was
exercisable for a period of 3 years from the date of grant. The Company
accounted for this option in accordance with Emerging Issues Task Force Abstract
No. 96-18, "Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
Pursuant to EITF 96-18, the Company valued the option at each balance sheet date
using a Black-Scholes pricing model using a volatility factor of 50%, a $1.60
per share exercise price and the then fair value of the Company's common stock
as of each balance sheet date. The $566 value ascribed to the option reflects
the market value at December 31, 1999 and has been recorded as deferred cost on
the Company's December 31, 1999 balance sheet. The value ascribed to this option
was adjusted at each balance sheet date to bring the total deferred cost
recognized up to the then current fair value. This cost is being ratably
amortized over the two-year service agreement, as the Company believed that the
achievement of the revenue targets was probable. As a result, the Company has
amortized $86 of the deferred costs as of December 31, 1999, of which $24 has
been offset against the $27 of revenue recognized from the client, and the
remaining $62 of sales and marketing expense is reflected as a non-cash expense
in the Company's 1999 statement of operations. In February 2000, the Company
amended the option agreement with the client whereby the option became fully
vested and immediately exercisable. However, the client is precluded from
selling the underlying common stock until the earlier of five years or, if
certain revenue targets are met, by May 19, 2001. The value ascribed to the
option at the time the option agreement was amended, using a Black-Scholes
pricing model, was $1,014, which will be ratably amortized over the remaining
service period of approximately 18 months because the vesting of the options
does not affect the Company's obligation under the service agreement. In
addition, the ratable amortization of the remaining deferred cost of $1,014 will
be recorded as a reduction of the revenue recognized from the client, with any
excess amortization recorded as sales and marketing expense which will be
reflected as a non-cash expense in the Company's statement of operations.
During June 1999, the Company granted options to purchase 150,000 shares of
common stock to an advisor at an exercise price of $0.67 per share. These
options are exercisable for a period of 10 years. The Company has recorded
compensation expense of $91 using the Black-Scholes pricing model with a
volatility factor of 50% and a deemed fair value of $0.84 per share.
In December 1999, the Company recorded compensation expense of approximately
$855 in connection with the options granted to an advisor to purchase 150,000
shares of common stock at an exercise price of $2.00 for services performed.
These options are exercisable for a period of 10 years. The fair value of the
options was determined using a Black-Scholes pricing model with a volatility
factor of 50% and a deemed fair value of $9.94 per share.
F-16
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) STOCK OPTIONS (CONTINUED)
During 1999, the Company granted stock options to purchase 3,496,245 shares
of common stock at a weighted average exercise price of $1.37, certain of which
were granted at less than the deemed fair value of the common stock at the date
of grant. For the year ended December 31, 1999, the Company recorded deferred
compensation of approximately $6,233 in connection with these options. This
amount is presented as deferred compensation within the financial statements and
will be amortized over the vesting period, typically three to four years, of the
applicable options. The Company amortized $1,589 of deferred compensation for
the year ended December 1999. The Company expects to amortize the following
amounts of deferred compensation relating to options granted in 1999 as follows:
2000-$2,945; 2001-$1,094; 2002-$511; and 2003-$94.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- -------------- --------------------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.67 197,100 7.43 $0.67 -- --
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- -------------- --------------------------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$0.67 1,241,010 8.95 $0.67 329,960 $0.67
$0.80 588,960 4.24 $0.80 -- --
$1.60 94,500 2.38 $1.60 -- --
$2.00 1,687,875 9.79 $2.00 150,000 2.00
--------------------------- ----- ------- -----
3,612,345 $1.33 479,960 $1.09
=========================== ===== ======= =====
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities and certain equipment under agreements
accounted for as operating leases. These leases generally require the Company to
pay all executory costs such as maintenance and insurance. Rental expense for
operating leases for the years ending December 31, 1997, 1998 and 1999 were
approximately $14, $26 and $311, respectively. One of the leases is with a
related party and payments thereunder aggregated approximately $50 in 1999.
F-17
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under operating leases (with initial or
remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------ ---------
<S> <C>
2000.................................................... $1,084
2001.................................................... 1,014
2002.................................................... 1,034
2003.................................................... 1,054
2004.................................................... 1,094
Thereafter.............................................. 1,972
------
Total minimum lease payments........................ $7,252
======
</TABLE>
In the first quarter of 2000, the Company entered into two additional leases
for office space. The lease for the Company's San Francisco office space,
entered into in February 2000, provides for annual aggregate payments of $275.
The security deposit for this lease is approximately $300. In February 2000, the
Company entered into a sublease for approximately 8,000 square feet in New York
City expiring in September 2000, providing for annual aggregate payments of
$238. In March 2000, the Company entered into a lease for an aggregate of
approximately 83,500 square feet on two floors at a location in New York City.
The lease with respect to one floor, consisting of approximately 40,500 square
feet, commences in June 2000, at a rent of approximately $1,400 per year in the
first three years, $1,500 per year in years four through seven and $1,600 per
year in years eight through ten. The related security deposit is $2,000 for the
first three years, $1,300 for years four through seven and $670 for years eight
through ten. The other floor consists of approximately 43,000 square feet, and
the lease term relating to that floor commences in August 2001, at a rent of
approximately $1,500 per year in the first three years, $1,600 per year in years
four through seven and $1,700 per year in years eight through ten. The related
security deposit is $2,200 for the first three years, $1,500 for years four
through seven and $747 for years eight through ten. At our option, we may
provide the security deposit by a letter of credit.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with 5 senior employees which provide
for severance benefits among other items. In the event these agreements are
terminated, the Company may be liable for severance payments of up to $703 of
salary payable during the year following termination.
(7) INCOME TAXES
The Company has adopted the cash method of accounting for income tax
purposes. There is no provision for federal, state or local income taxes for any
periods presented, since the Company has incurred losses since inception. At
December 31, 1999, the Company had approximately $5,600 of federal net operating
loss carryforwards available to offset future taxable income. Such carryforwards
expire in various years through 2019. The Company has recorded a full valuation
F-18
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(7) INCOME TAXES (CONTINUED)
allowance against its deferred tax assets since management believes that, after
considering all the available objective evidence, it is not more likely than not
that these assets will be realized. The tax effect of temporary differences that
give rise to significant portions of federal deferred tax assets principally
consists of the Company's net operating loss carryforwards.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the utilization of net operating loss carryforwards may be limited
under the change in stock ownership rules of the Code. The Company has not yet
determined whether the IPO will result in an ownership change.
The effects of temporary differences and tax loss carryforwards that give
rise to significant portions of federal deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1999 are presented below.
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards...................... $ -- $2,177
Accounts payable and accrued expenses.................. -- 1,029
Deferred revenue....................................... -- 69
Non-cash compensation.................................. -- 290
------ ------
Gross deferred tax assets.......................... 25 3,565
Less: valuation allowance.......................... (20) (3,132)
------ ------
Net deferred tax assets............................ 5 433
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation......................................... (5) (9)
Accounts receivable.................................... -- (188)
Prepaid expenses....................................... -- (236)
------ ------
Gross deferred tax liabilities..................... (5) (433)
------ ------
$ -- $ --
====== ======
</TABLE>
F-19
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(8) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED BALANCE
AT TO COSTS AT END
BEGINNING AND DEDUCTIONS/ OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Allowance for doubtful accounts............... $ -- $ -- $ -- $ --
==== ==== ==== ====
For the year ended December 31, 1998:
Allowance for doubtful accounts............... $ -- $ 15 $ -- $ 15
==== ==== ==== ====
For the year ended December 31, 1999:
Allowance for doubtful accounts............... $ 15 $ 85 $(15) $ 85
==== ==== ==== ====
</TABLE>
(9) INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET--UNAUDITED
In January 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of its common stock in connection with a
proposed initial public offering ("IPO").
If the IPO is consummated under the terms presently anticipated, upon the
closing of the proposed IPO, each of the then outstanding shares of the
Company's convertible preferred stock will automatically convert at a ratio of
two shares of preferred stock for three shares of common stock, into an
aggregate of 17,962,273 shares of common stock.
The accompanying unaudited pro forma balance sheet as of December 31, 1999
gives effect to the following transactions as if such transactions occurred on
December 31, 1999:
- the issuance of 3,157,895 shares of Series D redeemable convertible
preferred stock at $5.70 per share during January 2000 for net proceeds
of approximately $17,900;
- the recording of a $18.0 million non-cash preferred stock dividend in
connection with the Series D beneficial conversion feature. Such dividend
is limited to the gross proceeds of the Series D convertible preferred
stock and will be recorded in the first quarter of 2000 because the
Series D shares are convertible immediately at the option of the holder;
and
- the automatic conversion of 2,541,667, 1,142,857, 5,132,443 and
3,157,895 shares of Series A, B, C and D convertible preferred stock,
respectively, representing all outstanding shares of convertible
preferred stock, into 17,962,273 shares of common stock upon the closing
of this offering.
F-20
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(9) INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET--UNAUDITED (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL
DECEMBER 31, PRO FORMA
------------- DECEMBER 31,
1999 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $14,944 $32,844
Accounts receivable..................................... 465 465
Prepaid expenses and other current assets............... 597 597
------- -------
Total current assets................................ 16,006 33,906
Property and equipment, net................................. 2,457 2,457
Security deposits........................................... 487 487
Deferred offering costs..................................... 140 140
Deferred costs, net......................................... 480 480
------- -------
Total assets........................................ $19,570 $37,470
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 1,776 $ 1,776
Accrued expenses........................................ 689 689
Deferred revenue........................................ 161 161
------- -------
Total current liabilities........................... 2,626 2,626
------- -------
Commitments and contingencies
Series C redeemable convertible preferred stock............. 18,990 --
Series D redeemable convertible preferred stock............. -- --
Stockholders' equity (deficit):
Series A convertible preferred stock.................... 3 --
Series B convertible preferred stock.................... 1 --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 7,092,000 shares issued and outstanding
actual; 25,054,273 shares issued and outstanding pro
forma.................................................. 7 25
Additional paid-in capital.............................. 12,420 49,296
Deferred compensation................................... (4,644) (4,644)
Accumulated deficit..................................... (9,833) (9,833)
------- -------
Total stockholders' equity (deficit)................ (2,046) 34,844
------- -------
Total liabilities and stockholders' equity
(deficit)........................................... $19,570 $37,470
======= =======
</TABLE>
F-21
<PAGE>
LIVEPERSON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(10) SUBSEQUENT EVENTS--UNAUDITED
Upon the closing of this offering, the Company intends to authorize the
issuance of 5,000,000 shares of preferred stock.
The Company intends to establish a successor to the 1998 Plan, the 2000
Stock Incentive Plan (the "2000 Plan"). Under the 2000 Plan, the options which
had been outstanding under the 1998 Plan will be incorporated into the 2000 Plan
and the Company will increase the number of options available under the plan by
approximately 4,150,000 options effectively authorizing 10,000,000 options in
the aggregate. These options will have 10 year terms.
The Company intends to adopt the 2000 Employee Stock Purchase Plan with
450,000 shares of common stock initially reserved for issuance.
For the period from January 1, 2000 through March 31, 2000, the Company
granted stock options to purchase 2,288,625 shares of common stock,
respectively, to employees at a weighted average exercise price of $4.33. The
deemed fair value of the Company's common stock ranged from $10.30 to $13.00 per
share during such period. For the period from January 1, 2000 through March 31,
2000, the Company recorded deferred compensation of approximately $18,241, in
connection with the grant of certain options to employees, representing the
difference between the deemed fair value of its common stock as of the date of
grant for accounting purposes and the exercise price of the related options.
This amount will be presented as deferred compensation in the financial
statements and will be amortized over the vesting period, typically three to
four years, of the applicable options. The Company expects to amortize the
following amounts of deferred compensation relating to options granted from
January 1, 2000 through March 31, 2000 as follows: 2000-$11,659; 2001-$3,874;
2002-$1,994; and 2003-$714. During the period from January 1, 2000 through
March 31, 2000, 109,815 stock options were exercised at an exercise price of
$0.67 per share and 216,750 options were cancelled at a weighted average
exercise price of $1.01 per share.
During the period from January 1, 2000 through March 31, 2000, 175,781
warrants to purchase common stock at an exercise price of $1.60 per share were
exercised.
F-22
<PAGE>
INSIDE BACK COVER
- -Centered on the upper third of the page is the following bold, large size text:
"These are some of the sites experiencing the impact of [LivePerson logo]"
- -The bottom half of the page contains the following client logos:
[ShopNow.com logo] [Miadora logo] [LookSmart logo]
[Intuit logo] [EarthLink logo] [ditech.com logo]
[nbd.com logo] [Playboy.com logo] [iQVC logo] [ScreamingMedia logo]
<PAGE>
4,000,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
--------------
CHASE H&Q
THOMAS WEISEL PARTNERS LLC
PAINEWEBBER INCORPORATED
----------------
, 2000
----------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. WE ARE
OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN
JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF
OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC
OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN
THAT JURISDICTION.
PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE
UNITED STATES ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS
OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
the underwriting discounts and commissions, payable by the registrant in
connection with the sale of the common stock being registered.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee...................................... $ 18,216
NASD filing fee........................................... 7,400
Nasdaq National Market listing fee........................ 95,000
Legal fees and expenses................................... 400,000
Accounting fees and expenses.............................. 200,000
Printing and engraving expenses........................... 200,000
Blue Sky fees and expenses................................ 5,000
Transfer agent and registrar fees and expenses............ 5,000
Miscellaneous............................................. 69,384
----------
Total................................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's amended and restated certificate of incorporation in effect
as of the date hereof, and the registrant's amended and restated certificate of
incorporation to be in effect upon the closing of this offering (the
"Certificate") provide that, except to the extent prohibited by the Delaware
General Corporation Law, as amended (the "DGCL"), the registrant's directors
shall not be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty as directors of the
registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for any breach of the
director's duty of loyalty to the registrant or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by the DGCL. This provision also does not affect
the directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. The registrant has
obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or
(iv) for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the registrant shall,
II-1
<PAGE>
to the fullest extent permitted by the DGCL, fully indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was, or has agreed
to become, a director or officer of the registrant, or is or was serving at the
request of the registrant as a director, officer or trustee of or, in a similar
capacity with, another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, against all expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by or on behalf of such person in connection with such
action, suit or proceeding and any appeal therefrom.
The registrant has also entered into agreements to indemnify its directors
and executive officers, in addition to the indemnification provided for in the
Certificate. The registrant believes that these agreements are necessary to
attract and retain qualified directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate or the aforementioned
indemnification agreements. The registrant is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All information in this section relating to warrants and options reflects a
three-for-two stock split of shares of the registrant's common stock effected on
March 8, 2000 in the form of a stock dividend. All information in this section
relating to shares of convertible preferred stock reflects the actual shares
issued, which will convert into common stock at a ratio of two preferred shares
for three common shares upon the closing of this offering.
In the preceding three years, the registrant has issued the following
securities that were not registered under the Securities Act of 1933, as amended
(the "Act"):
COMMON STOCK. In January 1999, in order to effect a 10-for-1 stock split in
the form of a stock dividend, the registrant issued an aggregate of 4,255,200
shares of common stock, par value $0.001 per share ("Common Stock") to
Robert P. LoCascio and Robert Olender, then the holders of Common Stock. On
January 28, 2000, the registrant issued 62,500 shares of Common Stock to Silicon
Alley Venture Partners, LLC pursuant to the exercise of an option to purchase
shares of Common Stock, at an aggregate price of $62,500. On February 29, 2000,
the registrant issued 117,187 shares of Common Stock to Dawntreader Fund I LP
pursuant to the exercise of a warrant to purchase shares of Common Stock, at an
aggregate price of $281,250. On March 8, 2000, in order to effect a
three-for-two stock split in the form of a stock dividend, the registrant issued
an aggregate of 2,453,844 shares of Common Stock to Robert P. LoCascio, Robert
Olender, Henry R. Kravis, Mark Lipschultz, Esther Dyson, Dawntreader Fund I LP
and Silicon Alley Venture Partners, LLC. On March 22, 2000, the registrant
issued 16,065 shares of Common Stock to Ronald Palmeri pursuant to the exercise
of an option to purchase shares of Common Stock at an aggregate price of
$10,710. All such issuances were made under the exemption from registration
provided by Section 4(2) of the Act.
CONVERTIBLE PREFERRED STOCK. The registrant issued an aggregate of
17,962,273 shares of convertible preferred stock, par value $0.001 per share,
consisting of (i) 2,500,000 shares of series A convertible preferred stock in
January 1999 at a purchase price per share of $1.20 for gross proceeds of
$3,000,000 to Dawntreader Fund I LP, FG-LP, Sterling Payot Capital, LP, and SAVP
Sidecar I LLC; (ii) 41,667 shares of series A convertible preferred stock in
January 1999 in exchange for consulting services provided to the Registrant by
Silicon Alley Venture Partners,
II-2
<PAGE>
LLC in the amount of $50,000; (iii) 1,142,857 shares of series B convertible
preferred stock in May 1999 at a purchase price per share of $1.40 for gross
proceeds of $1,600,000 to Allen & Company Incorporated, Alan Braverman, and
Sculley Brothers LLC; (iv) 5,132,433 shares of series C redeemable convertible
preferred stock in July 1999 at a purchase price per share of $3.70 for gross
proceeds of $18,990,000 to Highland Capital Partners IV Limited Partnership,
Highland Entrepreneurs' Fund IV Limited Partnership, FG-LPC, Dawntreader Fund I
LP, Allen & Company Incorporated, The Goldman Sachs Group, Inc., Stone Street
Fund 1999, L.P., Sterling Payot Capital, LP, SAVP Sidecar I-B, LLC, Silicon
Alley Ventures, L.P., Hambrecht & Quist California, Hambrecht & Quist Employee
Venture Fund, L.P. II, Access Technology Partners Brokers Fund, L.P., Access
Technology Partners, L.P., Henry R. Kravis, Esther Dyson, and Mark Lipschultz;
and (v) 3,157,895 shares of series D redeemable convertible preferred stock in
January 2000 at a purchase price per share of $5.70 for gross proceeds of
$18,000,000 to Dell USA L.P., Austin I, LLC, Van Eyck Partners, LLC, Striped
Marlin Investments, LLC, MSD EC I, LLC, and NBC Interactive Media, Inc. A
portion of the series A convertible preferred stock issued to FG-LP was issued
in satisfaction of a promissory note made by the registrant in the amount of
$100,000, plus interest. All such issuances were made under the exemption from
registration provided under Section 4(2) of the Act.
WARRANTS. Since its inception, the registrant issued warrants exercisable
for an aggregate of 718,749 shares of Common Stock consisting of (i) warrants
issued in January 1999 exercisable for 468,749 shares of Common Stock, at a
purchase price per warrant of $0.003, for gross proceeds of $1,562.50, to
Dawntreader Fund I LP, FG-LP, Sterling Payot Capital, LP, and SAVP Sidecar I
LLC, which are presently exercisable at an exercise price per share of $1.60 and
which expire in January 2004; and (ii) warrants issued in May 1999 exercisable
for 250,000 shares of Common Stock, at a purchase price per warrant of $0.003,
for gross proceeds of $833, to Allen & Company Incorporated, Alan Braverman, and
Sculley Brothers LLC, which are presently exercisable at an exercise price per
share of $1.60 and which expire in May 2004. The expiration date of the warrants
listed in (i) and (ii) may be accelerated in certain circumstances, if the
managing underwriter of the registrant's initial public offering determines that
the failure to accelerate the expiration or exercise of the warrants could
adversely affect the offering; however, the registrant has been informed by
Chase Securities Inc. that they do not intend to do so. All such issuances were
made under the exemption from registration provided under Section 4(2) of the
Act.
OPTIONS. Of the options granted by the registrant pursuant to the
registrant's 2000 Stock Incentive Plan and 2000 Employee Stock Purchase Plan,
successors to the registrant's 1998 Plan, options to purchase 297,750 shares of
Common Stock were cancelled through March 31, 2000 and options to purchase a
total of 5,479,905 shares of Common Stock at a weighted average exercise price
of $2.65 per share remained outstanding at March 31, 2000. For a more detailed
description of the registrant's option plans, see "Management--2000 Stock
Incentive Plan" and "Management--2000 Employee Stock Purchase Plan." All such
grants were made under the exemptions from registration provided under Rule 701
and Section 4(2) of the Act.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement
3.1** Third Amended and Restated Certificate of Incorporation
3.2** Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering
3.3** Bylaws
3.4** Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering
3.5** Certificate of Amendment to Third Amended and Restated
Certificate of Incorporation
4.1** Specimen Common Stock certificate
4.2** Second Amended and Restated Registration Rights Agreement
4.3** See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for further
provisions defining the rights of holders of common stock of
the registrant
5.1** Opinion of Brobeck, Phleger & Harrison LLP
10.1** Employment Agreement between LivePerson, Inc. and Robert P.
LoCascio
10.2** Employment Agreement between LivePerson, Inc. and Dean
Margolis
10.3** Employment Agreement between LivePerson, Inc. and Timothy E.
Bixby
10.4** Employment Agreement between LivePerson, Inc. and Scott E.
Cohen
10.5** Employment Agreement between LivePerson, Inc. and James L.
Reagan
10.6** 2000 Stock Incentive Plan
10.7** 2000 Employee Stock Purchase Plan
10.8** Agreement of Lease between Vornado 330 West 34th Street
L.L.C. as Landlord and LivePerson, Inc. as Tenant
23.1 Consent of KPMG LLP
23.2** Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)
24.1** Powers of Attorney (See Signature Page)
27.1** Financial Data Schedule
</TABLE>
- --------------------------
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the 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 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 Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, 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 Act, shall be
deemed to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in The
City of New York, State of New York, on this 6th day of April, 2000.
<TABLE>
<S> <C> <C>
LIVEPERSON, INC.
BY: /S/ ROBERT P. LOCASCIO
----------------------------------------------
Robert P. LoCascio
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
President, Chief Executive Officer
/s/ ROBERT P. LOCASCIO and Chairman of the Board of
-------------------------------------- Directors (principal executive April 6, 2000
Robert P. LoCascio officer)
Executive Vice President, Chief
/s/ TIMOTHY E. BIXBY Financial Officer, Secretary and
-------------------------------------- Director (principal financial April 6, 2000
Timothy E. Bixby and accounting officer)
* Director
-------------------------------------- April 6, 2000
Richard L. Fields
* Director
-------------------------------------- April 6, 2000
Wycliffe K. Grousbeck
* Director
-------------------------------------- April 6, 2000
Kevin C. Lavan
* Director
-------------------------------------- April 6, 2000
Robert W. Matschullat
* Director
-------------------------------------- April 6, 2000
Edward G. Sim
</TABLE>
<TABLE>
<C> <S> <C> <C>
*By: /s/ TIMOTHY E. BIXBY
------------------------------
Timothy E. Bixby
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement
3.1** Third Amended and Restated Certificate of Incorporation
3.2** Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering
3.3** Bylaws
3.4** Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering
3.5** Certificate of Amendment to Third Amended and Restated
Certificate of Incorporation
4.1** Specimen Common Stock certificate
4.2** Second Amended and Restated Registration Rights Agreement
4.3** See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for further
provisions defining the rights of holders of common stock of
the registrant
5.1** Opinion of Brobeck, Phleger & Harrison LLP
10.1** Employment Agreement between LivePerson, Inc. and Robert P.
LoCascio
10.2** Employment Agreement between LivePerson, Inc. and Dean
Margolis
10.3** Employment Agreement between LivePerson, Inc. and Timothy E.
Bixby
10.4** Employment Agreement between LivePerson, Inc. and Scott E.
Cohen
10.5** Employment Agreement between LivePerson, Inc. and James L.
Reagan
10.6** 2000 Stock Incentive Plan
10.7** 2000 Employee Stock Purchase Plan
10.8** Agreement of Lease between Vornado 330 West 34th Street
L.L.C. as Landlord and LivePerson, Inc. as Tenant
23.1 Consent of KPMG LLP
23.2** Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)
24.1** Powers of Attorney (See Signature Page)
27.1** Financial Data Schedule
</TABLE>
- ------------------------
** Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
LivePerson, Inc.:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG LLP
New York, New York
April 6, 2000
