As filed with the Securities and Exchange Commission on April 12,
2000
Registration No.
333-31458
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No.
1
to
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES
ACT OF 1933
SUPPLIERMARKET.COM, INC.
(Exact name of
registrant as specified in its charter)
| Delaware
(State or other
Jurisdiction
of Incorporation
or Organization)
|
|
7389
(Primary
Standard Industrial
Classification
Code Number)
|
|
04-3473646
(I.R.S. Employer
Identification No.)
|
|
10 Mall
Road
Burlington,
Massachusetts 01803
(781)
273-6700
(Address,
including zip code, and telephone number,
including area
code, of Registrant’s principal executive offices)
Jonathan
Burgstone, Chief Executive Officer
Asif Satchu,
Chairman and President
SupplierMarket.com, Inc.
10 Mall
Road
Burlington,
Massachusetts, 01803
(781)
273-6700
(Name, address,
including zip code, and telephone
number, including
area code, of agent for service)
Copies
to:
| Keith F.
Higgins, Esq.
David B. Walek,
Esq.
Ropes &
Gray
One
International Place
Boston,
Massachusetts 02110
(617)
951-7000
(617) 951-7050
(fax)
|
|
William J.
Whelan, III, Esq.
Cravath, Swaine
& Moore
Worldwide
Plaza
825 Eighth
Avenue
New York, New
York 10019
(212)
474-1000
(212) 474-3700
(fax)
|
|
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, please check the following box.
¨
CALCULATION OF
REGISTRATION FEE
Title of
each class of securities
to be registered |
|
Amount to
be registered(1) |
|
Proposed maximum
offering price per share(2) |
|
Proposed maximum
aggregate offering price |
|
Amount of
registration fee(3) |
|
| Common Stock, $.001
par value per share |
|
11,500,000 |
|
$11.00 |
|
$126,500,000 |
|
$33,396 |
(1)
|
Includes 1,500,000
shares of common stock issuable upon exercise of the underwriters’
over-allotment option.
|
(2)
|
Estimated solely
for the purpose of calculating the amount of the registration fee; based
on a bona fide estimate of the maximum offering price per share of
the securities being registered in accordance with Rule 457(a) of the
Securities Act of 1933.
|
(3)
|
Of this amount,
$26,400 has been previously paid.
|
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.
SUBJECT TO COMPLETION, DATED
,
2000
10,000,000 Shares
Common Stock
Prior to this offering there has been no
public market for our common stock. The initial public offering price of our
common stock is expected to be between $9.00 and $11.00 per share. We have
applied to list our common stock on The Nasdaq Stock Market’s National
Market under the symbol “SMKT”.
The underwriters have an option to purchase a
maximum of 1,500,000 additional shares of our common stock to cover
over-allotments of shares.
Investing in our common stock involves
risks. See “Risk Factors” on page 7.
| |
|
Price to
Public
|
|
Underwriting
Discounts and
Commissions
|
|
Proceeds to
SupplierMarket.com
|
| Per Share |
|
$
|
|
$
|
|
$
|
| Total |
|
$
|
|
$
|
|
$
|
Delivery of the shares of common stock will be
made on or about
, 2000.
Neither the Securities and Exchange
Commission, nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
At our request, the underwriters have reserved
for sale at the initial public offering price an aggregate of 1,000,000
shares in this offering for our non-officer employees; friends and family
members of our employees, officers, directors and stockholders; strategic
partners; and several companies who participate in our marketplace as
buyers.
Credit Suisse First
Boston
The date of this prospectus
is
,
2000.
The information in this
prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
[INSIDE FRONT COVER OF PROSPECTUS]
Front of
Gatefold:
Centered text at top
of the page: “Bringing together qualified buyers and suppliers of
direct materials.”
Two large arrows
point toward the center of the page from the upper-right and lower-left
corners of the page
Just above the middle
of the page is an oval containing the following text: “The Simmons
Company saved over $425,000 in direct materials cost on SupplierMarket.com.
”
Below this oval
appears the SupplierMarket.com logo and the following text: “People buy
parts. People sell parts. This is where they meet.”
Below this text
appears another oval containing the following text: “Shamrock
Industrial Fasteners acquired over $250,000 of business from a new customer
on SupplierMarket.com.”
Inside
Gatefold:
A border runs along
the entire left and top sides of the gatefold and matches the border on the
home page of the SupplierMarket.com web site.
Inside Gatefold
—Left-Hand Page:
Just inside the
border, the upper-third of the page contains the following text: “A
Leading Online Marketplace for Direct Materials. Aggregating and matching
qualified buyers and suppliers in a neutral marketplace. Internet-based
—buyers and suppliers only need a browser to participate. No upfront
fees, no software to install and no need for consultants.”
The lower two-thirds
of the page contains a graphic with two partial images of the RFQ Builder
pages of the SupplierMarket.com web site and the following text: “Saves
Buyers and Suppliers time and money. Using our RFQ Builder Technology,
buyers quickly construct a request for quotation that details product
specifications and defines supplier capabilities. Registered suppliers gain
access to new sources of business and reduce marketing costs.
”
Inside Gatefold
—Right-Hand Page:
The upper-half of the
page contains a similar graphic to the bottom of the left-hand page, with
one partial image of the SmartMatch page of the SupplierMarket.com web site
and the following text: “Matches Qualified Buyers and Suppliers. Our
proprietary SmartMatch technology matches qualified suppliers with new
business opportunities based on manufacturing capabilities, commercial
profile and quality certifications.”
The lower-half of the
page contains a similar graphic with one partial image of the On-Line
Bidding page of the SupplierMarket.com web site and the following text:
“Facilitates Competitive Pricing Environment. The process culminates in
a competitive bidding event. The buyer then chooses a qualified supplier to
fulfill the request for quotation based on a combination of capability,
quality and price.”
TABLE OF
CONTENTS
You should rely only on the
information contained in this document or to which we have referred you. We
have not authorized anyone to provide you with different information. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this
document.
Dealer Prospectus
Delivery Obligation
Until
, 2000 (25 days after the
commencement of this offering), all dealers that effect transactions in
these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealer’s
obligation to deliver a prospectus when acting as an underwriter and for
unsold allotments or subscriptions.
This summary highlights
information contained elsewhere in this prospectus. You should read the
entire prospectus carefully before investing in our common
stock.
SupplierMarket.com
SupplierMarket.com is a leading
business-to-business Internet-based marketplace serving the large and
fragmented market for direct materials. Direct materials are used in the
manufacture of finished goods and include a wide variety of components and
materials, from bolts, nuts and fasteners to rubber and glass products to
corrugated packaging to injection and blow-molded plastic components. The
direct materials market includes numerous industrial segments, and we
estimate that the annual market for direct materials in the United States is
approximately $1.9 trillion. As of March 31, 2000, we had registered
approximately 5,000 buyers and 9,000 suppliers. Our marketplace enables
participants to efficiently and cost effectively buy and sell direct
materials in an open, neutral exchange that requires no up-front fees, no
software installation and no consulting services.
The U.S. market for direct
materials is highly fragmented and inefficient. Based on industry data, we
believe that approximately 240,000 suppliers currently serve this market,
with over 90% of these companies generating less than $10 million in annual
revenue. This high degree of fragmentation, combined with the lack of a
centralized marketplace, makes it difficult for buyers and suppliers to find
qualified trading partners, resulting in high search costs and limited
competition. Additionally, the traditional request for quotation process
through which buyers solicit bids from suppliers, is inefficient and
time-consuming, involving multiple and repetitive steps.
The SupplierMarket.com solution
provides a secure Internet-based marketplace that aggregates buyers and
suppliers, matches them with multiple qualified trading partners and
promotes a competitive pricing environment. Our solution eliminates many of
the inefficiencies in the traditional direct materials purchasing process,
thus providing benefits for both buyers and suppliers. It benefits buyers by
reducing the cost of direct materials, providing access to an increased base
of new and qualified suppliers, shortening cycle times for purchasing and
employing a standardized data format. Suppliers benefit through increased
access to new business opportunities, reduced sales and marketing costs,
shortened sales cycle times and the opportunity to be evaluated and rewarded
based on expertise and efficiency.
There are several key differences
between our marketplace and alternatives offered by other
business-to-business e-commerce companies. First, any registered buyer or
supplier of direct materials can immediately access our entirely
Internet-based marketplace with a standard browser connection; there is no
required installation of software. Second, use of our marketplace is
completely free to the buyer, and a supplier is only required to pay us a
transaction fee after it has been selected by a buyer as a result of a
competitive bidding event to fulfill the request for quotation. Third, our
technology-based solution does not require the use of consultants for
implementation or ongoing support.
We have developed several key
proprietary technologies that underlie the advanced functionality of our
scalable Internet-based marketplace. First, our RFQ Builder enables buyers
to create and submit requests for quotation quickly in a standardized
format. Second, our SmartMatch technology automatically matches buyers and
suppliers with qualified trading partners. Finally, our bidding technology
creates a competitive pricing environment.
We have conducted bidding events
in various industrial segments for direct materials such as extruded plastic
film and sheet, injection and blow-molded plastic components, metal
stampings, bolts, nuts and fasteners, machine tooling, molded rubber and
wire and cord products.
The Simmons Company submitted requests for quotation which resulted in 100% of
our revenue in 1999 and 91% of our revenue in the three months ended March
31, 2000. Other buyers that have posted requests for quotation on our
marketplace and held competitive bidding events since our inception
include:
|
Ÿ
Affordable Interior Systems
Ÿ Becker
Group
Ÿ J.L.
French
|
|
Ÿ
Masco
Ÿ
Quality Farm & Country
Ÿ U.S.
Filter
|
|
We expect the requests for
quotation and competitive bidding events generated by these buyers will
result in additional revenue in the second quarter of 2000.
Some of the suppliers that have
participated in bidding events through our marketplace and that buyers have
selected to fulfill requests for quotation include:
|
|
Ÿ
Shamrock Industrial Fasteners
|
SupplierMarket.com, Inc. was
formed in February 1999, and we began offering commercial access to our
marketplace in October 1999. Our headquarters is located at 10 Mall Road,
Burlington, Massachusetts 01803 and our telephone number is (781) 273-6700.
Our website address is www.suppliermarket.com. The information on our
website is not incorporated as a part of this prospectus.
“SupplierMarket.com”,
“RFQ Builder”, “SMC”, “SmartMatch”, “RFQ
Bid”, “SmartBid”, “SupplierMarketplace”,
“People buy parts. People sell parts. This is where they meet.”
and “Buying and selling just doesn’t get any easier than this.
” are service marks of SupplierMarket.com. All other trademarks or
service marks appearing in this prospectus are trademarks or service marks
of the respective companies that use them.
The
Offering
Shares of common
stock offered by
SupplierMarket.com |
|
10,000,000
shares |
|
|
Total shares of
common stock to be outstanding
after the offering |
|
41,196,283
shares |
|
|
| Use of
proceeds |
|
For working
capital, other general corporate purposes
and potential acquisitions. |
|
|
| Proposed Nasdaq
National Market symbol |
|
SMKT |
The number of shares of common
stock to be outstanding after this offering is based on the number of
shares outstanding as of March 31, 2000. This number does not include the
following:
Ÿ
|
3,894,760 shares
of common stock issuable upon the exercise of stock options and
warrants outstanding as of March 31, 2000 and 1,265,891 additional
shares of common stock reserved for issuance under our stock plans;
and
|
Ÿ
|
2,181,416 shares
of common stock reserved for issuance under our strategic warrant plan
and issuable upon exercise of warrants issuable under that
plan.
|
Except as otherwise indicated,
all information in this prospectus assumes:
Ÿ
|
the conversion
of each outstanding share of our Series A preferred stock into two
shares of common stock and the conversion of each outstanding share of
our Series B preferred stock into one half of one share of common
stock, both of which will occur simultaneously with the closing of this
offering;
|
Ÿ
|
the filing of an
amended and restated certificate of incorporation effective upon the
closing of this offering; and
|
Ÿ
|
no exercise of
the underwriters’ over-allotment option.
|
Summary
Financial Information
The following tables summarize
the financial information for our business. You should read this
information along with “Selected Financial Data”,
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our financial statements and related
notes. Net loss per share data includes accretion of offering costs and
other charges incurred in connection with our preferred stock issuances.
Unaudited pro forma loss per share data reflect the conversion of all
preferred stock outstanding as of the end of each respective period into
common stock as if the shares had converted immediately upon issuance,
even though the effect of the conversion is antidilutive. Unaudited pro
forma loss per share data do not reflect potential shares of common stock
issuable upon exercise of outstanding options and warrants because the
effect would be antidilutive. Pro forma as adjusted balance sheet data
reflect:
|
Ÿ
|
the conversion
of all outstanding preferred stock into common stock; and
|
|
Ÿ
|
the issuance of
10,000,000 shares in this offering at an assumed initial public
offering price of $10.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses.
|
|
|
|
Period From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three
Months Ended
March 31, 2000
|
| Statement of
Operations Data: |
| Revenue |
|
$
51,541 |
|
|
$
216,791 |
|
| Operating
expenses: |
|
Costs of
revenue |
|
107,605 |
|
|
205,615 |
|
|
Sales and
marketing |
|
2,397,405 |
|
|
10,576,301 |
|
|
Research and
development |
|
515,993 |
|
|
681,116 |
|
|
General and
administrative |
|
636,171 |
|
|
1,577,297 |
|
|
Stock-based
compensation |
|
2,731,515 |
|
|
1,395,093 |
|
| |
|
|
|
|
|
|
|
Total operating expenses |
|
6,388,689 |
|
|
14,435,422 |
|
| |
|
|
|
|
|
|
| Operating
loss |
|
(6,337,148 |
) |
|
(14,218,631 |
) |
| Interest
income |
|
280,109 |
|
|
403,978 |
|
| |
|
|
|
|
|
|
| Net
loss |
|
$
(6,057,039 |
) |
|
$(13,814,653 |
) |
| |
|
|
|
|
|
|
| Net loss per
share, basic and diluted |
|
$
(2.66 |
) |
|
$
(2.24 |
) |
| Weighted average
common shares outstanding, basic and diluted |
|
2,344,874 |
|
|
6,223,990 |
|
| Unaudited pro
forma net loss per share, basic and diluted |
|
$
(0.58 |
) |
|
$
(0.51 |
) |
Unaudited pro
forma weighted average common shares outstanding,
basic and diluted |
|
10,446,037 |
|
|
27,210,518 |
|
|
|
|
March 31,
2000
|
|
|
|
Actual
|
|
Pro Forma
As Adjusted
|
| Balance Sheet
Data: |
| Cash and cash
equivalents |
|
$23,420,956 |
|
|
$115,470,956 |
| Working
capital |
|
24,167,200 |
|
|
116,217,200 |
| Total
assets |
|
30,496,670 |
|
|
122,546,670 |
| Redeemable
convertible preferred stock |
|
40,558,840 |
|
|
—
|
| Total
stockholders’ (deficit) equity |
|
(12,873,685 |
) |
|
119,735,155 |
This offering involves a
high degree of risk. You should carefully consider the following risk
factors, in addition to the other information in this prospectus, before
making a decision to invest in shares of our common stock. Any of these
risk factors could materially adversely affect our business, financial
condition and results of operations. If this occurs, the trading price of
our common stock could decline, and you may lose all or part of your
investment.
We only began
operating our marketplace in the fourth quarter of 1999. Our limited
operating history makes it difficult for you to evaluate our past
performance and future prospects.
We were founded in February
1999 and only began operating our Internet-based marketplace in October
1999. Our extremely limited operating history makes it difficult to
evaluate our business and prospects. We will encounter risks, costs and
difficulties frequently encountered by companies in an early stage of
development in new and rapidly evolving markets. Many of these risks are
unknown, but include those associated with managing our growth and the
uncertainty about the widespread acceptance of the Internet as a means of
purchasing and selling direct materials. Our failure to identify and
successfully address these risks would harm our business.
In addition, we have estimated
that the annual market for direct materials in the U.S. is approximately
$1.9 trillion. Due to our extremely limited operating history, however,
we have yet to penetrate this market in a significant manner.
We have not
achieved profitability to date and anticipate continued losses, and we
may be unable to achieve profitability, which could cause the market
price of our common stock to decline.
We have never been profitable,
and, if we become profitable, we may be unable to sustain profitability.
We have incurred substantial losses since we were founded, and we expect
to continue to incur net losses on both a quarterly and annual basis for
at least the foreseeable future. We had a cumulative net loss of
approximately $19.9 million for the period since inception through March
31, 2000. We expect to continue to make significant expenditures for our
infrastructure, sales and marketing, research and development and general
and administrative functions. As a result, we will need to generate
significant revenues to achieve profitability. We cannot assure you that
our revenues will grow in the future or that we will achieve
profitability. If revenues grow more slowly than we anticipate, or if
operating expenses exceed our expectations, we will not be a profitable
business.
Our
Internet-based marketplace business model is new and the demand for our
service may decrease if it is not successful.
To date we have conducted only
a limited number of bidding events. We earn transaction fees from
successfully completed bidding events. We depend on our ability to grow
our buyer and supplier base and expand into new markets and industrial
segments as the primary source of bidding events in our marketplace. Our
ability to generate revenue or profits is unproven. If the assumptions
underlying our business model are not valid or we are unable to implement
our business plan, our business may not succeed. For the period since
inception through March 31, 2000, all of our revenue was generated from
transaction fees paid by suppliers using our marketplace. We may not be
able to increase our revenue, and if we fail to do so, our business will
fail.
If we fail to
attract and retain a large number of buyers and suppliers, we may not be
able to grow our revenue.
The effectiveness of our
Internet-based marketplace and the revenue we derive from business
conducted there depend on our ability to attract and retain a large
number of buyers and suppliers. If we do not add and retain a substantial
number of buyers and suppliers, our business could be severely
harmed.
Buyers may be unwilling to
register or conduct significant business in our marketplace. In order to
accept our method of direct materials purchasing, buyers must adopt new
purchasing practices different from their
traditional practices. Traditionally, buyers have frequently directed
business to suppliers based on factors other than price or quality,
including personal relationships. Our marketplace and method of
purchasing may be disruptive to long-standing relationships between a
buyer and its incumbent suppliers.
Suppliers may also be unwilling
to register or conduct significant business in our marketplace. Our
marketplace is based on an open bidding process that allows buyers to
compare the business practices, capabilities and prices of multiple
prospective suppliers more effectively. This heightened scrutiny and
increased competition may discourage some suppliers from participating in
our marketplace. Suppliers choosing not to participate may discourage
other suppliers or buyers from participating as well.
Buyers may not
use our marketplace or may discontinue using our marketplace if we are
unable to deliver significant savings. As a result, buyers may not post
sufficient numbers of requests for quotation on our
marketplace.
Factors beyond our control may
limit our ability to deliver savings to registered buyers. For example, a
buyer’s incumbent suppliers may refuse to bid on an on-line request
for quotation. In addition, the direct materials specified by some
requests for quotation may be too unusual or may otherwise be supplied by
too few companies to allow for a competitive bidding event and the
attendant potential savings. Similarly, some industrial segments may be
characterized by rigid price structures that allow for little or no
variation in price among different suppliers. Despite the fact that
competition may be possible on the basis of quality and other factors, it
may not be possible to deliver strict price savings in those segments. If
our marketplace increases the efficiency of any particular industrial
segment, the future likelihood of significant savings to buyers in that
segment may decrease. If we are unable to deliver significant savings in
particular segments or the magnitude of savings in particular segments
decreases, we may have difficulty attracting buyers in those segments, or
attracting willing participants in other segments, either of which may
limit the number of requests for quotation posted on our
marketplace.
Suppliers may
not use our marketplace or may discontinue using our marketplace if we
are unable to deliver new business opportunities. As a result, our
revenue growth could be limited.
Our marketplace depends on the
participation of large numbers of willing suppliers in bidding events to
generate efficient outcomes for buyers. Because suppliers may in some
cases be discouraged from using our marketplace due to the increased
competition it seeks to promote, we depend on our ability to provide new
business opportunities to suppliers as the primary means of attracting
suppliers to our marketplace. Factors beyond our control may limit our
ability to provide these new opportunities in sufficient numbers. For
example, buyers may continue to select from among a small group of
incumbent suppliers to fill their requests for quotation despite the
existence of competitive bids submitted by other suppliers. If we are
unable to provide new business opportunities in sufficient numbers to
suppliers, our current suppliers may reduce or discontinue their use of
the marketplace and we may have difficulty attracting new suppliers,
either of which will harm our business.
We have
depended and expect to depend on a small group of buyers for the
purchasing transactions they conduct on our marketplace; a substantial
reduction in their level of activity could harm our business and slow our
growth. In addition, our accounts receivable have been concentrated with
a small number of suppliers.
To date, we have substantially
relied on a small number of buyers to post a significant majority of the
requests for quotation on our marketplace. Some of these buyers are
portfolio companies, or companies owned by investment funds that are
either our principal stockholders or affiliates of our principal
stockholders or directors. All revenue that we earned in 1999 resulted
from requests for quotation posted on our marketplace by one portfolio
company buyer. For the three months ended March 31, 2000, requests for
quotation posted by the same portfolio company buyer generated 91% of our
revenue. In addition, this and other portfolio company buyers have posted
57% of the dollar value of requests for quotation that have resulted in
bidding events. We expect to continue to depend on these portfolio
companies as buyers, particularly if other buyers are slow to adopt or to
conduct significant business on our marketplace. If any of these buyers
discontinue use of our marketplace, or reduce the aggregate dollar value
of requests for quotation they post, our business could be severely
harmed.
We have recently depended and expect to depend substantially on several
strategic buyers who have the ability to place a large amount of requests
for quotation on our marketplace. We intend to issue strategic warrants
to purchase our common stock to these strategic buyers that will vest
depending upon the total dollar amount of requests for quotation they
post that result in signed purchase orders. Through March 31, 2000
requests for quotation posted by these strategic buyers have not
generated any of our revenue. However, these strategic buyers have posted
requests for quotation constituting 28% of the dollar value of all
requests for quotation that have resulted in bidding events. We have
obtained no commitments from these strategic buyers or any other buyers
to post requests for quotations or conduct any other activities on our
marketplace. Our strategy to expand our marketplace and grow our business
depends, in part, on the continued and increasing use of our marketplace
by these buyers. The loss or partial loss of one or more of these buyers
could be harmful to our business and could curtail our
growth.
As of December 31, 1999, two
suppliers accounted for 100% of our accounts receivable and as of March
31, 2000, two suppliers accounted for 92% of our accounts receivable. If
we are unable to collect our receivables from any of these suppliers, our
operating cash flows may be significantly reduced.
We face intense
competition in the business-to-business e-commerce market, including from
groups of companies in related industrial segments that have announced
plans to, or may, establish on-line exchanges. If we are unable to
compete successfully, we may not be able to attract buyers and
suppliers.
The business-to-business
e-commerce market in which we operate is new, rapidly evolving and
intensely competitive. As one of a number of companies providing services
or products to this market, and with minimal barriers to entry by
potential competitors, we face the risk that existing and potential
buyers and suppliers in our marketplace may seek our competitors’
services and products. We also face the risk that large individual buyers
or suppliers or groups of companies in one or more related industrial
segments may develop in-house or specialized on-line marketplaces. For
example, in February and March 2000, groups of companies in the
automotive, aerospace and defense and plastics industries announced their
intentions to establish on-line consolidated exchanges for buyers and
suppliers in their respective industries.
Our marketplace is one of many
alternative approaches to purchasing that buyers and suppliers are
considering. Many of our current and potential competitors are larger and
more established and have significantly greater resources than we do. As
a result, some of our current or potential competitors may be able to
commit more resources to marketing and promotional campaigns, adopt more
aggressive pricing policies and devote more resources to technology
development. In order to respond to changes within this competitive
environment, we may from time to time make pricing, service, marketing or
other strategic decisions that could adversely affect our operating
results. In addition, competitors may now provide or later introduce
products or services that appear to be the same as ours, despite actual
differences. In such an environment, we face the risk that buyers and
suppliers will confuse our marketplace with the services of our
competitors or choose the services of a competitor with greater
resources. We also face the risk that buyers and suppliers may attain
poor results with other products or services and lose interest in trying
ours. We may not be able to retain current marketplace participants or
secure new ones in light of these issues. Our revenue growth could be
limited if buyers or suppliers seek our competitors’ services or
products or establish their own marketplaces.
For a more detailed discussion
of the competition we face, see “Business—Competition.
”
Our revenue
growth will slow if we do not develop and maintain strategic
relationships.
We have established and plan to
continue to establish strategic relationships with sales and marketing
partners, significant buyers and other organizations. We depend or expect
to depend on these relationships to grow our buyer and supplier base and
the volume of transactions conducted in our marketplace. We will also
depend on these relationships to generate sufficient opportunities to
implement our strategies of expanding into new markets and of providing
additional services and products. These relationships may not yield any
new buyers or suppliers or generate increased revenues. We have obtained
no commitments of any kind from any
buyers to submit requests for quotation or to conduct any other activities
in our marketplace. Additionally, we may not be able to enter into new
relationships or renew existing relationships. We may not be able to
recover our costs and expenses associated with these efforts, which could
harm our business.
Most of our current strategic
relationships, including all of those with significant buyers, are based
on non-binding letters of intent. Although we plan to consummate
definitive agreements, we cannot assure you that we will be able to do so
within the relatively short expiration periods provided for in these
letters of intent.
If we fail to
continue to develop and improve our financial and managerial controls and
reporting systems and procedures, and if we do not effectively expand,
train and manage our workforce, our business will suffer dramatically and
we may not be able to implement our business plan.
Successful implementation of
our business plan requires effective management processes. We have
recently experienced a period of significant expansion of our operations.
Our growth has placed, and our anticipated future growth in our
operations will continue to place, a significant strain on our management
systems and resources. Our ability to compete effectively and to manage
future expansion of our operations will require us to continue to develop
and improve our financial and management controls, reporting systems and
procedures on a timely basis, and to continue to expand, train and manage
our workforce. We continue to increase the scope of our operations
domestically and plan to expand internationally. We have grown our
workforce substantially from 13 employees in July 1999 to 125 as of March
31, 2000, and we plan to continue to add to our sales and marketing,
customer support, product development and other administrative personnel.
Our failure to manage our growth effectively could cause our revenues to
decline and our operating expenses to increase at a higher than expected
rate.
In some
instances, our transaction fees may be subject to downward adjustment.
Also, we may have difficulty collecting transaction fees from suppliers
for our services, and we may incur legal expenses to pursue collection of
receivables from some suppliers.
We charge suppliers a
transaction fee based on a percentage of the final dollar value of their
successful bids. Our invoiced transaction fees are subject to future
reduction if we receive confirmation from a buyer and supplier that they
have cancelled or reduced the price or volume of their original purchase
order. A substantial number of cancellations or price or volume
reductions would harm our revenue. In addition, we may not be successful
in collecting all of our receivables, and we may incur legal expenses to
pursue collection.
If we fail to
continuously improve our technology and enhance our marketplace and
related services, we may lose buyers and suppliers, thus limiting our
revenue growth.
Our future success will depend
on our ability to enhance the technological capabilities of our
Internet-based marketplace, and to continue to develop and introduce new
services that keep pace with competitive introductions and technological
developments, satisfy diverse and evolving requirements of buyers and
suppliers and otherwise achieve market acceptance. Our success will
depend, in part, on the availability of, and our ability to obtain on
commercially reasonable terms, licenses to technologies used in the
development and maintenance of our marketplace. Any failure by us to
anticipate or respond adequately to changes in technology and user
preferences, or any significant delays in our development or licensing
efforts, could make our services unmarketable or obsolete. In particular,
we believe that our future success will depend, in part, upon market
acceptance of the latest version of our Internet-based marketplace, which
has only recently been released. We may not be successful in developing
and marketing quickly and effectively future versions or upgrades of our
technology or in offering new services that respond to technological
advances or new market requirements. As a result, our revenue may
decline.
Our success is
dependent on our key personnel, including software engineers and sales
and marketing professionals, whom we may not be able to retain or hire in
sufficient numbers to meet our needs.
We believe that our success
will depend on the continued employment of our senior management team and
key technical and sales personnel. If one or more members of our senior
management team were unable or unwilling to continue in their present
positions, we would have great difficulty finding or may be unable to
find suitable replacements, and our operating costs could increase. Most
of our senior management do not have employment agreements, and we do not
have “key person” life insurance policies on any members of our
senior management. In addition, if any of these key employees joins a
competitor or forms a competing company, some of our buyers and suppliers
might choose to use the services of that competitor or new company
instead of our own.
We plan to hire additional
members of senior management and we plan to expand our employee base to
manage our anticipated growth. Competition for personnel in our industry,
particularly for senior management personnel and employees with technical
and sales expertise, is intense. The success of our business is dependent
upon hiring and retaining suitable personnel. To maintain our position as
a provider of an Internet-based business-to-business e-commerce
solutions, we must make sure our employees maintain their technical
expertise and business skills. We cannot assure you that we will be able
to attract a sufficient number of qualified employees or that we will
successfully train and manage the employees that we hire. In addition,
the employees that we hire, including key technical personnel, may leave
us to join a competitor or to start a new business which may compete with
us.
Our senior
management team has limited tenure with us and has limited experience
working together, and our founders have limited management experience,
which may make it difficult to conduct and grow our
business.
Some of the key members of our
senior management team, including our chief operating officer, chief
financial officer, executive vice president of strategic development,
vice president of corporate development and vice president of human
resources, joined us this year. Other members of our senior management
team have been in place no longer than six months, since shortly before
we first began operating our Internet-based marketplace. As a result,
there has been little or no opportunity to evaluate the effectiveness of
our senior management team as a combined unit or their ability to execute
our business plan. Our chief executive officer and our president, the
founders of our company, have not previously managed a large business and
have no experience managing a public company. The failure of our founders
and senior management to function effectively as a team or to execute our
business plan, or to design and refine our business plan and provide
necessary leadership, may inhibit our ability to operate our marketplace,
maintain a cohesive culture, compete effectively and grow our
business.
If we are
unable to maintain our reputation and expand recognition of the
SupplierMarket.com brand, we may have difficulty attracting new business
and retaining current buyers and suppliers and employees, and our
business may suffer.
We believe that establishing
and maintaining a good reputation and name recognition are critical for
attracting and retaining buyers and suppliers and employees. We also
believe that the importance of reputation and name recognition is
increasing and will continue to increase due to the growing number of
entrants into the business-to-business e-commerce market. If our
reputation is damaged or if potential buyers and suppliers are not
familiar with us or the services we provide, we may be unable to attract
new, or retain existing, buyers and suppliers and employees. Promotion
and enhancement of our name will depend largely on our success in
continuing to provide effective services. If buyers and suppliers do not
perceive our services to be effective or of high quality, our brand name
and reputation will suffer. In addition, if the services we provide have
defects, we could suffer adverse publicity as well as economic
liability.
We may need to
acquire new businesses, products and technologies that complement or
augment our existing Internet-based marketplace and related technologies
in order to remain competitive in our market.
In order to remain competitive,
we may find it necessary to acquire additional businesses, products or
technologies. If we identify an appropriate acquisition candidate, we may
not be able to negotiate the terms of the acquisition successfully,
finance the acquisition or integrate the acquired business, products or
technologies into our existing business and operations. The inability to
integrate any newly acquired entities or technologies effectively could
harm our operating results, business and growth. Members of our senior
management may be required to devote considerable amounts of their time
to this integration process, which will decrease the time they will have
to service current buyers and suppliers, attract new suppliers and
develop new products and services. Integrating any newly acquired
businesses or technologies may be expensive and time consuming. At
present, we have no commitments or agreements and are not currently
engaged in discussions for any material acquisitions or investments. If
we consummate one or more significant acquisitions in which the
consideration consists of stock or other securities, your equity could be
significantly diluted. If we were to proceed with one or more significant
acquisitions in which the consideration included cash, we could be
required to use a substantial portion of our available cash, including
proceeds of this offering, to consummate any acquisition. Acquisition
financing may not be available on favorable terms, or at all. In
addition, we may be required to amortize significant amounts of goodwill
and other intangible assets in connection with future acquisitions, which
would seriously harm our net income. We may not be able to operate any
acquired businesses profitably or otherwise implement our business
strategy successfully. Unsuccessful acquisitions could harm our operating
results, business and growth.
In order to
grow our business, we may need to raise additional capital in the future,
which would dilute your ownership in us. We may be unable to raise
additional capital, which may inhibit our ability to develop or enhance
our services, take advantage of business opportunities or respond to
competitive pressures.
In the future, we may need to
raise additional funds through public or private debt or equity financing
to take advantage of expansion or acquisition opportunities, develop new
services, compete effectively in the market or fund operating losses. For
the period from inception to March 31, 2000, we used $13.9 million of
cash for operating activities and we expect to use cash for operating
activities for the foreseeable future. Any additional capital raised
through the sale of equity or equity-related securities would dilute your
ownership percentage in us. These securities could also have rights,
preferences or privileges senior to those of your common stock. We
currently have no bank credit facility under which we can borrow
short-term funds. We may not be able to obtain additional financing
through securities issuances or commercial lending sources when needed or
on terms favorable to us or our stockholders. If additional financing is
not available on favorable terms or at all, this may inhibit our ability
to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures.
We expect to
recognize significant stock-based expense in the foreseeable future,
which will significantly increase our losses or adversely affect our
operating results during that time.
We expect to recognize
significant stock-based expense during the foreseeable future in
connection with our grants of stock options and our proposed issuances of
strategic warrants. The amount of this stock-based expense will
significantly increase our operating loss or minimize our operating
income, if any, during that time. We amortize stock-based compensation
for employee and director stock options over the vesting of each
individual option award. The options granted to employees generally vest
over four years, and the options granted to directors generally vest over
12 months. As of March 31, 2000, we have recorded $16.1 million of net
deferred stock-based compensation related to employee and director stock
options which we currently expect will result in additional non-cash
compensation expense of $3.6 million in the remainder of 2000, $4.2
million in 2001, $4.1 million in 2002, $3.9 million in 2003 and $394,000
in 2004.
We account for non-employee option grants as variable awards, and we cannot
estimate with certainty the related expense we will recognize in future
periods, as it will depend upon a number of factors including our stock
price. As of March 31, 2000, based on the estimated value of our stock on
that date, we have recorded $2.1 million of net deferred stock-based
compensation related to these option grants. The amount of this net
deferred stock-based compensation will increase in future periods if our
stock price increases.
We also expect to recognize a
significant amount of stock-based expense in connection with our proposed
issuance of strategic warrants. We will account for our proposed
strategic warrants as variable awards, and we cannot estimate with
certainty the related expense we will recognize in future periods. We
will recognize the expense related to any strategic warrants as they
vest. We expect that these strategic warrants, if issued, will vest over
the final three fiscal quarters of 2000 and each fiscal quarter of
2001.
Changes in the
generally accepted accounting principles which we apply when determining
how much revenue to recognize in each accounting period may require us to
substantially alter the timing of our revenue recognition in the
future.
In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin No.
101—Revenue Recognition in Financial Statements, which summarizes
the staff’s views in applying generally accepted accounting
principles to revenue recognition in financial statements. In addition,
the Emerging Issues Task Force of the FASB may prepare new guidance in
this area. Future guidance from these standards-making bodies may limit
our ability to recognize revenue according to our current policy. We
cannot predict at this time whether these standard-making bodies will
issue guidance which would require us to change our method of recognizing
revenue for financial accounting purposes. If we are required to change
our revenue recognition policy, in the future we may alter the timing of
our revenue recognition, which could cause the market price of our common
stock to fall significantly.
As we expand
our marketplace services to international buyers and additional
international suppliers, our business will be exposed to the numerous
risks associated with international operations.
We intend to offer our
marketplace services to international buyers and additional international
suppliers. To date, we have limited experience adapting our
Internet-based marketplace for international buyers and suppliers.
International operations are subject to many risks,
including:
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political,
regulatory and economic instability;
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reduced
protection for intellectual property rights in some
countries;
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potentially
adverse tax consequences, including restrictions on repatriation of
earnings;
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greater
difficulties in collecting accounts receivable;
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the existence of
protectionist laws and business practices favoring local
competition;
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difficulties and
costs of staffing and managing international operations, as a result
of, among other things, distance, language, cultural and regulatory
differences; and
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fluctuations in
currency exchange rates.
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Our
Internet-based marketplace depends on the continued growth of the
Internet as a means of commerce. If this growth slows, our revenue growth
may be limited.
Our Internet-based marketplace
depends on increased and sustained acceptance and use of the Internet as
a medium of commerce. Rapid growth in electronic commerce is a recent
phenomenon. This growth may not continue at recent rates and a
sufficiently broad base of business customers may not adopt or continue
to use the Internet as a medium of commerce. Demand for services and
products recently introduced over the Internet are subject to a high
level of uncertainty.
A number of factors could
inhibit such demand, including the following:
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the necessary
infrastructure for substantial growth in usage of the Internet may not
develop adequately;
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buyers and
suppliers using traditional means for bidding and purchasing may be
unwilling or unable to shift to an on-line forum;
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buyers and
suppliers may have security and confidentiality concerns;
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use of the
Internet and other on-line services may not continue to increase or may
increase more slowly than expected; and
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new and
burdensome governmental regulations or taxation may affect the
viability of electronic commerce.
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Our marketplace
depends on the integrity of the Internet, which is uncertain and is
beyond our control.
If Internet usage grows, the
Internet infrastructure may not be able to support the demands placed on
it or its performance or reliability may decline. In addition, our
ability to offer our services is limited, in part, by the speed and
reliability of networks operated by third parties. Internet sites may
also experience interruptions in service from time to time as a result of
outages and other delays occurring throughout the Internet network
infrastructure. If these outages or delays frequently occur in the
future, Internet usage, as well as usage of our marketplace, could be
adversely affected.
Security risks
and concerns about use of the Internet may deter potential buyers and
suppliers from using our Internet-based marketplace.
Concern about the security of
the transmission of confidential information over public networks is a
significant barrier to electronic commerce and communication. Advances in
computer capabilities, new discoveries in the field of cryptography or
other events or developments could result in compromises or breaches of
Internet security systems that protect proprietary information. If any
well-publicized compromises of security were to occur, they could
substantially reduce the use of the Internet for commerce and
communications.
Anyone who circumvents our
security measures could misappropriate proprietary or confidential
information, place false requests for quotation or cause interruptions in
our services or operations. Our activities involve the storage and
transmission of proprietary information, such as confidential buyer and
supplier specifications. The Internet is a public network, and data is
sent over this network from many sources. Recently, some Internet service
providers and e-commerce web sites have been targeted by “denial of
service” and other attacks that overloaded these web sites and
forced them to shut down temporarily. Computer viruses have also been
distributed, and have rapidly spread, over the Internet. Computer viruses
could be introduced into our systems or those of our buyers and
suppliers, which could disrupt or make inaccessible our Internet-based
bidding technology. We may be required to expend significant capital and
other resources to protect against the threat of, or to alleviate
problems caused by, security breaches and the introduction of computer
viruses. Our security measures may be inadequate to prevent security
breaches or combat the introduction of computer viruses, either of which
may result in loss of data, increased operating costs, litigation and
other possible liability.
Failure to
maintain our buyer and supplier databases could seriously harm our
business and reputation.
We maintain extensive databases
of buyers, suppliers, products and transactions. Database capacity
constraints may result in data maintenance and accuracy problems, which
could cause a disruption in our service and affect our ability to provide
accurate information to our buyers and suppliers. Such disruptions may
result in a loss of buyers and suppliers, which could severely harm our
business.
If we encounter
system failure, our Internet-based marketplace services could be delayed
or interrupted, which could severely harm our business and result in a
loss of buyers and suppliers.
Our ability to successfully
maintain our Internet-based marketplace and provide acceptable levels of
customer service largely depends on the efficient and uninterrupted
operation of our computer and communications hardware and software
systems. Any interruptions could severely harm our business and result in
a loss of buyers and suppliers. Our computer and communications systems
are hosted by a third party, on whom we rely to manage the security and
maintenance procedures at its site. Although we periodically back up our
databases on tape and store the backup tapes offsite, we do not maintain
a redundant site. Our systems and operations are vulnerable to damage or
interruption from human error, sabotage, fire, flood, earthquake, power
loss, telecommunications failure, related equipment failure and similar
events. Although we have taken steps to prevent a system failure, we
cannot assure you that our measures will be successful and that we will
not experience system failures in the future. Moreover, we have
experienced delays and interruptions in our telephone and Internet access
which have prevented buyers and suppliers from accessing our marketplace
and our customer service department. Furthermore, we do not have a formal
disaster recovery plan and do not carry sufficient business interruption
insurance to compensate us for losses that may occur as a result of any
system failure. The occurrence of any system failure or similar event
could harm our business dramatically.
Capacity limits
on our marketplace may be difficult to project and we may not be able to
expand and upgrade our systems to meet increased use. As a result, we may
not be able to grow our revenue.
As traffic in our
Internet-based marketplace continues to increase, we must expand and
upgrade our transaction processing systems and network hardware and
software. We may not be able to accurately project the rate of increased
usage of our marketplace. In addition, we may not be able to expand and
upgrade our systems and network hardware and software capabilities to
accommodate increased usage. If we do not appropriately upgrade our
systems and network hardware and software, the quality of our service may
decline, which could damage our reputation and relationships with our
buyers and suppliers.
If our
intellectual property protection is inadequate, competitors may gain
access to our technology and undermine our competitive position, causing
us to lose business from buyers and suppliers.
We regard our copyrights,
service marks, trade secrets and other intellectual property as important
to our success, and rely or expect to rely on patent, trademark, service
mark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, buyers and suppliers and
business partners to protect our proprietary rights. Despite our
precautions, unauthorized parties may copy certain portions of our
Internet-based marketplace or reverse engineer or obtain and use
information that we regard as proprietary. End-user license provisions
protecting against unauthorized use, copying, transfer and disclosure may
be unenforceable under the laws of certain jurisdictions and foreign
countries. The status of United States patent protection in the software
industry is not well defined and will evolve as the U.S. Patent and
Trademark Office grants additional patents. We may seek patents on
aspects of our technology and processes. We do not know whether any
patents will be issued, and even if some or all of these patents are
issued, we cannot assure you that they will not be successfully
challenged or invalidated, that they will adequately protect our
technology and processes or that they will result in commercial
advantages to us. We have also applied for registration of several of our
brand names and other service marks, but these protections may not be
adequate. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United
States. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and competitors may independently
develop similar technology, duplicate our products or design around
patents that may be issued to us.
Others may
assert that our technology infringes their intellectual property
rights.
We do not believe that we
infringe the proprietary rights of others, but we may be subject to
infringement claims. In particular, because a United States patent
application is not publicly disclosed until the patent is issued, we
cannot be certain that there are no pending applications that, if issued,
would restrict our ability to use or provide our existing or planned
technology or services. The defense of any claims of infringement made
against us by third parties could involve significant legal costs and
require our management to divert time and attention from our business
operations. Either of these consequences of an infringement claim could
have a material adverse effect on our operating results. If we are
unsuccessful in defending against any claims of infringement, we may be
forced to obtain licenses or to pay royalties to continue to use our
technology. We may not be able to obtain any necessary licenses on
commercially reasonable terms or at all. If we fail to obtain necessary
licenses or other rights, or if these licenses are too costly, our
operating results may suffer either from reductions in revenues through
our inability to serve our buyers and suppliers or from increases in
costs to license third-party technology.
Future
government regulation of the Internet and of services offered through our
marketplace could limit the number of buyers and suppliers using our
services.
As with many Internet
companies, we operate in an environment of great uncertainty as to
potential government regulation. We believe that we are not currently
subject to direct regulation applicable to e-commerce, other than
regulations applicable to businesses generally. However, the Internet has
rapidly emerged as a commerce medium, and governmental agencies have not
yet adapted many existing regulations to its use. Future laws,
regulations and court decisions may affect the Internet or other
electronic services, covering issues such as user pricing, user privacy,
freedom of expression, access charges, taxation, content and quality of
products and services, advertising, antitrust, intellectual property
rights and user authentication and information security. In addition,
because our Internet-based marketplace is available worldwide, foreign
jurisdictions may claim that we are required to comply with their laws.
Any future law, regulation or court decision may have a negative impact
on our business.
Because we are an Internet
company, it is unclear in which jurisdictions we are actually conducting
business. Our failure to qualify to do business in a jurisdiction that
requires us to so qualify could subject us to fines and penalties and
could result in our inability to enforce agreements.
Numerous states have laws and
regulations regarding the conduct of auctions and the liability of
auctioneers. We do not believe that these laws and regulations, which in
most cases were enacted for consumer protection many years ago, apply to
our marketplace. However, one or more jurisdictions may attempt to impose
these or new laws and regulations on our operations in the
future.
We may be
exposed to product liability claims and claims based on information
provided by buyers or suppliers.
We face potential liability for
claims based on the type, adequacy and accuracy of the information and
data that we obtain from and make available to buyers and suppliers. This
includes claims for breach of warranty, product or environmental
liability, misrepresentation, intellectual property infringement,
violation of governmental regulations and other commercial claims. We
rely on buyers and suppliers to be truthful when registering to use our
marketplace and to update their registration information as changes
occur. Although we typically make some inquiries about the
creditworthiness or other characteristics of registering buyers and
verify some information about registering suppliers, we do not and cannot
practically perform extensive background checks or audits of buyers and
suppliers. Similarly, we do not screen requests for quotation for
accuracy, content or clarity. Although we maintain commercial general
liability insurance, including products liability and completed
operations liability, our insurance may not cover some claims. Our
insurance is also subject to policy limits and exclusions, and may not
fully indemnify us or our employees for any civil, governmental or
criminal liability that may be
imposed. Furthermore, this insurance may not be available at commercially
reasonable rates in the future. Any liability not covered by our
insurance or in excess of our insurance coverage could harm our business,
results of operations and financial condition. Our attempts to limit our
liability to and to obtain warranties and indemnification from buyers and
suppliers in our contracts may not absolve us of liability or may not be
enforceable.
We may be sued
for information and content contained in our Internet-based
marketplace.
As a publisher and distributor
of on-line content, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement and other claims
based on the nature and content of the materials that we publish or
distribute. These claims have been brought, sometimes successfully,
against on-line content providers. We do not and cannot practically
screen all of the content generated by our users and content partners,
including buyer and supplier registration information, requests for
quotation, entries posted by buyers and suppliers to the on-line bulletin
board within our marketplace, supplier bids, any satisfaction ratings
submitted by buyers and suppliers and articles and other content provided
by our content partners. We could be exposed to liability with respect to
any or all of this content. We could also be subjected to claims based
upon the content that is accessible from our marketplace through links to
other Internet sites or through content and materials that users may post
in on-line bulletin boards. Although we carry general liability
insurance, our insurance may not cover claims of these types or may not
be adequate to indemnify us for all liability that may be imposed. Any
imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could severely harm our
reputation and our business, operating results and financial
condition.
Our quarterly
results are subject to significant fluctuations, and our stock price may
decline if we do not meet expectations of investors and
analysts.
We expect that our quarterly
operating results will fluctuate significantly due to many factors, many
of which are outside our control, including:
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inconsistent
growth, if any, of our buyer and supplier base;
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loss of
strategic partners;
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variations in
the timing and dollar volume of transactions completed in our
Internet-based marketplace;
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timing of the
selection of suppliers by buyers following the completion of bidding
events in our marketplace;
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increased
competition from new on-line marketplaces;
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introduction of
new services or enhancements by our competitors;
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changes in
pricing policies by us or our competitors;
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our ability to
control operating costs during the establishment and growth of our
business; and
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fluctuations in
stock-based compensation expense related to grants of options to
non-employees and warrants to strategic partners.
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Because a high percentage of
our expenses is fixed, such as compensation and rent, any of the factors
listed above that could cause significant variations in revenues may harm
our financial results in any given quarter. Any decline in revenues or
earnings or a greater than expected loss for any quarter could lower the
market price of our common stock, even if not reflective of any long-term
problems with our business.
Our common
stock has not traded publicly; the initial public offering price may not
be indicative of the market price of our common stock after this
offering, and the market price of our common stock, like the market
prices of the stocks of other Internet companies, may fluctuate widely
and rapidly.
There is currently no public
market for our common stock, and we cannot assure you that an active
trading market will develop or be sustained after this offering. The
initial public offering price will be determined through negotiation
between us and representatives of the underwriters and may not be
indicative of the market price for our common stock after this
offering.
The market price of our common
stock could fluctuate significantly as a result of:
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quarter-to-quarter variations in our operating results, which
may cause us to fail to meet analysts’ or investors’
expectations;
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economic and
stock market conditions specific to Internet companies;
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changes in
financial estimates by securities analysts following our
stock;
|
Ÿ
|
earnings and
other announcements by, and changes in market evaluations of, Internet
companies;
|
Ÿ
|
changes in
business or regulatory conditions affecting Internet
companies;
|
Ÿ
|
announcements or
implementation by us or our competitors of technological innovations or
new products or services; or
|
Ÿ
|
trading volume
of our common stock.
|
The securities of many
companies have experienced extreme price and trading volume fluctuations
in recent years, often unrelated to the companies’ operating
performance. Specifically, market prices for securities of
Internet-related and technology companies have frequently reached
elevated levels, often following their initial public offerings. These
levels may not be sustainable and may not bear any relationship to these
companies’ operating performances. We cannot assure you that the
market price of our common stock will reach an elevated level following
this offering or that, if it does, it will not substantially and rapidly
decline. In the past, following periods of volatility in the market price
of a company’s securities, stockholders have often instituted
securities class action litigation against the company. If we were
involved in a class action suit, it could divert the attention of senior
management, and, if adversely determined, could have a negative impact on
our financial condition.
Substantial
sales of our common stock after the offering could cause our stock price
to fall.
All of our outstanding shares
are currently restricted from resale, but some may be sold into the
market in the near future. Sales of these shares into the market could
cause the market price of our common stock to drop significantly, even if
our business is doing well.
Immediately following this
offering, we will have outstanding 41,196,283 shares of common stock.
This includes the 10,000,000 shares we are selling in this offering.
Assuming that we sell all shares reserved under our directed share
program to the entities or persons for whom these shares have been
reserved, we expect that investors may resell all shares in the public
market immediately. The remaining 75.7%, or 31,196,283 shares, of our
total outstanding shares will become available for resale in the public
market as shown in the chart below:
Number of
shares / % of total outstanding
|
|
Date of
availability for resale into public market
|
| 29,809,457 /
72.4% |
|
180 days after
the date of this prospectus due to an
agreement many of our stockholders have with the
underwriters. However, the underwriters may waive
this restriction and allow these stockholders to sell
their shares at any time. |
|
|
|
|
| 1,386,826 /
3.3% |
|
January,
2001 or later. |
As restrictions on resale end,
the market price of our stock could drop significantly if the holders of
these restricted shares sell them or the market perceives that they
intend to sell them. For a more detailed description, please see
“Shares Eligible for Future Sale.”
You will
experience immediate and substantial dilution.
If you purchase common stock in
this offering, you will pay more for your shares than the amounts paid by
existing stockholders for their shares. As a result, you will experience
immediate and substantial dilution of approximately $7.09 per share,
representing the difference between our net tangible book value per share
after giving effect to this offering and the initial public offering
price. For more information, see “Dilution.”
Other companies
may have difficulty acquiring us, even if doing so would benefit our
stockholders, due to provisions of our certificate of incorporation and
by-laws and Delaware law.
Provisions in our certificate
of incorporation, in our by-laws and under Delaware law could make it
more difficult for other companies to acquire us, even if doing so would
benefit our stockholders. Our certificate of incorporation and by-laws
contain the following provisions, among others, which may inhibit an
acquisition of our company by a third party:
Ÿ
|
advance
notification procedures for matters to be brought before stockholder
meetings;
|
Ÿ
|
a limitation on
who may call stockholder meetings;
|
Ÿ
|
a prohibition on
stockholder action by written consent; and
|
Ÿ
|
an authorization
of 1,000,000 shares of undesignated preferred stock that we may issue
with special rights, preferences and privileges and that we could use,
for example, to implement a rights plan or poison pill.
|
We are also subject to
provisions of Delaware law that prohibit us from engaging in any business
combination with any “interested stockholder”, meaning
generally a stockholder who beneficially owns more than 15% of our stock,
for a period of three years from the date this person became an
interested stockholder, unless various conditions are met, such as
approval of the transaction by our Board. These provisions could have the
effect of delaying or preventing a change in control. For a more complete
discussion of these provisions of Delaware law, please see
“Description of Capital Stock—Anti-Takeover Provisions
—Delaware Law.”
Our affiliates
can control matters requiring stockholder approval because they own a
large percentage of our common stock, and they may vote this common stock
in a way with which you do not agree.
After this offering, our
officers, directors and 5% stockholders will own approximately 52.7% of
the outstanding shares of our stock. As a result, if these persons act
together, they will have the ability to exercise substantial control over
our affairs and corporate actions requiring stockholder approval,
including the election of directors, a sale of substantially all our
assets, a merger with another entity or an amendment to our certificate
of incorporation. The ownership position of these stockholders could
delay, deter or prevent a change in control and could adversely affect
the price that investors might be willing to pay in the future for shares
of our common stock.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under
“Prospectus Summary”, “Risk Factors”, “Management
’s Discussion and Analysis of Financial Condition and Results of
Operations”, “Business” and elsewhere in this prospectus
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry’s actual results, levels of activity, performance or
achievements to be materially different than any expressed or implied by
these statements. In some cases, you can identify these statements by
terminology such as “may”, “will”, “should
”, “expects”, “plans”, “anticipates”,
“believes”, “estimates”, “predicts”,
“potential”, “continue” or the negative of these
terms or other comparable terminology.
Although we believe that the
expectations reflected in these statements are reasonable, we cannot
guarantee future results, levels of activity, performance or
achievements. Except as otherwise required by federal securities laws, we
are under no duty to update any of the statements after the date of this
prospectus to conform these statements to actual results.
We estimate that we will
receive net proceeds from this offering of approximately $92.1 million,
at an assumed initial public offering price of $10.00 per share, net of
estimated underwriting discounts and commissions and offering expenses
payable by us. If the underwriters exercise their over-allotment option
in full, we estimate our net proceeds will be $106.0 million.
We expect to use these proceeds
for working capital, other general corporate purposes and potential
acquisitions. Other general corporate purposes include funding
anticipated operating losses, advertising campaigns, brand-name
promotions and other marketing efforts, research and development and
capital expenditures. We also may use a portion of the net proceeds to
acquire or invest in complementary businesses, technologies, products or
services, although no specific acquisitions are currently planned. As of
the date of this prospectus, we cannot specify with certainty all of the
particular uses for the remaining net proceeds we will have upon
completion of the offering. Accordingly, our management will have broad
discretion in the application of the net proceeds.
Pending these uses, we intend
to invest the net proceeds in interest-bearing, investment-grade
instruments, certificates of deposit, or direct or guaranteed obligations
of the United States.
We have never declared or paid
dividends on our capital stock and do not anticipate declaring or paying
any dividends in the foreseeable future. We currently intend to retain
any future earnings for the expansion of our business.
The following table sets forth
our capitalization as of March 31, 2000 on an actual and pro forma as
adjusted basis. The pro forma as adjusted column reflects our actual
capitalization and further adjustments to reflect:
|
Ÿ
|
the automatic
conversion of all shares of outstanding preferred stock into 21,145,764
shares of common stock upon the closing of this offering;
|
|
Ÿ
|
the filing of an
amendment to our certificate of incorporation concurrent with the
closing of this offering to eliminate all existing series of preferred
stock and to create 1,000,000 shares of undesignated preferred stock;
and
|
|
Ÿ
|
our sale of
10,000,000 shares of common stock at an assumed initial public offering
price of $10.00 per share, after deducting the underwriting discounts
and commissions and estimated offering expenses.
|
None of the columns reflect
5,251,924 shares of common stock reserved for issuance under our stock
option plan as of March 31, 2000, of which 3,794,760 shares were subject
to outstanding options, or 100,000 shares of common stock issuable upon
the exercise of outstanding warrants.
You should read the table below
along with our financial statements and the related notes.
|
|
|
As of March
31, 2000
|
|
|
|
Actual
|
|
Pro Forma
As Adjusted
|
|
|
| Cash and cash
equivalents |
|
$23,420,956 |
|
|
$115,470,956 |
|
| |
|
|
|
|
|
|
Redeemable
convertible preferred stock; 22,652,913 shares authorized, actual; no
shares authorized, issued or outstanding,
pro forma as adjusted: |
|
|
|
|
|
|
Series A; $.001 par
value; 6,562,873 shares issued and outstanding, actual;
no shares authorized, issued or outstanding, pro
forma as adjusted |
|
$
6,080,501 |
|
|
$
— |
|
Series B; $.001 par
value; 16,040,039 shares issued and outstanding, actual;
no shares authorized, issued or outstanding, pro
forma as adjusted |
|
34,478,339 |
|
|
—
|
|
| Stockholders
’ (deficit) equity: |
|
|
|
|
|
|
Preferred stock; $.001
par value; no shares authorized, issued or
outstanding, actual; 1,000,000 shares authorized, no
shares issued and
outstanding, pro forma as adjusted |
|
—
|
|
|
—
|
|
Common stock; $.001
par value; 85,000,000 shares authorized, actual;
100,000,000 shares authorized pro forma as adjusted;
10,050,519 shares
issued and outstanding, actual; 41,196,283 shares
issued and outstanding,
pro forma as adjusted |
|
10,051 |
|
|
41,196 |
|
| Additional
paid-in capital |
|
25,165,116 |
|
|
157,742,811 |
|
| Deferred
stock-based compensation |
|
(18,172,218 |
) |
|
(18,172,218 |
) |
| Accumulated
deficit |
|
(19,876,634 |
) |
|
(19,876,634 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’
(deficit) equity |
|
(12,873,685 |
) |
|
119,735,155 |
|
| |
|
|
|
|
|
|
|
Total capitalization |
|
$27,685,155 |
|
|
$119,735,155 |
|
| |
|
|
|
|
|
|
Our pro forma net tangible
book value as of March 31, 2000 was $27.7 million, or $0.89 per share,
assuming conversion of all outstanding shares of Series A and Series B
preferred stock into shares of our common stock upon the closing of this
offering. Pro forma net tangible book value per share represents the
amount of our total tangible assets, reduced by the amount of our total
liabilities, and then divided by the total number of shares of common
stock outstanding after giving effect to the automatic conversion of all
shares of outstanding preferred stock upon closing of this offering.
Dilution in pro forma net tangible book value per share represents the
difference between the amount paid per share by purchasers of shares of
common stock in this offering and the pro forma net tangible book value
per share of common stock immediately after the completion of this
offering. After giving effect to the sale of the 10,000,000 shares of
common stock offered by us at an initial public offering price of $10.00
per share, and after deducting the underwriting discounts and
commissions and estimated offering expenses payable, our pro forma net
tangible book value as of March 31, 2000 would have been $119.7 million
or $2.91 per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $2.02 per share to
existing stockholders and an immediate dilution of $7.09 per share to
new investors purchasing shares at the initial public offering price.
The following table illustrates this dilution of a per share
basis:
| Assumed public
offering price |
|
|
|
$10.00 |
|
Pro forma net tangible
book value as of March 31, 2000 |
|
$
0.89 |
|
|
|
Increase attributable
to new investors |
|
2.02 |
|
|
| |
|
|
|
|
| Pro forma net
tangible book value after the offering |
|
|
|
2.91 |
| |
|
|
|
|
| Dilution to new
investors |
|
|
|
$
7.09 |
| |
|
|
|
|
The preceding table assumes no
exercise of options and warrants outstanding as of March 31, 2000. If
all of these options and warrants were exercised, then the total
dilution per share to new investors would be $7.35.
The following table
summarizes, as of March 31, 2000, the differences between the existing
stockholders and new investors with respect to the number of shares of
common stock purchased from us, the total consideration paid to us and
the average price per share paid:
|
|
|
Shares
Purchased
|
|
Total
Consideration
|
|
Average Price
Per Share
|
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
| Existing
stockholders |
|
35,091,043 |
|
77.8 |
% |
|
$
47,754,552 |
|
32.3 |
% |
|
$
1.36 |
| New
investors |
|
10,000,000 |
|
22.2 |
% |
|
100,000,000 |
|
67.7 |
% |
|
10.00 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
45,091,043 |
|
100.0 |
% |
|
$147,754,552 |
|
100.0 |
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The preceding table assumes
the exercise of all options and warrants outstanding as of March 31,
2000. As of March 31, 2000, 3,794,760 shares were subject to outstanding
options at a weighted average exercise price of $1.07 per share and
100,000 shares were subject to outstanding warrants at a weighted
average exercise price of $0.93 per share.
We derived the selected
historical financial data presented below from our financial statements
and related notes. You should read the selected historical financial
data together with our historical financial statements and related notes
and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Unaudited pro forma loss per
share data reflect the conversion of all preferred stock outstanding as
of the end of each respective period into common stock as if the shares
had converted immediately upon issuance, even though the effect of the
conversion is antidilutive. Net loss per share data includes accretion
of offering costs and other charges incurred in connection with our
preferred stock issuances. Unaudited pro forma loss per share data do
not reflect potential shares of common stock issuable upon exercise of
outstanding options and warrants because the effect would be
antidilutive. See Note 2 to our financial statements for an explanation
of the basis used to calculate net loss per share.
PricewaterhouseCoopers LLP,
independent accountants, audited our historical financial statements for
the period from inception, February 12, 1999, through December 31, 1999.
Their report appears in another part of this prospectus. We believe the
unaudited results shown below include all adjustments consisting only of
non-recurring adjustments that we consider necessary for a fair
presentation of such information.
|
|
|
Period From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three Months
Ended
March 31, 2000
|
| Statement of
Operations Data: |
|
|
|
|
|
|
| Revenue |
|
$
51,541 |
|
|
$
216,791 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
Costs of
revenue |
|
107,605 |
|
|
205,615 |
|
|
Sales and
marketing |
|
2,397,405 |
|
|
10,576,301 |
|
|
Research and
development |
|
515,993 |
|
|
681,116 |
|
|
General and
administrative |
|
636,171 |
|
|
1,577,297 |
|
|
Stock-based
compensation |
|
2,731,515 |
|
|
1,395,093 |
|
| |
|
|
|
|
|
|
|
Total operating
expenses |
|
6,388,689 |
|
|
14,435,422 |
|
| |
|
|
|
|
|
|
| Operating
loss |
|
(6,337,148 |
) |
|
(14,218,631 |
) |
| Interest
income |
|
280,109 |
|
|
403,978 |
|
| |
|
|
|
|
|
|
| Net
loss |
|
$
(6,057,039 |
) |
|
$(13,814,653 |
) |
| |
|
|
|
|
|
|
| Net loss per
share, basic and diluted |
|
$
(2.66 |
) |
|
$
(2.24 |
) |
| Weighted
average common shares outstanding, basic and diluted |
|
2,344,874 |
|
|
6,223,990 |
|
| Unaudited pro
forma net loss per share, basic and diluted |
|
$
(0.58 |
) |
|
$
(0.51 |
) |
Unaudited pro
forma weighted average common shares outstanding,
basic and diluted |
|
10,446,037 |
|
|
27,210,518 |
|
|
|
|
|
December 31,
1999
|
|
March 31,
2000
|
| Balance
Sheet Data: |
|
|
|
|
|
|
| Cash and cash
equivalents |
|
$36,761,018 |
|
|
$23,420,956 |
|
| Working
capital |
|
35,784,958 |
|
|
24,167,200 |
|
| Total
assets |
|
39,141,083 |
|
|
30,496,670 |
|
| Redeemable
convertible preferred stock |
|
40,830,504 |
|
|
40,558,840 |
|
| Total
stockholders’ deficit |
|
(3,491,503 |
) |
|
(12,873,685 |
) |
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 “Selected Financial Data” and the financial
statements and related notes included elsewhere in this
prospectus.
Overview
SupplierMarket.com is a
leading business-to-business Internet-based marketplace serving the
large and fragmented market for direct materials. Direct materials are
those components and materials used in the manufacture of finished
goods. Our marketplace enables participants to efficiently and cost
effectively buy and sell direct materials.
We were incorporated in
February 1999. From February 1999 to the launch of our marketplace in
October 1999, we were primarily engaged in raising capital, developing
our Internet-based marketplace, building corporate infrastructure,
marketing our service and establishing relationships with buyers and
suppliers of direct materials.
We generate revenue from
transaction fees earned on bidding events that result in a buyer
selecting a supplier to fulfill its request for quotation. The
transaction fee, paid by the supplier, is based on a percentage of the
final dollar value of the selected supplier’s bid. In February
2000, we updated the terms and conditions of use of our marketplace to
set this percentage to range between 2% and 4%. Prior to that, this
percentage fee ranged from 1% to 4%. We recognize revenue when the buyer
has selected a supplier as a result of a competitive bidding event, the
supplier has issued to us a purchase order for the transaction fee and
we have an enforceable right to collect the transaction fee from the
supplier. We record a sales allowance for transaction fees which are
subject to adjustment for changes in price and volume over the course of
the purchase contract.
Costs associated with the
operation of our marketplace consist of costs of revenue, sales and
marketing, research and development, general and administrative and
stock-based compensation. Costs of revenue represent salary and expenses
incurred for employees who contribute directly to our marketplace
services. Sales and marketing expenses consist of compensation expenses
for our sales and marketing personnel, travel and entertainment costs
and costs associated with our marketing and branding activities and
amortization of deferred development costs. We expect to incur
significant additional costs of revenue in 2000 and 2001 in the form of
non-cash stock-based charges related to the anticipated issuance of
strategic warrants. We will account for our proposed strategic warrants
as variable awards, and we cannot estimate with certainty the related
expense we will recognize in future periods. We will recognize the
expense related to any strategic warrants as they vest. We expect that
the stock-based expense associated with the strategic warrants, if
issued will be incurred over the final three fiscal quarters of 2000 and
each fiscal quarter of 2001. In 1999 and the three months ended March
31, 2000, we focused our marketing activities on direct mail, trade
magazine advertising and trade shows. We expect to substantially
increase the dollar amount of sales and marketing expenses as we
continue to increase the size of our sales force and to build awareness
of our brand. Research and development expenses consist primarily of
compensation for our web site development staff and outside consulting
costs. General and administrative expenses consist primarily of
compensation for personnel, facility costs and professional
fees.
Stock-based compensation
consists of non-cash expenses related to employee and director stock
option grants with exercise prices lower than the subsequently
determined fair value of the underlying shares at the time of grant and
non-employee stock option grants which we account for at their fair
value.
We expect to recognize significant stock-based expense in connection with
our grants of stock options and our proposed issuances of strategic
warrants during the foreseeable future. The amount of this stock-based
expense will significantly increase our operating loss or minimize our
operating income, if any, during that time. We amortize stock-based
compensation for employee and director stock options over the vesting of
each individual option award. The options granted to employees generally
vest over four years, and the options granted to directors generally
vest over 12 months. As of March 31, 2000, we have recorded $16.1
million of net deferred stock-based compensation for employee and
director stock options which we currently expect will result in
additional non-cash compensation expense of $3.6 million in the
remainder of 2000, $4.2 million in 2001, $4.1 million in 2002, $3.9
million in 2003 and $394,000 in 2004.
We account for non-employee
option grants as variable awards, and we cannot estimate with certainty
the related expense we will recognize in future periods, as it will
depend upon a number of factors including our stock price. As of March
31, 2000, based on the estimated value of our stock on that date, we
have recorded $2.1 million of net deferred stock-based compensation
related to these option grants. The amount of this net deferred
stock-based compensation will change in future periods as the value of
our stock changes.
Since our inception on
February 12, 1999, we have incurred net losses. From inception through
December 31, 1999, we had a net loss of $6.1 million. Our net loss for
the three months ended March 31, 2000 was $13.8 million and as of March
31, 2000, our accumulated deficit totaled $19.9 million. We have not
achieved profitability to date, and we do not expect to achieve
profitability in the foreseeable future.
In February 2000, our board of
directors reserved 2,181,416 shares of common stock for issuance under
strategic common stock purchase warrants which we may issue to buyers
that have the ability to place a large dollar amount of requests for
quotation on our marketplace. We have entered into non-binding letters
of intent with several companies which contemplate the issuance of
strategic warrants to these buyers. We expect that the majority of
vesting of these strategic warrants, if any, will occur over the second,
third and fourth fiscal quarters of 2000 and each fiscal quarter of
2001. The vesting will be based, in each case, on the buyer’s
attaining specified quarterly targets for the total dollar value of
requests for quotation posted on our marketplace by such buyer that
result in the signing of a purchase order. We cannot assure you that we
will issue these strategic warrants to any of these buyers at all or on
terms reasonable to us. In addition, these warrants would not obligate
any of the buyers to post any requests for quotation, or otherwise
conduct any business, on our marketplace.
We launched our marketplace in
October 1999. Our limited operating history makes predicting future
operating results very difficult. We have estimated that the annual
market for direct materials in the U.S. is approximately $1.9 trillion.
Due to our extremely limited operating history, we have yet to penetrate
this market in a significant manner. We believe that you should not rely
on any period-to-period comparison of our operating results to predict
our future performance. You must consider our prospects in light of the
risks, expenses and difficulties encountered by companies in new and
rapidly evolving markets, such as ours. We may not be successful in
addressing these risks and difficulties.
Results of
Operations
|
Three months
ended March 31, 2000 compared to December 31, 1999
|
Revenue. We earned
$217,000 of revenue during the three months ended March 31, 2000.
Revenue increased 317% from $52,000 earned during the three months ended
December 31, 1999. The increase in revenue is the result of the
increased number of bidding events, as well as, an increase in our
average transaction fee from 1% to 2%.
Costs of Revenue. We incurred costs of revenue of $206,000 during
the three months ended March 31, 2000. Costs of revenue increased 91%
from $108,000 incurred during the three months ended December 31, 1999.
The increase in costs of revenue is primarily the result of increased
headcount for employees who operate our Internet-based marketplace. In
addition, we recorded additional amortization of web site development
costs during the three months ended March 31, 2000.
Sales and Marketing
Expenses. Sales and marketing expenses were $10.6 million during the
three months ended March 31, 2000. Sales and marketing expenses
increased 458% from $1.9 million incurred during the three months ended
December 31, 1999. The increase is primarily the result of our brand
development campaign and increased advertising efforts during the three
months ended March 31, 2000. We have also incurred additional costs
related to increased headcount in both our sales and marketing
departments during the three months ended March 31, 2000 compared to the
three months ended December 31, 1999.
Research and Development
Expenses. Research and development expenses were $681,000 during the
three months ended March 31, 2000. Research and development expenses
increased 47% from $462,000 incurred during the three months ended
December 31, 1999. This increase is the result of additional headcount
in our engineering department as well as our continued efforts on
improving our Internet-based marketplace.
General and Administrative
Expenses. General and administrative expenses were $1.6 million
during the three months ended March 31, 2000. General and administrative
expenses increased 206% from $523,000 incurred during the three months
ended December 31, 1999. This increase is the result of additional
headcount to continue to support the growth in our
infrastructure.
Stock-Based
Compensation. Stock-based compensation was $1.4 million during the
three months ended March 31, 2000 and the three months ended December
31, 1999.
Interest Income. We
earned interest income of $404,000 during the three months ended March
31, 2000. Interest income increased 64% from $246,000 earned during the
three months ended December 31, 1999. This increase is the result of the
additional interest income generated by the proceeds from the issuance
of Series B preferred stock in November 1999.
|
Period from
inception on February 12, 1999 through December 31,
1999
|
Revenue.
For the period from the launch of our marketplace in October
1999 through December 31, 1999, we have earned revenue of $52,000 from
the completion of two successful bidding events. During our development
stage from inception through October 1999, we did not earn any
revenue.
Costs of Revenue.
We incurred costs of revenue of $108,000 for the
period from inception through December 31, 1999, all of which was
incurred during the three months ended December 31, 1999.
Sales and Marketing
Expenses. Sales and marketing expenses for
the period from inception through December 31, 1999 were $2.4 million,
comprising $1.2 million for marketing, $713,000 for sales and $461,000
for advertising expenses. Sales and marketing expenses consisted of
salary and benefits for personnel in our sales and marketing
departments, travel and public relations expenses and branding
campaigns.
Research and Development
Expenses. Research and development expenses
for the period from inception through December 31, 1999 were $516,000.
Research and development expenses related to headcount required for the
continued technological development and enhancement of our marketplace
functionality and capacity.
General and Administrative
Expenses. General and administrative expenses
for the period from inception through December 31, 1999 were $636,000.
General and administrative expenses related to headcount to support the
growth in our infrastructure.
Stock-Based
Compensation. For the period from inception
through December 31, 1999, we recorded stock-based compensation of
approximately $2.7 million in connection with stock options granted to
employees and non-employees.
Interest Income.
Interest income from inception through December 31,
1999 was $280,000. Interest income generated by the investment of the
proceeds from our issuance of Series B preferred stock in November
1999.
Liquidity and
Capital Resources
Since our inception in
February 1999, we have had negative cash flows from our operations. For
the three months ended March 31, 2000, we used $13.9 million of cash for
operations. For the period from inception through December 31, 1999, we
used $2.3 million of cash for operations. Cash expended for operating
activities included costs for the development of our marketplace,
salaries and related employee costs and marketing and brand development.
For the three months ended March 31, 2000, we used $2.2 million of cash
for investing activities, which primarily consisted of expenditures for
computer equipment. For the period from inception through December 31,
1999, we used cash of approximately $1.6 million in investing
activities, which consisted of expenditures for computers and related
equipment, furniture and fixtures and technology costs incurred for the
development of our marketplace. We intend to increase our capital
expenditures in 2000 and 2001 primarily in connection with the
implementation of a financial accounting system and customer
relationship management system.
Since inception, we have
financed our operations from the issuance of preferred stock. From June
through August 1999, we conducted our Series A preferred stock offering
and received net proceeds of approximately $6.1 million. In November
1999, we commenced our Series B preferred stock offering and received
net proceeds of approximately $34.6 million. We sold additional shares
of Series B preferred stock in January and February 2000 and received an
additional $2.8 million in net proceeds.
We have entered into a
non-cancelable lease commitment for our corporate headquarters that will
require an annual payment of $741,000 in 2000 and annual payments of
$761,000 in 2001 through 2004 representing a total commitment of $3.8
million over the next five years. We believe that we may need to enter
into additional leases for more office space in late 2000 and 2001. New
leasing arrangements will increase our total non-cancelable lease
obligations at that time.
As of December 31, 1999, we
had revolving and equipment lines of credit for a combined facility of
$1.5 million with our bank that we terminated in February 2000. There
were no amounts outstanding under these lines of credit as of December
31, 1999 and we did not borrow any amounts prior to termination. We are
currently evaluating the need to replace these credit
facilities.
As of March 31, 2000, our
principal source of liquidity was $23.4 million of cash and cash
equivalents. We expect to experience significant growth in our operating
costs for the foreseeable future in order to continue to grow our
business, particularly in the areas of brand development and marketing
and research and development. We also expect to open additional offices.
As a result, we expect these operating costs as well as other planned
expenditures will constitute a significant use of our cash resources.
Although we currently have no agreements or commitments in place, we may
also use cash to fund acquisitions of other businesses and technologies.
We believe that we have sufficient cash and cash equivalents, including
the proceeds from this offering, to fund our operating and investing
activities for at least 12 months. In order to meet our long-term
liquidity needs, we may need to obtain additional funds. We currently
have no credit facility in place to provide long-term liquidity. We may
need to raise additional funds earlier through public or private
financings, or other arrangements if we consummate acquisitions or
otherwise grow our business at a faster rate than we currently expect.
Any additional financings, if needed, might not be available on
reasonable terms or at all. Failure to raise capital when needed could
harm our business, financial condition and results of operations. If
additional funds are raised through the issuance of equity securities,
additional dilution could result. In addition, any equity securities
issued might have rights, preferences or privileges senior to our common
stock.
Market
Risk
Our interest income is
sensitive to changes in the general level of United States interest
rates, particularly since the majority of our investments are in
short-term instruments.
Recent
Accounting Pronouncements
In June 1998, the FASB issued
SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” which established accounting and reporting standards
for derivative instruments and hedging. It requires entities to
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. To date, we have not engaged in derivative or hedging activities,
and accordingly do not believe the adoption of SFAS No. 133 will have a
material impact on the financial reporting and related disclosures. We
will adopt SFAS No. 133 as required by SFAS No. 137, “Deferral of
Effective Date of the FASB Statement No. 133,” in calendar
2001.
In December 1999, the
Securities and Exchange Commission released Staff Accounting Bulletin
No. 101, “Revenue Recognition in Financial Statements.” This
bulletin summarizes certain views of the staff on applying generally
accepted accounting principles to revenue recognition in financial
statements. The staff believes that revenue is realized or realizable
and earned when all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or services
have been rendered; the seller’s price to the buyer is fixed or
determinable; and collectibility is reasonably assured. We believe that
our current revenue recognition policy complies with the Commission
’s guidelines.
Overview
SupplierMarket.com is a
leading business-to-business Internet-based marketplace serving the
large and fragmented market for direct materials. Direct materials are
used in the manufacture of finished goods and include a wide variety of
components and materials, from bolts, nuts and fasteners to rubber and
glass products to corrugated packaging to injection and blow-molded
plastic components. Our marketplace enables participants to efficiently
and cost effectively buy and sell direct materials in an open, neutral
exchange that requires no up-front fees, no software installation and no
consulting services. Our solution enables buyers to reduce their direct
material costs, expand and improve their base of suppliers, reduce their
administrative purchasing costs and shorten their purchasing cycle times
by centralizing suppliers and providing an Internet-based marketplace.
Meanwhile, our solution enables suppliers to gain access to new business
opportunities, reduce sales, marketing and administrative costs and
shorten sales cycle times. An important feature of our marketplace is
that companies can participate as both a buyer, purchasing their
manufacturing components or materials, and a supplier, selling their
manufactured products.
We feature a horizontal market
approach, allowing our marketplace participants to buy and sell direct
materials across a wide range of industrial segments. Through our
proprietary RFQ Builder, SmartMatch and competitive bidding
technologies, we bring buyers and suppliers together, streamlining the
steps of the direct materials purchasing cycle. There are no up-front
fees for the use of our marketplace. It is completely free for the
buyer, and a supplier is only required to pay us a transaction fee when
it has been selected by a buyer as a result of a competitive bidding
event to fulfill the request for quotation. As of March 31, 2000, we had
registered approximately 5,000 buyers and 9,000 suppliers. Our
marketplace participants include such companies as Masco, U.S. Filter,
The Simmons Company and J.L. French.
Industry
Background
|
Business-to-Business Electronic Commerce
|
The Internet has become the
fastest growing commerce medium in history, revolutionizing how
individuals and organizations conduct business. Companies are
increasingly using the Internet to increase revenue, enhance
productivity, cut costs and communicate more effectively.
Business-to-business e-commerce marketplaces have been established to
bring together buyers and suppliers of goods and services and to provide
a centralized on-line exchange for sharing information. These on-line
marketplaces reduce the role of intermediaries and eliminate paper-based
process and transaction inefficiencies, thereby enabling buyers and
suppliers to identify new revenue opportunities, achieve supply chain
efficiencies and simplify complex business processes. These on-line
marketplaces rely on the Internet as a viable means of conducting
commerce and require certain expenditures that traditional businesses do
not incur such as the cost of web site maintenance. The Gartner Group
expects the volume of non-financial goods and services sold through
business-to-business e-commerce to reach $7.3 trillion worldwide in 2004
and that electronic marketplaces will account for 37%, or $2.7 trillion,
of these sales.
|
The Direct
Materials Market
|
The direct materials market is
broad and includes numerous industrial segments. Some commonly used
direct materials in these industrial segments include fasteners and
hardware, metal stampings, screw machine products, simple plastic parts,
die cast products, rubber products and glass products. We estimate that
the annual market for direct materials in the United States is
approximately $1.9 trillion.
The U.S. market for direct
materials is highly fragmented and inefficient. Based on industry data,
we believe that approximately 240,000 independent suppliers, ranging
from small component manufacturers with less than $1 million in annual
revenues to multi-billion dollar original equipment manufacturers, sell
direct
materials. Over 90% of these companies have less than $10 million in
annual revenue. This high degree of fragmentation and inefficiency has
required companies to incur significant search, negotiation and
transaction costs. In addition, most companies in the direct materials
market function as both buyers and suppliers and experience the
inefficiencies associated with both the buying and selling
processes.
|
Traditional
Direct Materials Purchasing Process
|
Traditional direct materials
purchasing is a highly inefficient process due to the large size of the
market, its high degree of fragmentation, significant distribution costs
and asymmetric flows of information. Companies in the direct materials
market have traditionally purchased and sold direct materials through
the time-consuming and paper-based request for quotation process,
illustrated as follows:
Step 1:
A buyer details the commercial and technical specifications of
the component or materials it seeks to purchase. Technical
specifications and drawings are typically prepared using any one of
numerous software design packages.
Step 2:
The buyer’s internal purchasing professionals or third
party agents identify prospective suppliers for the requested components
or materials from a variety of sources, including supplier directories
and catalogs, trade publications, trade shows and its network of
existing suppliers. At the same time, suppliers employ third-party
agents or sales and marketing personnel to identify prospective buyers
and contact or visit the buyer, often on an unsolicited
basis.
Step 3:
The buyer contacts prospective suppliers, shares technical
specifications of the direct materials, typically via paper-based means,
including fax, mail or courier, and solicits more information regarding
each supplier’s capabilities and qualifications.
Step 4:
The buyer analyzes the information gathered from prospective
suppliers to determine which, if any, are qualified to fulfill the buyer
’s purchasing needs.
Step 5:
The buyer separately distributes its request for quotation
with detailed technical specifications and drawings to each qualified
supplier, typically via paper-based means, including fax, mail or
courier.
Step 6:
Each of the qualified suppliers reviews the buyer’s
request for quotation. Buyers’ requests for quotation often vary in
format and level of detail, requiring detailed review, analysis and
clarification. Upon conclusion of this review, the supplier submits
questions to the buyer regarding the bidding process and request for
quotation requirements.
Step 7:
The buyer responds to each supplier’s question
independently, clarifies the request for quotation requirements as
needed and communicates any additional information independently to all
of the suppliers.
Step 8:
Each supplier prepares and submits one bid for the components
or materials without knowing what price the other suppliers have offered
to the buyer.
Step 9:
The buyer evaluates the bids from each qualified supplier,
based on price, quality and timing considerations and follows up
separately with each supplier to ask questions and to negotiate bid
terms.
Step 10:
The buyer selects one supplier. The remaining suppliers often
must contact the buyer to learn the outcome of the bidding
process.
Step 11:
The buyer and supplier complete a purchase order for the
direct materials in question.
The traditional method of
direct materials purchasing suffers from a number of inefficiencies
affecting both buyers and suppliers. First, the highly decentralized
purchasing process hinders the efficient matching of buyers and
suppliers. Second, the interactive, multi-step process can take up to
several months. Third, the
length of this process forces buyers and suppliers to engage in
substantial advanced planning to ensure they have sufficient components
and materials to meet their production needs. As a result, buyers and
suppliers may hold higher inventories, maintain higher working capital
levels and increase production lead times.
We believe buyers often pay
more for direct materials because they lack easy access to new suppliers
in a centralized and efficient marketplace, which can limit the quality
of their supplier base and can inhibit their ability to obtain
competitive prices. In addition, buyers must employ significant
resources for purchasing professionals to search for and review the
qualifications of suppliers to ensure a competitive bid. The traditional
bidding process minimizes the opportunity for suppliers to adjust their
prices during the bidding. Suppliers also find the traditional
purchasing process difficult and expensive. The lack of a centralized
source for requests for quotation, high sales costs, and poor
communication within the market can restrict buyers to using a limited
number of known suppliers, in turn reducing business opportunities for
other qualified suppliers. Therefore, suppliers incur significant costs
for their sales force, advertising and travel used to identify buyers
for their products.
The
SupplierMarket.com Solution
We provide a secure
Internet-based marketplace that centralizes buyers and suppliers,
matches companies with multiple qualified trading partners and promotes
a competitive pricing environment. Our solution eliminates many of the
steps in the traditional direct materials purchasing process. The
SupplierMarket.com purchasing process for our registered participants
consists of the following steps:
Step 1:
A buyer completes a standardized online request for quotation
using our proprietary RFQ Builder technology and includes technical
specifications and drawings using their existing design software
package.
Step 2:
Our proprietary SmartMatch technology identifies qualified
suppliers who can immediately view the buyer’s posted request for
quotation, including technical specifications and engineering drawings
presented in a standard format.
Step 3:
If necessary, suppliers post questions regarding the request
for quotation on an electronic bulletin board located on our marketplace
and the buyer responds with clarifications. All suppliers are able to
view this information, thereby eliminating redundant
questions.
Step 4:
Qualified suppliers participate in an anonymous bidding event
featuring a competitive, reverse auction during which the buyer and
suppliers can view all bids as they are submitted as well as supplier
qualifications.
Step 5:
The buyer selects one supplier, at which time
SupplierMarket.com provides the buyer and chosen supplier with each other
’s names and contact information to complete the transaction. Our
marketplace then automatically notifies the other suppliers that they
have not been selected.
Step 6:
The buyer and supplier complete a purchase order for the
direct materials and may complete a satisfaction rating of the
transaction and each other for SupplierMarket.com.
The simplicity and efficiency
of the SupplierMarket.com solution is driven by our proprietary RFQ
Builder, SmartMatch and competitive bidding technologies. The RFQ
Builder provides buyers with a standardized, on-line form for requests
for quotation and the ability to easily include all necessary technical
specifications and engineering drawings for the direct materials.
SmartMatch eliminates many of the steps in the traditional purchasing
process by searching our registered supplier base to identify suppliers
capable of meeting the buyer’s strict quality and capability
requirements as set forth in its request for quotation. Our competitive
bidding technology allows the buyer and suppliers to view all bids
submitted in real time and allows suppliers to adjust their bids in a
dynamic process.
Benefits to
Buyers and Suppliers
There are several key
differences between our marketplace and alternatives offered by other
business-to-business e-commerce companies. First, any registered buyer
or supplier can immediately access our entirely Internet-based
marketplace with a standard browser connection; there is no required
installation of software on their information technology system. Second,
there are no up-front fees for the use of our marketplace. It is
completely free for the buyer, and a supplier is only required to pay us
a transaction fee after it has been selected by a buyer as a result of a
competitive bidding event to fulfill the request for quotation. Third,
our technology-based solution does not require the use of consultants
for implementation or ongoing support.
We believe our marketplace
benefits buyers in the following ways:
Ÿ
|
Reduced
costs of direct materials. Transactions
completed on our marketplace to date have indicated that buyers using
our marketplace have reduced the costs of their direct materials when
compared to previous purchases using the traditional request for
quotation process. This is due primarily to the competitive nature of
our marketplace, which enables a number of suppliers to bid
aggressively to win new business.
|
Ÿ
|
Access to
increased base of new and qualified suppliers.
Access to our registered supplier base makes it more likely that
a buyer will find new suppliers that can satisfy the criteria set
forth in its request for quotation. In addition, our marketplace
allows a buyer to quickly compare and contrast the qualifications of
multiple suppliers, enabling them to select from a higher quality
pool.
|
Ÿ
|
Shorter
cycle times for purchasing. Our marketplace
provides quicker and more efficient identification of prospective
suppliers and a simplified request for quotation and bidding process.
This results in additional cost savings to the buyer through improved
staff efficiency and resource utilization in the purchasing process.
Buyers that have completed transactions on our marketplace to date
have reported to us that they have significantly reduced their
purchasing cycle from as long as several months to approximately one
month.
|
Ÿ
|
Standardized
request for quotation data format. Our
marketplace utilizes a standardized communication format called
extensible markup language (XML) for preparing and transmitting
requests for quotation. This digital transfer standard enables our
marketplace to be easily integrated with a variety of enterprise
software packages.
|
We believe our marketplace
benefits suppliers in the following ways:
Ÿ
|
Increased
access to new buyers. Registering on our
marketplace increases the probability a supplier will find prospective
customers. This increased access comes without any up-front fee to the
supplier, making our marketplace a cost effective way for the supplier
to find new business opportunities.
|
Ÿ
|
Reduced
sales and marketing costs. Our marketplace
creates a single medium through which buyers and suppliers can
exchange information. This single medium minimizes the need for
suppliers to disseminate information through other traditional
channels, reducing selling costs and requiring less time and sales
effort.
|
Ÿ
|
Rewarded for
expertise and efficiency. A buyer can
quickly compare and contrast suppliers’ qualifications and
expertise on our marketplace, such as quality certifications and
delivery capabilities. Therefore, a highly qualified supplier with
efficient operations is more likely to be selected by multiple buyers,
generating additional revenue.
|
Ÿ
|
Centralized
market intelligence. During a bidding
event, each participating supplier is able to view the qualifications
and bids submitted by the other suppliers including those of the
supplier ultimately chosen by the buyer. This market intelligence
allows a supplier to analyze the bid and to compete more successfully
in subsequent bidding events.
|
As more businesses adopt our
marketplace, its value to individual participants will increase, as they
will be able to conduct increasing amounts of both their purchasing and
selling on-line. For example, a company
that supplies systems to a finished goods manufacturer through our
marketplace can also submit requests for quotation to purchase
assemblies from other registered suppliers. As momentum towards adoption
of our marketplace continues to grow, we believe buyers and suppliers
who are quick to adopt our solution will become more
competitive.
The
SupplierMarket.com Strategy
Our goal is to become the
primary marketplace through which buyers and suppliers conduct most, if
not all, of their direct materials purchasing and selling. We believe we
are the first entirely Internet-based e-commerce solution for buying and
selling of direct materials, and we intend to capitalize on our early
mover position to increase our market share through the following
strategies:
Ÿ
|
Increase
marketplace participation. We intend to
increase the number of marketplace participants and the frequency of
their participation in three ways. First, we intend to focus our sales
and marketing efforts on attracting new buyers that will post more
requests for quotation on our marketplace. We expect that our
participant base will continue to grow because of the lack of up-front
fees and continued enhancements of our brand recognition and
awareness. Second, as our participant base grows, we expect to focus
our efforts on encouraging existing suppliers to use our marketplace
for their buying needs and likewise encouraging buyers to use our
marketplace for their selling needs. Third, we plan to enter into and
capitalize on strategic alliances with companies such as software
companies, content providers and complementary marketplaces that will
provide us with access to large numbers of additional buyers and
suppliers. By aggressively pursuing these strategic relationships, we
believe we can secure and extend our position as a leading
Internet-based marketplace for direct materials.
|
Ÿ
|
Expand our
service offerings. We intend to continue to
expand the range of services offered through our Internet-based
marketplace. These service offerings may include financing services,
logistics services and order tracking and billing services for
suppliers. By providing a comprehensive suite of services, we expect
to enhance the value of our marketplace to our
participants.
|
Ÿ
|
Maintain
technological leadership. We intend to
continue to extend our Internet-based technology leadership to meet
the evolving needs of our buyers and suppliers. In particular, we will
continue to focus substantial efforts on developing and enhancing our
bidding technology and our data management tools such as SmartMatch
and RFQ Builder. We will continue to expend substantial efforts to
develop, purchase or license technological advancements for our
marketplace to enhance its reliability and functionality. We intend to
capitalize on our technology leadership to increase the attractiveness
of our marketplace to buyers and suppliers.
|
Ÿ
|
Pursue
strategic acquisitions. We intend to seek
acquisition or investment opportunities with businesses that will
supplement our existing marketplace with additional participants,
enhance our technology or otherwise provide complementary value to our
business. We may also use acquisitions to facilitate our entry into
new markets.
|
Ÿ
|
Expand
internationally. We intend to expand our
marketplace internationally to enhance the breadth of registered
suppliers while introducing international buyers to our unique
offering. Initially, we will target deeper penetration of Canadian and
Mexican companies.
|
Our
Marketplace and Market Making Process
Our Internet-based marketplace
matches buyers and suppliers of direct materials. Our database stores in
a standardized format commercial and technical information about buyers
and suppliers and the qualities they desire when searching for new
business relationships. SmartMatch, our proprietary matching technology,
enables a supplier to search for requests for quotation matching its
manufacturing capabilities. Similarly, SmartMatch assists the buyer in
qualifying prospective suppliers. Our bidding technology allows for
competitive bidding events to match supply and demand in an efficient
manner.
The steps taken by buyers
and suppliers who use our marketplace are as follows:
[Graphic
depiction of pictures and associated text arranged in a “T”
formation. The top left branch bears a right-pointing arrow, a picture
of a computer keyboard and the text “Buyer Registers”. The top
right branch bears a left-pointing arrow, a picture of a computer
keyboard and the text “Suppliers Register”. The top center
bears a downward-pointing arrow and a picture of an industrial part. The
remaining pictures and text are arranged along the vertical axis of the
“T” from top to bottom as follows: picture of a mousepad with
text “Buyer completes online RFQ”; picture of a computer with
text “SmartMatch identifies qualified suppliers”; picture of a
clipboard with text “Q&A via online bulletin board”;
picture of a graph with text “Anonymous online bidding event”;
picture of a handshake with text “Buyer chooses supplier” and
picture of a check mark with text “Buyer and supplier complete
purchase order”.]
Each new buyer or supplier
initially registers on-line for inclusion on our marketplace’s
database. A company registering as a buyer provides general commercial
information about its business and information about the type of
supplier with which the buyer prefers to do business. Suppliers provide
similar commercial information as well as detailed technical capability,
quality certifications and information about their manufacturing
processes. Suppliers must also confirm by telephone their information
with a SupplierMarket.com representative. Registration information is
not available to other participants, and access to our marketplace is
password restricted.
Any registered buyer can
submit a request for quotation to our marketplace. Our RFQ Builder
technology provides a standardized, easy-to-use, on-line request for
quotation form on which the prospective buyer may specify information
about the product, including design specifications, materials, quantity,
quality levels and delivery date. The buyer can also post on-line
blueprints or engineering drawings via fax or electronic file upload.
Our marketplace supports most major computer aided design software,
including Parametric Technology’s ProEngineer and AutoDesk’s
AutoCAD.
Once a buyer posts a request
for quotation, we match it with prospective suppliers using our
proprietary SmartMatch technology, and the buyer’s commercial and
product data with the exception of its identity is made available for
prospective suppliers to evaluate. SmartMatch automatically identifies
prospective suppliers that have expertise in the products or processes
required to fulfill the request for quotation and that meet the buyer
’s criteria, and notifies those suppliers by e-mail. SmartMatch
achieves this matching through keyword searches and intelligent
selection criteria. In addition, all registered suppliers are able to
browse and search a database of submitted requests for quotation and can
nominate themselves to be included in the list of prospective suppliers.
A buyer may also nominate a particular supplier, choose to eliminate any
supplier or limit the number of prospective suppliers allowed to
participate in the bidding event.
We employ a small group of
experienced industry professionals as market makers. Our market makers
supervise bidding events and complement our SmartMatch technology by
ensuring that a sufficient number of suppliers participate in each
bidding event to result in a successful outcome. In the event that a
bidding event has a limited number of supplier participants, our market
makers use their extensive industry knowledge and contacts to invite
additional non-registered suppliers to register and participate. As the
number of buyers and suppliers that regularly use our system increases,
our market makers will become less involved in the matching process.
This will allow us to increase the number of bidding events processed
without a directly proportionate increase in the number of our market
makers.
At a time specified by the
buyer, all qualified suppliers participate in a competitive on-line
bidding event to fulfill the request for quotation. At the buyer’s
option, suppliers may bid not only on the entire request for quotation
but also on separate line items of a request for quotation composed of
multiple components or materials. Participants in the bidding event can
view each supplier’s bid and commercial and technical data, but not
the supplier’s identity. The bidding typically takes place over a
fixed period of time, usually one to two hours.
Upon completion of the bidding
process, the buyer selects one supplier with which to complete a
purchase order. Our marketplace provides a combination of price,
technical and commercial data to the buyer upon which the buyer can make
its selection. Only after the buyer has made its selection do we reveal
the identities of the selected supplier and the buyer to each other. The
buyer and supplier then typically close the transaction within several
weeks.
Case
Studies
The examples that follow
highlight the benefits that buyers and suppliers realize by using our
marketplace. Each competitive bidding event is a distinct event with a
different buyer and a different mix of suppliers and direct materials.
The cost savings and other benefits of our marketplace may differ from
bidding event to bidding event. For the bidding events completed to date
in which a buyer has selected a supplier and involving a dollar value in
excess of $50,000, direct materials cost savings for buyers have ranged
from 3 to 65%. We measure these savings based on the difference between
the buyer’s target price for the request for quotation as provided
to us before the bidding event and the price of the bid selected as a
result of the bidding event. The companies discussed in the following
case studies continue to actively participate in our marketplace by
posting or responding to requests for quotation.
The Simmons Company.
Simmons is one of the world’s leading
manufacturers of mattresses. In 2000 alone, Simmons estimates that it
will require over 8.5 million pounds of polyethylene film to produce
protective bags for mattresses. According to Simmons, the traditional
purchasing process can involve months to research and qualify suppliers,
which adds to the already significant cost for direct materials. Using
the SupplierMarket.com marketplace, Simmons was able to build a request
for quotation, watch the on-line bidding for its request for quotation
in real time, and ultimately choose a supplier from among eight
qualified bidders. This process took approximately 26 days using our
marketplace compared to several months using traditional means. Compared
to historical prices paid by Simmons, Simmons estimates it saved
$425,000, or 7%, in direct materials costs.
Shamrock Industrial
Fasteners. Shamrock is a small fastener
manufacturer and distributor, with limited resources for sales and
marketing staff. To find new business opportunities, the company
registered on SupplierMarket.com’s marketplace, listing its
technical and commercial qualifications. After being qualified by
SmartMatch to bid on two separate requests for quotation posted by a
buyer seeking to purchase specialized fasteners, Shamrock prepared its
bids based on the engineering diagrams and specifications that were
available on-line on our marketplace. Based on a combination of Shamrock
’s qualifications and the competitive bids it placed during the
bidding event, the buyer, a major automotive company, selected Shamrock
to provide over $250,000 in direct materials. Without investing in
up-front sales or marketing, and within twenty days of the requests for
quotation being posted on SupplierMarket.com’s marketplace,
Shamrock secured two new orders with a new customer.
Markets and
Market Participants
Our marketplace features a
horizontal approach allowing participants to buy and sell direct
materials across a wide range of industrial segments. Since the launch
of our marketplace in October 1999, we have conducted bidding events for
various direct materials including the following:
| Ÿ Metal
stampings |
|
Ÿ Machine
tooling |
| Ÿ Casted
metal products |
|
Ÿ Precision
machine parts |
| Ÿ Bolts,
nuts and fasteners |
|
Ÿ Molded
rubber products |
| Ÿ Screw
products |
|
Ÿ
Corrugated packaging |
| Ÿ Metal
tubing |
|
Ÿ Wire and
cord products |
| Ÿ Extruded
plastic film and sheet |
|
Ÿ
Fabric |
| Ÿ Injection
and blow-molded plastic components |
|
|
The buyers and
suppliers that participate in our marketplace comprise a diverse mix of
companies in the direct materials market, ranging from small components
manufacturers to multi-billion dollar original equipment manufacturers.
Buyers who have posted requests for quotation and suppliers who have
participated in bidding events on our marketplace include:
|
|
|
| |
|
|
|
| Ÿ
Affordable Interior Systems |
|
Ÿ
Masco |
| Ÿ Becker
Group |
|
Ÿ
Quality Farm & Country |
| Ÿ Schott
Industrial Fastners |
|
Ÿ
Shamrock Industrial Fasteners |
| Ÿ
Western Nonwovens |
|
Ÿ The
Simmons Company |
| Ÿ
EdgeCraft Corp. |
|
Ÿ
Universal Products |
| Ÿ IPS
Industries |
|
Ÿ U.S.
Filter |
| Ÿ J.L.
French Automotive Castings |
To date, we have
substantially relied on a small number of buyers to post a
significant majority of the requests for quotation on our
marketplace. Some of these buyers are portfolio companies, or
companies owned by investment funds that are either our principal
stockholders or affiliates of our principal stockholders or
directors. All revenue that we earned in 1999 resulted from requests
for quotation posted on our marketplace by one portfolio company
buyer. For the three months ended March 31, 2000, requests for
quotation posted by this same portfolio company buyer generated 91%
of our revenue. In addition, this and other porfolio company buyers
have posted 57% of the dollar value of requests for quotation that
have resulted in bidding events. We expect to continue to depend on
these portfolio companies as buyers, particularly if other buyers are
slow to adopt or to conduct significant business on our marketplace.
If any of these buyers discontinues use of our marketplace, or reduce
the aggregate dollar value of requests for quotation they post, our
business could be severely harmed.
We have recently
depended and expect to depend substantially on several strategic
buyers who have the ability to place a large amount of requests for
quotation on our marketplace. We intend to issue strategic warrants
to purchase our common stock to these strategic buyers that will vest
depending upon the total dollar amount of requests for quotation they
post that result in signed purchase orders. Through March 31, 2000
requests for quotation posted by these strategic buyers have not
generated any of our revenue. However, these strategic buyers have
posted requests for quotation constituting 28% of the dollar value of
all requests for quotation that have resulted in bidding events. We
have obtained no commitments from these strategic buyers or any other
buyers to post requests for quotations or conduct any other
activities on our marketplace. Our strategy to expand our marketplace
and grow our business depends, in part, on the continued and
increasing use of our marketplace by these buyers. The loss or
partial loss of one or more of these buyers could be harmful to our
business and could curtail our growth.
Strategic
Relationships
We have entered into
or are negotiating to enter into several strategic relationships that
should improve our ability to execute our business plan. We will
partner with other companies to grow our base of participants,
broaden the range of our marketplace services and continually improve
our technologies.
37
We have four main
categories of strategic alliances: commerce partners, service
partners, knowledge partners and technology partners. We plan to
integrate with our commerce partners’ solutions to help expand
our participant base and drive usage of our marketplace. Our commerce
partners are typically companies that market software or technology
solutions to manufacturing or design engineering companies. Our
service partners are typically companies that provide services that
complement our service offering. We expect that alliances with
service partners will broaden the range of services provided to our
customers, including financing, logistics and order fulfillment
providers. We plan to enter into agreements with knowledge partners
to provide industry-related content and information relevant to our
participants, and may include regional, national and international
companies publishing journals related to such industries as
manufacturing, engineering, component design and purchasing. Our
technology partners provide hardware and software that may be used to
enhance the operation and maintenance of our marketplace.
We are pursuing
strategic alliances with commerce partners that deliver Internet-
enabled products and services to companies who buy and sell direct
materials. We have executed non-binding letters of intent with a wide
range of companies, including component modeling and collaborative
design, process lifecycle management, enterprise resource planning
and supply chain management software providers. The following is a
description of our relationships with two commerce partners that we
expect to help grow our base of participants through technology
integration with their product offerings.
Parametric
Technology Corporation. Parametric is a
leading provider of integrated product development and process
lifecycle management solutions, with more than 230,000 users. We have
entered into a non-binding letter of intent that contemplates a
co-development and co-marketing agreement with Parametric providing
for the integration of our marketplace with Parametric’s
software. When this integration is completed, it will allow
Parametric users to automatically convert their requests for
quotation into our standardized format for submission to our
marketplace. In addition, this will allow Parametric users to obtain
reports on request for quotation status and bidding event results
through Parametric’s software, all without abandoning their
investment in Parametric’s software.
Agile Software.
Agile develops Internet-based collaborative
manufacturing commerce solutions that enable manufacturers to
collaborate over the Internet with their supply chain partners about
new product content, and then source and procure the required
components. Agile currently has more than 25,000 users. We have
entered into a non-binding letter of intent that contemplates a
co-development and co-marketing agreement with Agile providing for
the integration of our marketplace with Agile’s software. When
this integration is completed, it will allow Agile users to
automatically convert their requests for quotation into a
standardized format for submission to our marketplace and to obtain
request for quotation status and bidding event results from Agile
’s Internet site.
In February 2000, our
board of directors reserved 2,181,416 shares of common stock for
issuance in connection with strategic common stock purchase warrants
which we may issue to strategic buyers that have the ability to place
a large dollar amount of requests for quotation on our marketplace.
We have entered into non-binding letters of intent with several
buyers to issue these strategic warrants. We expect that the vesting
of these strategic warrants will be based, in each case, on the buyer
’s attaining specified quarterly targets for the total dollar
value of requests for quotation posted on our marketplace by that
buyer that result in the signing of a purchase order. We cannot
assure you that we will be able to issue these strategic warrants
with any of these buyers at all or on terms reasonable to us. Even if
we issue strategic warrants to these buyers, the warrants would not
obligate any of the buyers to post any requests for quotation, or
otherwise conduct any business on our marketplace.
Technology
We operate our
marketplace from our headquarters in Burlington, Massachusetts to
ensure that each bidding event is actively managed by our market
making team and runs smoothly. Our bidding event architecture
contains many features to monitor and control bidding events so that
our market making team can
quickly respond in the event of technical or other difficulties. Our
marketplace is hosted from a state-of-the-art data center managed by
a third-party host, which provides a controlled environment with
backup power, high bandwidth redundant network connections and
24-hour security and monitoring.
In an effort to ease
integration and communications in the direct materials market, we
have become a leading contributor to the efforts of the Open
Applications Group, Inc. to standardize requests for quotation in XML
format. The Open Applications Group is a non-profit consortium that
seeks to promote greater business software interoperability and is
the largest publisher of XML content for business software
interoperability in the world. The Open Applications Group also
builds and publishes detailed specifications necessary to use the XML
format.
Since the successful
launch of our marketplace in October 1999, we have enhanced our
marketplace’s functionality through several upgrades as
summarized below:
| Release
Date |
|
Version |
|
Primary
Features |
|
|
| October 18,
1999 |
|
1.0 |
|
Ÿ
On-line bidding |
| (initial
release) |
|
|
|
Ÿ
On-line RFQ Builder |
|
|
|
|
|
Ÿ
SmartMatch technology |
|
|
|
|
|
Ÿ View
blueprints and engineering drawings |
|
|
|
|
|
Ÿ
Request for quotation search capability |
|
|
| December
6, 1999 |
|
2.0 |
|
Ÿ
Advance searching of requests for quotation |
|
|
|
|
|
Ÿ
Industry-related content |
|
|
|
|
|
Ÿ
On-line request for quotation bulletin board |
|
|
|
|
|
Ÿ
Enhanced bidding features |
|
|
| January
23, 2000 |
|
3.0 |
|
Ÿ
Line item request for quotation generation |
|
|
|
|
|
Ÿ
Line item bidding |
|
|
|
|
|
Ÿ
Enhanced request for quotation bulletin board |
|
|
|
|
|
Ÿ
Buyer analysis tools |
|
|
| March
31, 2000 |
|
4.0 |
|
Ÿ
Supplier pre-bid functionality |
|
|
|
|
|
Ÿ
Customer analysis tools |
In
addition, we completed an infrastructure upgrade in February 2000
to further enhance the reliability, security and scalability of
our technology architecture. This infrastructure upgrade enabled
us to support a greater number of concurrent bidding events and
provided greater reliability and security through increased
redundancy of firewalls, networks and web servers.
Sales
and Marketing
We sell our
solution through our field-based regional sales teams and a
national accounts sales team. Each regional team focuses on
selling our solution to regional or local manufacturers located
within its geographic territory. Our field-based regional sales
personnel are located in Birmingham, Buffalo, Chicago,
Cincinnati, Cleveland, Detroit, Grand Rapids, Hartford,
Indianapolis, Los Angeles, Milwaukee, Newark, New York, Phoenix,
Providence, San Diego, Seattle and Troy, Michigan.
The
national accounts team focuses on larger companies that have a
presence across the U.S. Our sales teams have extensive
experience in selling industrial goods and services to industrial
manufacturing companies. The expertise of our sales force in the
direct materials market covers a variety of industrial segments.
As of March 31, 2000, our direct sales force consisted of 36
sales professionals.
Our sales
teams concentrate their efforts on serving and attracting buyers
in our marketplace. In addition, they encourage existing
suppliers in our marketplace to become buyers and existing buyers
to become suppliers. Finally, they gauge participants’
satisfaction with our marketplace and collect feedback that we may
use to improve the overall quality and effectiveness of our
marketplace. We continue to build and expand our direct sales
force domestically and expect to hire sales representatives
internationally during 2000.
Our
marketing efforts focus on general communications, obtaining
referrals from marketplace participants, targeted promotions and
selected advertising. For example, we participate in trade
conferences and purchasing industry forums, advertise through
national and industry-targeted publications and regionally
targeted radio, and conduct facsimile, telemarketing and direct
mail campaigns. We intend to increase our advertising and
marketing expenditures in an effort to penetrate our target
industrial segments and build our brand as the leading
marketplace for direct materials. These marketing expenditures
will cover additional personnel, increased advertising in
professional journals and general business and trade media,
increased media relations and increased presence at purchasing
and technology trade conferences.
Competition
The market
for business-to-business e-commerce is rapidly evolving and
intensely competitive, and we expect competition to further
intensify in the future. A number of companies offer services or
products to this market, and existing and potential users of our
marketplace can choose from a variety of current and potential
competitors’ offerings. We currently or, may in the future,
compete with a number of other companies, including:
Ÿ
|
consulting-oriented companies that offer similar
services or services that may be perceived to be similar, such
as FreeMarkets and A.T. Kearney;
|
Ÿ
|
in-house
or specialized on-line marketplaces of large individual buyers
or suppliers or groups of companies in one or more related
industrial segments. For example, groups of companies in the
automotive, aerospace and defense and plastics industries have
recently announced their intentions to establish consolidated
on-line exchanges for buyers and suppliers in their respective
industries;
|
Ÿ
|
e-commerce communities, such as VerticalNet;
|
Ÿ
|
companies that have historically focused on developing
enterprise purchasing software systems within the indirect
materials market and may introduce or further expand their
e-commerce services, such as Ariba and Commerce
One;
|
Ÿ
|
companies that offer a broad array of Internet-related
services or software that currently include, or may in the
future include, business-to-business e-commerce
services;
|
Ÿ
|
companies that develop enterprise resource planning
software and may introduce or further expand their provision of
related e-commerce services;
|
Ÿ
|
companies that provide electronic data interchanges;
and
|
Ÿ
|
traditional third-party agents.
|
The
principal competitive factors that affect our business are
breadth of industrial segments served, depth of the pool of
qualified suppliers, buyer selection, usefulness and cost
effectiveness of service offerings, time and cost of adoption,
brand loyalty and strategic relationships. We believe that we
compete favorably with respect to each of these factors. If we
fail to effectively compete in any one of these areas, we may
lose existing and potential buyers and suppliers.
Intellectual Property
We believe
our intellectual property rights are important to our business.
We rely or expect to rely on a combination of patent, copyright,
trademark, service mark and trade secret restrictions and
contractual provisions to protect our intellectual property
rights. We require employees and independent contractors to enter
into nondisclosure and development agreements. We require buyers
and suppliers using our marketplace to
agree to terms and conditions of use, which include provisions
limiting the scope of permissible uses of our marketplace. The
contractual provisions and the other steps we have taken to
protect our intellectual property may not prevent
misappropriation of our technology or deter third parties from
developing similar or competing technologies.
We may seek
patents with respect to proprietary features of our technology
that we currently use or intend to use in the future. We cannot
assure you that any patents will be issued or, even if issued,
that these patents will adequately protect our technology or
processes or otherwise result in commercial advantages to
us.
We have
applied for United States registration of our service marks
“SupplierMarket.com”, “SmartMatch”, “RFQ
Builder”, “RFQ Bid”, “SmartBid”,
“SupplierMarketplace”, “People buy parts. People
sell parts. This is where they meet.” and “SMC
”.
Government Regulation
As with
many Internet companies, we operate in an environment of great
uncertainty as to potential government regulation. We believe
that we are not currently subject to direct regulation applicable
to e-commerce, other than regulations applicable to businesses
generally. However, the Internet has rapidly emerged as a
commerce medium, and governmental agencies have not yet been able
to adapt existing regulations to its use. Future laws,
regulations and court decisions may affect the Internet or other
electronic services, covering issues such as user pricing, user
privacy, freedom of expression, access charges, taxation, content
and quality of products and services, advertising, antitrust,
intellectual property rights and user authentication and
information security. In addition, because our marketplace is
available worldwide, foreign jurisdictions may claim that we are
required to comply with their laws. Any future law, regulation or
court decision may have a negative impact on our
business.
Because we
are an Internet company, it is unclear in which jurisdictions we
are actually conducting business. Our failure to qualify to do
business in a jurisdiction that requires us to so qualify could
subject us to fines and penalties and could result in our
inability to enforce agreements.
Numerous
states have laws and regulations regarding the conduct of
auctions and the liability of auctioneers. We do not believe that
these laws and regulations, which in most cases were enacted for
consumer protection many years ago, apply to the auctions we
conduct on our marketplace. However, one or more jurisdictions
may attempt to impose these or new laws and regulations on our
operations in the future.
Employees
As of March
31, 2000, we had 125 employees. Of our employees, 62 are engaged
in sales and marketing, 26 in research and development, 29 in
general and administrative and 8 in operations. None of our
employees is represented by a collective bargaining agreement,
and we believe that we have satisfactory relations with our
employees.
Facilities
Our
headquarters in Burlington, Massachusetts currently occupies
approximately 28,000 square feet under a lease that expires in
December 2004. We believe that our existing facilities in
Burlington are adequate for the anticipated needs of our
headquarters for the next 12 to 18 months. We also maintain sales
presences in the following U.S. manufacturing centers:
Birmingham, Buffalo, Chicago, Cincinnati, Cleveland, Detroit,
Grand Rapids, Hartford, Indianapolis, Los Angeles, Milwaukee,
Newark, New York, Phoenix, Providence, San Diego, Seattle and
Troy, Michigan.
Legal
Proceedings
We are not
currently involved in any material legal proceedings.
Executive Officers and Directors
The
following table sets forth information regarding our executive
officers and directors as of April 10, 2000.
Name
|
|
Age
|
|
Position(s)
|
| Jonathan
Burgstone |
|
28 |
|
Chief
Executive Officer and Director |
| Asif
Satchu |
|
28 |
|
Chairman, President, Secretary and Director |
| Richard
Feldt |
|
48 |
|
Chief
Operating Officer |
| Brian
Bethers |
|
39 |
|
Chief
Financial Officer and Treasurer |
| Richard
Bierwagen |
|
38 |
|
Vice
President of Sales and Marketing |
| Mark
Diker |
|
33 |
|
Managing
Director of Strategic Development |
| Scott
Donnelly |
|
46 |
|
Vice
President of Human Resources |
| Brad
Hafer |
|
34 |
|
Vice
President of Corporate Development |
| Murali
Menon |
|
40 |
|
Vice
President of Engineering |
| Terrence
Mullen |
|
33 |
|
Managing
Director of Strategic Development |
| Reza
Satchu |
|
30 |
|
Executive Vice President of Strategic
Development |
| William
Sheehan |
|
31 |
|
Vice
President of Business Development |
| Robert
Barrett(1) |
|
55 |
|
Director |
| Marco
Iansiti(2) |
|
38 |
|
Director |
| Peter
Lamm(1) |
|
48 |
|
Director |
| Robert
Lanigan |
|
67 |
|
Director |
| Marc
Lipschultz(2) |
|
31 |
|
Director |
| Ravi
Mohan(2) |
|
33 |
|
Director |
(1)
|
Member
of the compensation committee.
|
(2)
|
Member
of the audit committee.
|
Jonathan
Burgstone is one of our founders and has served as our Chief
Executive Officer and one of our directors since our inception in
February 1999 and as our Treasurer from inception until February
2000. Prior to our founding, Mr. Burgstone worked in various
management positions in manufacturing at Ford Motor Company from
1994 to 1997. Mr. Burgstone received a bachelor’s degree in
industrial engineering from the University of Illinois, a master
’s degree in industrial and systems engineering from the
University of Michigan and a master’s degree in business
administration from Harvard Business School.
Asif
Satchu is one of our founders and has served as our President
since August 1999 and as our Chairman and Secretary and one of
our directors since our inception in February 1999. Prior to our
founding, Mr. Satchu worked at Tiger Real Estate Partners, an
affiliate of Tiger Management Corporation, a private equity fund
manager, from 1995 to 1997, and at Morgan Stanley & Co., from
1993 to 1995. Mr. Satchu received a bachelor’s degree in
economics and political science from McGill University and a
master’s degree in business administration from Harvard
Business School.
Richard
Feldt has served as our Chief Operating Officer since January
2000. Prior to joining us, Mr. Feldt worked for Symbol
Technologies, a mobile data management systems manufacturing
company, from 1995 to 2000, most recently serving as senior vice
president and general manager of worldwide operations. Prior to
joining Symbol, Mr. Feldt held senior operations positions at
A.T. Cross from 1991 to 1995, at Eastman Kodak Company from 1988
to 1991 and at Spectra-Physics, Inc. from 1980 to 1988. He
currently serves as a board member of GSW, Inc., a diversified
Canadian manufacturer. Mr. Feldt received a bachelor’s
degree in industrial engineering from Northeastern
University.
Brian
Bethers has served as our Chief Financial Officer since
January 2000 and as our Treasurer since February 2000. Prior to
joining us, Mr. Bethers worked for Host Marriott Services from
1995 to 1999, serving
as chief financial officer. From 1993 to 1995, Mr. Bethers served
as vice president of development for Host Marriott Corporation.
From 1985 to 1993, Mr. Bethers worked for Marriott Corporation
most recently serving as director of finance. Mr. Bethers
received a bachelor’s degree in public policy and a master
’s degree in business administration from Brigham Young
University.
Richard
Bierwagen has served as our Vice President of Sales and
Marketing since September 1999. Prior to joining us, Mr.
Bierwagen worked for GKN, plc, a global manufacturing company
from 1986 to 1999, most recently serving as vice president and
general manager. Mr. Bierwagen received a bachelor’s degree
in business from Montana State University and a master’s
degree in business administration from the Owen School at
Vanderbilt University.
Mark
Diker has served as our Managing Director of Strategic
Development since April 2000. Prior to joining us, Mr. Diker
worked for Geocapital Partners, a technology-focused venture
capital firm, from 1996 to 2000, most recently serving as a
general partner. Prior to joining Geocapital Partners, Mr. Diker
worked for Bankers Trust as a vice president in the Japanese
Equity Derivatives Group. He currently serves as a board member
of Autoweb.com and Infoimage, Inc. Mr. Diker received a bachelor
’s degree in government from Harvard University and a master
’s degree in business administration from Harvard Business
School.
Scott
Donnelly has served as our Vice President of Human Resources
since January 2000. Prior to joining us, Mr. Donnelly worked for
Nortel Networks, previously Bay Networks, from 1993 to 1999, most
recently serving as director of human resources for worldwide
field operations. Prior to that he served as human resources
manager at Hewlett Packard and Wang Laboratories. Mr. Donnelly
received a bachelor’s degree in psychology from Hartwick
College and a master’s of science degree in industrial
relations from West Virginia University.
Brad
Hafer has served as our Vice President of Corporate
Development since February 2000. Prior to joining us, Mr. Hafer
worked for A.T. Kearney from 1993 to 1999, most recently serving
as a principal. Mr. Hafer received a bachelor’s degree in
engineering from Lafayette College and a master’s degree in
management from Northwestern University’s J.L. Kellogg
Graduate School of Management.
Murali
Menon has served as our Vice President of Engineering since
June 1999. Prior to joining us, Mr. Menon worked for Epsilon Data
Management, a database marketing company, from 1998 to 1999,
serving as senior director of the Internet group. From 1996 to
1998, Mr. Menon worked for Ordertrust, a company providing
back-end payment and order processing services for on-line
merchants serving as vice president of product management. From
1987 to 1996, Mr. Menon worked at the Massachusetts Institute of
Technology’s Lincoln Laboratory as a researcher. Mr. Menon
received a bachelor’s degree, a master’s degree and a
doctorate in engineering from Case Western Reserve
University.
Terrence
Mullen has served as our Managing Director of Strategic
Development since March 2000. Prior to joining us, Mr. Mullen
worked for Thomas H. Lee Partners, a private equity investment
firm, from 1992 to 1994 and from 1996 to 2000, most recently
serving as vice president. Mr. Mullen received a bachelor’s
degree in finance and economics from the University of Notre Dame
and a master’s degree in business administration from
Harvard Business School.
Reza
Satchu has served as our Executive Vice President of
Strategic Development since February 2000. Mr. Satchu began his
affiliation with us while a managing director at Fenway Partners,
a private equity investment firm, which is one of our principal
investors. Mr. Satchu has taken a leave of absence from Fenway
Partners. Prior to joining Fenway Partners in 1996, Mr. Satchu
worked as an investment banker at Merrill Lynch & Co. Mr.
Satchu currently serves as a director of Decorative Concepts and
Iron Age Corporation. Mr. Satchu received a bachelor’s
degree in economics and political science from McGill University
and a master’s degree in business administration from
Harvard Business School.
William
Sheehan has served as our Vice President of Business
Development since February 2000 and has been with us since August
1999. Prior to joining us, Mr. Sheehan worked for Precision
Castparts Corporation,
an industrial manufacturing company, from 1998 to 1999, serving as
vice president of business development. From 1995 to 1998, Mr.
Sheehan worked for A.T. Kearney as a management consultant. Mr.
Sheehan received a bachelor’s degree in electrical
engineering from the University of Massachusetts and a master
’s degree in management from Northwestern University’s
J.L. Kellogg Graduate School of Management.
Robert
Barrett has served as one of our directors since June 1999.
Mr. Barrett has served as managing partner since 1983 at Battery
Ventures, a venture capital firm he founded, which is one of our
principal investors. Mr. Barrett currently serves as a director
of a number of companies, including Brooktrout Technologies and
Peerless Systems. Mr. Barrett received a bachelor’s degree
in history from Harvard College and a master’s degree in
business administration from Harvard Business School.
Marco
Iansiti has served as one of our directors since February
2000. Mr. Iansiti has been a professor in the Technology and
Operations Management Area at Harvard Business School since 1989,
where he focuses his research and teaching on the management of
technology, product development and the design and start-up of
new ventures. He is a member of the advisory boards of
Desktop.com, Inc. and PDF Solutions, Inc., and is a director of
Integrated Development Enterprise, Inc. and Model N, Inc. Mr.
Iansiti received a bachelor’s degree and a Ph.D. in physics
from Harvard University.
Peter
Lamm has served as one of our directors since November 1999.
Mr. Lamm is chairman and chief executive officer and a founding
partner of Fenway Partners, which he co-founded in 1994 and which
is one of our principal investors. Mr. Lamm currently serves as a
director of a number of Fenway Partners’ portfolio
companies, including Aurora Foods, Quality Stores, Iron Age
Corporation, Simmons Company, Delimex Holdings, Decorative
Concepts and Blue Capital Management. Mr. Lamm received a bachelor
’s degree in English literature from Boston University and a
master’s degree in business administration from Columbia
University School of Business.
Robert
Lanigan has served as one of our directors since March 2000.
Mr. Lanigan is Chairman Emeritus of the board of directors of
Owens-Illinois, Inc., a manufacturer and seller of packaging
products. Mr. Lanigan also serves as a director of Daimler
Chrysler AG and IMS Health, Inc., a consulting company for the
pharmaceutical and health care industries. Mr. Lanigan received
his bachelor’s degree in economics from St. Francis
College.
Marc
Lipschultz has served as one of our directors since December
1999. Mr. Lipschultz has worked since 1995 at Kohlberg Kravis
Roberts & Co., one of our principal investors. Prior to
joining Kohlberg Kravis Roberts & Co., Mr. Lipschultz worked
as an investment banker at Goldman, Sachs & Co. Mr.
Lipschultz serves as a director of Amphenol Corporation, The Boyd
’s Collection, Ltd., Evenflo Company and Spaulding Sports
Worldwide. Mr. Lipschultz received a bachelor’s degree from
Stanford University and received a master’s degree in
business administration from Harvard Business School.
Ravi
Mohan has served as one of our directors since June 1999. Mr.
Mohan has worked with Battery Ventures since 1996, most recently
as a principal. Prior to joining Battery Ventures, Mr. Mohan
worked for McKinsey & Company from 1994 to 1996. Mr. Mohan
currently serves as a director for Corillian Software. Mr. Mohan
received a bachelor’s degree in operations research and
industrial engineering from Cornell University and a master
’s degree in business administration from the University of
Michigan Business School.
Our board
of directors currently consists of eight directors. Each director
is elected for a period of one year at our annual meeting of
stockholders and serves until the next annual meeting or until
his or her successor is duly elected and qualified.
The board
of directors appoints our executive officers on an annual basis,
and they serve until successors have been duly elected and
qualified. Asif Satchu and Reza Satchu are brothers. There are no
other family relationships among any of our directors, officers
or key employees.
The board of directors intends to name one additional outside
director.
The
election of Messrs. Barrett and Mohan to our board of directors
in June 1999 was required by our stockholders agreement with the
holders of our Series A preferred stock and of substantially all
of our common stock. The election of Mr. Lamm in November 1999
and Mr. Lipschultz in December 1999 was required by our voting
agreement with the holders of our Series A preferred stock, our
Series B preferred stock and substantially all of our common
stock. Both the stockholders agreement and the voting agreement
automatically terminate upon the closing of this
offering.
Our board
of directors has established an audit committee and a
compensation committee, both in January 2000. The audit committee
reviews our internal accounting procedures and consults with and
reviews the services provided by our independent accountants. The
compensation committee reviews and determines the compensation
and benefits of all of our officers, establishes and reviews
general policies relating to the compensation and benefits of all
of our employees, and upon the closing of this offering will
administer our 1999 Stock Option Plan.
|
Compensation Committee Interlocks and Insider
Participation
|
Prior to
establishing the compensation committee, the board of directors
as a whole performed the functions delegated to the compensation
committee. No member of our current compensation committee has
ever served as one of our officers or employees. None of our
executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more
executive officers serving on our board of directors or
compensation committee.
Our
directors currently do not receive any cash compensation from us
for their services as members of the board of directors. We
reimburse our directors for out-of-pocket expenses in connection
with attendance at board and committee meetings. All of our
directors, including non-employee directors, are eligible to
participate in our 1999 Stock Option Plan.
In February
and March 2000, we granted options to purchase 15,000 shares of
common stock to each member of the board of directors other than
Messrs. Burgstone and Satchu. These options vest ratably over
twelve months following the date of grant.
We have
entered into employment agreements with each of Messrs. Burgstone
and Satchu. Our agreements with Messrs. Burgstone and Satchu
require that we employ each of them in a position no lower in
authority than Executive Vice President. Each of them will
receive a salary of $150,000 annually, subject to adjustment from
time to time by the board, plus a discretionary bonus. All work
product and intellectual property created by Messrs. Burgstone
and Satchu during the term of the agreements belong to us. Our
agreements prohibit Messrs. Burgstone and Satchu from working for
a competitor of ours and from soliciting any of our employees to
work for either of them at another company for two years
following termination of employment with us. The employment
agreements provide that we may terminate Mr. Burgstone’s or
Mr. Satchu’s employment upon 30 days notice, or earlier if
the termination is for cause. If we terminate Mr. Burgstone
’s or Mr. Satchu’s employment without cause or either
of them terminates his employment for good reason, we must
continue to pay each of them his base salary for 12 months. In
addition, Mr. Satchu received a one-time bonus from us in March
2000 of $135,000.
We have also entered into stock restriction agreements with each of
Messrs. Burgstone and Satchu. Under these stock restriction
agreements, as of March 2000, 1,553,444 shares held by each vest
ratably each month that each executive is employed by us through
June 2001. Our stock restriction agreement with each provides,
among other things, that the vesting schedule of all shares of
common stock owned by each will be accelerated by 12 months if we
terminate him without cause or if he resigns for good
reason.
The
following table sets forth a summary of the compensation paid
during the fiscal year ended December 31, 1999 to our Chief
Executive Officer. No other executive officer earned more than
$100,000. Mr. Burgstone was paid a salary from July 1 through
December 31, 1999. His annual salary is $150,000. Compensation in
the form of perquisites and other personal benefits has been
omitted because the aggregate amount of these perquisites and
other personal benefits constituted less than the lesser of
$50,000 or 10% of his total annual salary and bonus for 1999. We
did not award any long term compensation to Mr. Burgstone in
1999.
Summary
Compensation Table
|
|
|
|
|
|
Name
and Principal Position
|
|
Salary
|
|
Bonus
|
| Jonathan
Burgstone |
|
$73,365 |
|
$50,000 |
|
Chief Executive Officer |
|
|
|
|
Option
Grants
Since our
inception we have not granted any options to Mr.
Burgstone.
1999
Stock Option Plan
Our board
of directors and shareholders adopted our 1999 Stock Option Plan
in June 1999. We have reserved 5,251,924 shares of common stock
for issuance under the plan. The plan terminates in June 2009,
unless terminated earlier by our board of directors.
Effective
upon the closing of this offering the compensation committee of
our board of directors will administer the plan. The compensation
committee has authority to interpret the plan, grant awards and
make all other determinations necessary to administer the
plan.
The plan
provides for the grant of both incentive stock options, commonly
called ISOs, that qualify under Section 422 of the Internal
Revenue Code, and nonqualified stock options, commonly called
NQSOs. ISOs may be granted only to our employees or employees of
a parent or subsidiary. NQSOs may be granted to our employees,
directors and consultants. Generally, the exercise price of ISOs
must be at least equal to the fair market value of our common
stock on the date of grant. Any grant of an ISO to a holder of
10% or more of our outstanding shares of common stock must have
an exercise price of at least 110% of the fair market value of
our common stock on the date of grant. Options granted under the
plan have a maximum term of 10 years. Options granted under the
plan may not be transferred other than by will or by the laws of
descent and distribution. They generally also must be exercised
during the lifetime of the optionee and only by the
optionee.
Options
granted under the plan generally expire three months after the
termination of the optionee’s service, except in the case of
death or disability, in which case the options generally may be
exercised up to 12 months following the date of death. If we are
dissolved or liquidated or experience a “change in control
”, the successor corporation, if any, may assume or
substitute for outstanding awards. If a successor corporation
does not assume or substitute for the awards, the compensation
committee may accelerate the vesting of outstanding
options.
Limitation of Liability and Indemnification
Matters
Our
certificate of incorporation limits the liability of directors to
the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties
as directors, except liability for:
Ÿ
|
any
breach of their duty of loyalty to the corporation or its
stockholders;
|
Ÿ
|
acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
|
Ÿ
|
unlawful
payments of dividends or unlawful stock repurchases or
redemption; or
|
Ÿ
|
any
transaction from which the director derived an improper
personal benefit.
|
This
limitation of liability does not apply to liabilities arising
under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Our by-laws
provide that we shall indemnify our directors, officers,
employees and agents to the fullest extent permitted by law. We
believe that indemnification under our by-laws covers negligence
and gross negligence on the part of indemnified parties. Our
by-laws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability
arising out of his or her actions in that capacity, regardless of
whether the by-laws would permit indemnification. We intend to
obtain director and officer liability insurance that covers these
matters, including matters arising under the Securities
Act.
At present,
we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or
agents in which indemnification would be required or
permitted.
RELATED PARTY TRANSACTIONS
From June
through July 1999, we sold 6,562,873 shares of Series A preferred
stock at $0.93 per share. In this private placement, we sold
4,317,324 shares to Battery Ventures V L.P. and affiliated
entities, 1,618,997 shares to Sequoia Capital VIII and affiliated
entities, 86,346 shares to Rustom and Zarina Satchu, Mr. Satchu
’s parents, 68,357 shares to Peter Lamm and 68,357 shares to
Reza Satchu, Mr. Satchu’s brother. Each share of Series A
preferred stock is convertible into two shares of common
stock.
From
November 1999 through February 2000, we sold 16,040,039 shares of
Series B preferred stock at $2.34 per share. In this private
placement, we sold 2,138,672 shares to Battery Ventures V L.P.
and affiliated entities, 3,421,875 shares to Aurora Investments
LLC, 3,421,875 shares to Fenway Partners Capital Fund II, L.P.,
1,283,203 shares to Sequoia Capital VIII and affiliated entities,
155,954 shares to Rustom and Zarina Satchu, 78,630 shares to
Peter Lamm, 78,630 shares to Reza Satchu and 56,632 shares to
Karen Andrews, Mr. Burgstone’s mother. Each share of Series
B preferred stock is convertible into one half of one share of
common stock.
In November
1999, we granted an option to purchase 172,328 shares of common
stock at $0.94 per share to Reza Satchu in connection with his
provision of advisory services to us. His services included
assistance in identifying potential financing sources and advice
on growth strategies and product offerings.
From June
1999 through February 2000, we loaned a total of $133,634 to Asif
Satchu. We did not charge interest on the loan. Mr. Satchu has
since repaid all loaned amounts.
Since the
launch of our marketplace in October 1999, we have substantially
relied on a small number of buyers to post a significant majority
of requests for quotation on our marketplace. Some of these
buyers are portfolio companies, or companies owned by investment
funds that are either principal stockholders or affiliates of our
principal stockholders or directors. These portfolio companies
have accounted for a substantial amount of the total dollar value
of requests for quotation posted. These portfolio companies
include Amphenol Corporation, Aurora Foods, Evenflo Company,
Intercontinental Art, J.L. French, The Milnot Company, Quality
Farm & Country, The Simmons Company, Simonds Industries,
Spalding Sports Worldwide, Sun Gro Horticulture and Woods
Equipment Company. See “Risk Factors.”
In each
transaction set forth above where executive officers, directors,
five percent or greater stockholders or family members of any of
these persons purchased shares, these shares were purchased at
the same price and on the same terms as shares purchased by other
investors at those times.
We will
require that all future transactions with parties affiliated with
us, including loans between us and our officers, directors,
principal stockholders and their affiliates, be approved by a
majority of the board of directors, including a majority of
independent and disinterested directors, and that such
transactions be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
The
following table sets forth information known to us with respect
to the beneficial ownership of our common stock by the following
persons as of March 31, 2000:
Ÿ
|
each
person or group of affiliated persons known by us to own
beneficially more than 5% of the outstanding shares of common
stock;
|
Ÿ
|
each of
our executive officers named in the summary compensation table;
and
|
Ÿ
|
all
directors and executive officers as a group.
|
Percentage
ownership in the following table is based on 31,196,283 shares of
common stock outstanding as of March 31, 2000. Percentage
ownership assumes conversion of all shares of preferred stock
outstanding as of March 31, 2000 into shares of common stock,
which will occur upon the closing of this offering.
We have
determined beneficial ownership in the table in accordance with
the rules of the Securities and Exchange Commission. In computing
the number of shares beneficially owned by a person and the
percentage ownership of that person, we have deemed shares of
common stock subject to options or warrants held by that person
that are currently exercisable or will become exercisable within
60 days of March 31, 2000, assuming that this offering occurs in
that 60-day period, to be outstanding, but we have not deemed
these shares to be outstanding for computing the percentage
ownership of any other person. To our knowledge, except as set
forth in the footnotes below, each stockholder identified in the
table possesses sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by that
stockholder.
The address
for each listed director and officer is c/o SupplierMarket.com,
Inc., 10 Mall Road, Burlington, MA 01803. The address of the
entities affiliated with Battery Ventures is c/o Battery
Ventures, 901 Mariner’s Island Boulevard, Suite 475, San
Mateo, CA 94404. The address for Sequoia Capital is 3000 Sandhill
Road, Building 4, Suite 280, Menlo Park, CA 94025. The address of
the Fenway Partners Capital Fund II, L.P. is c/o Fenway Partners,
Inc., 152 West 57th St., New York, NY 10019. The address of
Aurora Investments LLC is c/o Kohlberg Kravis Roberts & Co.,
9 West 57th St., New York, NY 10019.
Beneficial Ownership
|
|
|
|
|
|
|
|
Percentage of Shares
Outstanding
|
Name
of Beneficial Owner
|
|
Number of Shares
Beneficially Owned
|
|
Number of Options
Exercisable By
May 30, 2000
|
|
Total
|
|
Before
Offering
|
|
After
Offering
|
Entities
affiliated with Battery
Ventures(1) |
|
9,955,499 |
|
—
|
|
9,955,499 |
|
31.9 |
% |
|
24.2 |
% |
| Entities
affiliated with Sequoia Capital(2) |
|
4,131,110 |
|
—
|
|
4,131,110 |
|
13.2 |
% |
|
10.0 |
% |
| Jonathan
Burgstone |
|
3,535,218 |
|
—
|
|
3,535,218 |
|
11.3 |
% |
|
8.6 |
% |
| Asif
Satchu |
|
3,535,218 |
|
—
|
|
3,535,218 |
|
11.3 |
% |
|
8.6 |
% |
| Fenway
Partners Capital Fund II, L.P. |
|
1,792,072 |
|
—
|
|
1,792,072 |
|
5.7 |
% |
|
4.4 |
% |
Aurora
Investments LLC, executives of
KKR & Co. |
|
1,751,505 |
|
—
|
|
1,751,505 |
|
5.6 |
% |
|
4.3 |
% |
| Robert
Barrett(1) |
|
9,955,499 |
|
2,500 |
|
9,957,999 |
|
31.9 |
% |
|
24.2 |
% |
| Marco
Iansiti |
|
51,729 |
|
1,250 |
|
52,979 |
|
* |
|
|
* |
|
| Peter
Lamm(3) |
|
1,968,101 |
|
2,500 |
|
1,970,601 |
|
6.3 |
% |
|
4.8 |
% |
| Robert
Lanigan |
|
4,278 |
|
1,250 |
|
5,528 |
|
* |
|
|
* |
|
| Marc
Lipschultz(4) |
|
1,751,505 |
|
2,500 |
|
1,754,005 |
|
5.6 |
% |
|
4.3 |
% |
| Ravi
Mohan(1) |
|
9,955,499 |
|
2,500 |
|
9,957,999 |
|
31.9 |
% |
|
24.2 |
% |
All
directors and officers as a group
(18 persons)(1)(3)(4) |
|
21,634,194 |
|
195,951 |
|
21,830,145 |
|
69.5 |
% |
|
52.7 |
% |
*
|
Less
than 1% of the outstanding shares of common stock.
|
(1)
|
Includes
8,515,061 shares held by Battery Ventures V L.P., 195,999
shares held by Battery Investment Partners V, LLC and 1,244,439
shares held by Battery Ventures Convergence Fund, L.P. Mr.
Barrett and Mr. Mohan disclaim beneficial ownership of the
shares held by these entities except to the extent of their
pecuniary interest in those shares.
|
(2)
|
Includes
3,517,489 shares held by Sequoia Capital VIII, 75,732 shares
held by Sequoia International Technology Partners VIII, 201,659
shares held by Sequoia International Technology Partners VIII
(Q), 77,592 shares held by CMS Partners LLC, 7,124 shares held
by Sequoia 1997, 221,332 shares held by Sequoia Capital
Franchise Fund and 30,182 shares held by Sequoia Capital
Franchise Partners.
|
(3)
|
Includes
1,792,072 shares held by Fenway Partners Capital Fund II, L.P.
and 176,029 shares held directly by Mr. Lamm. Mr. Lamm is a
managing member of Fenway Partners II, LLC, the general partner
of Fenway Partners Capital Fund II, L.P. Mr. Lamm disclaims
beneficial ownership of the shares held by Fenway Partners
Capital Fund II, L.P. except to the extent of his pecuniary
interest in those shares.
|
(4)
|
Includes
1,751,505 shares held by Aurora Investments LLC, an entity with
which Mr. Lipschultz is affiliated. Mr. Lipschultz disclaims
beneficial ownership of the shares held by this entity except
to the extent of his pecuniary interest in those
shares.
|
DESCRIPTION OF CAPITAL STOCK
General
Upon the
completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value per share,
and 1,000,000 shares of undesignated preferred stock, $0.001 par
value per share. The following paragraphs describe the material
aspects of our capital stock.
Common
Stock
As of March
31, 2000, there were 10,050,519 shares of common stock
outstanding, held of record by 45 stockholders. In addition, as
of March 31, 2000, there were 3,794,760 shares of common stock
subject to outstanding options. Upon completion of this offering,
there will be 41,196,283 shares of common stock outstanding,
assuming no exercise of outstanding stock options outstanding as
of March 31, 2000. All outstanding shares of preferred stock will
convert into common stock upon the closing of this
offering.
Each share
of common stock entitles its holder to one vote on all matters to
be voted upon by stockholders. Subject to preferences that may
apply to any outstanding preferred stock, holders of common stock
will receive ratably any dividends that the board of directors
may declare out of funds legally available for that purpose. In
the event of our liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities and any liquidation
preference of preferred stock that may be outstanding. The common
stock has no preemptive rights, conversion rights or other
subscription rights or redemption or sinking fund provisions. All
outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock that we will issue
upon completion of this offering will be fully paid and
non-assessable.
Preferred Stock
As of March
31, 2000, we had two series of convertible preferred stock:
Series A and Series B. As of March 31, 2000, the number of
outstanding shares for each series of our preferred stock
was:
Ÿ
|
6,562,873 shares of Series A; and
|
Ÿ
|
16,040,039 shares of Series B.
|
Upon the
closing of this offering, all outstanding shares of Series A
preferred stock will convert on a one-to-two basis into
13,125,745 shares of common stock and all outstanding shares of
Series B preferred stock will convert on a two-to-one basis into
8,020,019 shares of common stock. Thereafter, the board of
directors will have the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock
in one or more series and to designate the rights, preferences,
privileges and restrictions of each series. The issuance of
preferred stock could have the effect of restricting dividends on
the common stock, diluting the voting power of the common stock,
impairing the liquidation rights of the common stock or delaying
or preventing a change in control without further action by the
stockholders. We have no present plans to issue any shares of
preferred stock after the completion of this
offering.
Warrants
In
September, 1999 we issued a warrant to purchase 50,000 shares of
Series A preferred stock at an exercise price of $0.93 per share.
This warrant was outstanding at March 31, 2000 and is exercisable
until September 21, 2006. Upon the closing of this offering, this
warrant will automatically convert into a warrant to purchase
100,000 shares of common stock at an exercise price of
$0.46.
In February
2000, our board of directors authorized the issuance of strategic
warrants to various companies to purchase up to a total of
2,181,416 shares of common stock. We have entered into non-binding
letters of intent with several companies to issue warrants under
this program. We expect that these warrants will vest quarterly,
based on the warrant holder attaining quarterly minimum targets
for the total dollar value of a request for quotation posted by
the warrant holder through our marketplace that result in the
warrant holder selecting a supplier to fulfill a request for
quotation.
Registration Rights
Set forth
below is a summary of the registration rights we have granted
under our registration rights agreement. All holders of our
preferred stock, each of Jonathan Burgstone and Asif Satchu and
the holder of the warrant to purchase shares of our Series A
preferred stock have registration rights under our registration
rights agreement. These registration rights apply to the shares
of our common stock that holders of preferred stock or warrants
will receive upon conversion or exercise of the security they
currently hold.
Required
Registrations. At any time following
90 days after this offering, holders of the registration rights,
excluding Messrs. Burgstone and Satchu, granted under our
registration rights agreement may request us to register shares
of common stock, provided the holders own at least 35% of the
common stock issued upon conversion of preferred stock. These
required registrations are subject to our right, upon advice of
our underwriters, to reduce the number of shares proposed to be
registered. We are obligated to effect only three registrations
pursuant to requests for required registrations. If, pursuant to
advice from our underwriters, we exclude shares requested to be
included in a registration, the shares registered on behalf of
the selling shareholders will be allocated among all holders of
shares with rights to be included in the registration on the
basis of the number of shares with associated registration rights
held by these shareholders.
Incidental Registrations. The
holders of incidental registration rights, which, in addition to
holders of preferred stock, include Jonathan Burgstone and Asif
Satchu under the registration rights agreement, have unlimited
rights to require us to register their shares when we undertake a
public offering, subject to the discretion of the managing
underwriter of the offering to decrease, or in the case of this
offering, to eliminate, the number of shares that the holders may
register.
Registrations on Form S-3.
After we have qualified for registration on Form S-3, which
will not be available until at least 12 months after we become a
publicly reporting company, holders of registration rights may
request in writing that we effect registrations on Form S-3.
Holders of registration rights granted under our registration
rights agreement may request an unlimited number of registrations
on Form S-3.
Restrictions. Under our
registration rights agreement, if our board of directors
determines that a registration of our common stock would have a
material adverse effect on one of our underwritten public
offerings or would require premature disclosure of pending
negotiations of a significant transaction, our board of directors
may suspend these rights to register shares for so long as the
condition exists, but in no event for longer than 90 days and not
more than once in any twelve-month period.
Transferability. The
registration rights granted under the registration rights
agreement are transferable provided the transfer is to a person
or entity holding at least 50,000 shares or to a partner, member,
shareholder or affiliate of an existing party to the registration
rights agreement, and provided the transferee agrees in writing
to be bound by the terms of the registration rights
agreement.
Termination. All registration
rights terminate six years after the closing of this
offering.
Expenses. We must bear all
expenses associated with the filing of registration statements on
behalf of holders of registration rights, except for underwriting
discounts and selling commissions, which holders of registration
rights selling in the offering must bear.
In
connection with our proposed issuance of strategic warrants, we
expect to grant limited registration rights to holders of these
warrants.
Anti-Takeover Provisions
We are
subject to Section 203 of the Delaware General Corporation Law,
which regulates acquisitions of some Delaware corporations. In
general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three
years following the date the person becomes an interested
stockholder, unless:
Ÿ
|
the
corporation’s board of directors approved the business
combination or the transaction in which the person became an
interested stockholder prior to the time the person attained
this status;
|
Ÿ
|
upon
consummation of the transaction that resulted in the person
becoming an interested stockholder, the person owned at least
85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding shares owned by
persons who are directors and also officers; or
|
Ÿ
|
at or
subsequent to the time the person became an interested
stockholder, the corporation’s board of directors approved
the business combination and the stockholders other than the
interested stockholder authorized the transaction at an annual
or special meeting of stockholders by the affirmative vote of
at least 66
2
/3% of the
outstanding voting stock not owned by the interested
stockholder.
|
A
“business combination” generally includes a merger,
asset or stock sale or other transaction with or caused by the
interested stockholder. In general, an “interested
stockholder” is a person who, together with the person
’s affiliates and associates, owns, or within three years
prior to the determination of interested stockholder status did
own, 15% or more of a corporation’s voting
stock.
This
statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to us and, accordingly,
may discourage attempts to acquire us.
|
Certificate of Incorporation and Bylaw
Provisions
|
Elimination of Stockholder Action by Written Consent.
Our certificate of incorporation and
by-laws will provide that any action required or permitted to be
taken by our stockholders at an annual or special meeting may be
taken only if properly brought before the meeting, and may not be
taken by written consent in lieu of a meeting.
Stockholder Meetings. The
by-laws will also provide that special meetings of the
stockholders may be called only by the board of directors, the
chairman of the board or the chief executive officer.
Notice
Requirements for Stockholder Nominations and Proposals.
Under our by-laws to be effective upon the
closing of this offering, stockholders wishing to propose
business to be brought before a meeting of stockholders will be
required to comply with various advance notice
requirements.
Undesignated Preferred Stock.
The authorization of undesignated preferred stock makes it
possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the
success of any attempt to acquire us. These and other provisions
may have the effect of deterring hostile takeovers or delaying
changes in control of us.
Transfer Agent and Registrar
The
transfer agent and registrar for the common stock is American
Stock Transfer and Trust. The transfer agent’s address is 40
Wall Street, New York, NY 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to
this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the
public market could adversely affect prevailing market prices.
Sales of substantial amounts of our common stock in the public
market after any restrictions on sale lapse could adversely
affect the prevailing market price of the common stock and impair
our ability to raise equity capital in the future.
Upon
completion of the offering, we will have 41,196,283 outstanding
shares of common stock, outstanding options to purchase 3,794,760
shares of common stock and outstanding warrants to purchase
100,000 shares of common stock, assuming no additional option or
warrant grants or exercises after March 31, 2000. Of the
10,000,000 shares sold in the offering, no shares will be subject
to the lock-up agreements described below assuming that we sell
all shares reserved under our directed share program to the
entities or persons for whom these shares have been reserved. We
expect that all shares sold in the offering, plus any shares
issued upon exercise of the underwriters’ over-allotment
option, will be freely tradable without restriction under the
Securities Act, unless purchased by our “affiliates” as
that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors and 10% or
greater stockholders.
The
remaining 31,196,283 shares outstanding and 3,894,760 shares
subject to outstanding options and warrants are “restricted
securities” within the meaning of Rule 144. Restricted
securities may be sold in the public market only if the sale is
registered or if it qualifies for an exemption from registration,
or if the securities can be sold under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.
Sales of restricted securities in the public market, or the
availability of these shares for sale, could adversely affect the
market price of the common stock.
Lock-Up
Agreements
Our
directors, officers, employees and various other stockholders,
who together hold substantially all of our securities, have
entered into lock-up agreements in connection with this offering.
These lock-up agreements generally provide that these holders
will not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock
owned by them for a period of 180 days after the date of this
prospectus without the prior written consent of the
representatives of the underwriters of this offering. The lock-up
agreements executed by our employees, officers, directors and
certain affiliates also cover any shares acquired through our
directed share program. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements may not be sold
until these agreements expire or are waived by the
representatives of the underwriters of this offering. Assuming
that the representatives of the underwriters of this offering do
not release any security holders from the lock-up agreements, the
following shares will be eligible for sale in the public market
at the following times:
Ÿ
|
Beginning on the effective date of the registration
statement of which this prospectus forms a part, all of the
10,000,000 shares sold in this offering will be immediately
available for sale in the public market.
|
Ÿ
|
Beginning 180 days after the effective date, an
additional 29,809,457 shares will be eligible for sale pursuant
to Rule 144 and Rule 701.
|
Rule
144
In general,
under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned
restricted securities 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:
Ÿ
|
one
percent of the number of shares of common stock then
outstanding, which will equal approximately 411,963 shares
immediately after this offering; and
|
Ÿ
|
the
average weekly trading volume of our common stock during the
four calendar weeks preceding the sale.
|
Sales under
Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public
information about us.
Rule
144(k)
Under Rule
144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least
two years, may sell these shares without complying with the
manner of sale, public information, volume limitation or notice
requirements of Rule 144.
Rule
701
Rule 701,
as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a
written compensatory plan or contract to resell these shares in
reliance upon Rule 144, but without compliance with certain
restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 ninety days after effectiveness
without complying with the holding period requirement and that
non-affiliates may sell these shares in reliance on Rule 144
ninety days after effectiveness without complying with the
holding period, public information, volume limitation or notice
requirements of Rule 144.
Employee Plans
We intend
to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be
issued pursuant to our employee benefit plans. As a result, any
options or rights exercised under our 1999 Stock Option Plan will
also be freely tradable in the public market. However, shares
held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information
requirements of Rule 144, unless otherwise resellable under Rule
701. As of March 31, 2000, we had granted options to purchase
3,794,760 shares of common stock to employees that had not been
exercised, of which options to purchase 136,808 shares were
exercisable. See “Management—1999 Stock Option Plan
” and “Description of Capital Stock—Registration
Rights.”
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES
HOLDERS
General
This
section summarizes the material U.S. Federal tax consequences to
holders of common stock that are non-U.S. holders. In general,
you are a non-U.S. holder if you are:
Ÿ
|
an
individual who is a nonresident alien of the U.S;
|
Ÿ
|
a
corporation or other entity taxed as a corporation organized or
created under non-U.S. law;
|
Ÿ
|
an
estate that is not taxable in the U.S. on its worldwide income;
or
|
Ÿ
|
a trust
that is either not subject to primary supervision over its
administration by a U.S. Court or not subject to the control of
a U.S. person with respect to substantial trust
decisions.
|
If a
partnership holds common stock, the tax treatment of a partner
will generally depend upon the status of the partner and upon the
activities of the partnership. If you are a partner of a
partnership holding common stock, we suggest that you consult
your tax advisor.
If you are
an individual, you may, in many cases, be deemed to be a resident
alien, as opposed to a nonresident alien, by virtue of being
present in the United States for at least 31 days in the calendar
year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year (counting
for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year).
Resident aliens are subject to United States federal income tax
as if they were United States citizens.
This
discussion does not address all aspects of U.S. Federal taxation,
and in particular is limited in the following ways:
Ÿ
|
the
discussion assumes that you hold your common stock as a capital
asset (that is, for investment purposes), and that you do not
have a special tax status;
|
Ÿ
|
the
discussion does not consider tax consequences that depend upon
your particular tax situation in addition to your ownership of
the common stock;
|
Ÿ
|
the
discussion does not consider special tax provisions that may be
applicable to you if you have relinquished U.S. citizenship or
residence;
|
Ÿ
|
the
discussion is based on current law. Changes in the law may
change the tax treatment of the common stock;
|
Ÿ
|
the
discussion does not cover state, local or foreign law;
or
|
Ÿ
|
we have
not requested a ruling from the IRS on the tax consequences of
owning the common stock. As a result, the IRS could disagree
with portions of this discussion.
|
If you are
considering buying common stock, we suggest that you consult your
tax advisors about the tax consequences of holding and disposing
of the common stock in your particular situation.
Distributions
Distributions paid on the shares of common stock generally
will constitute dividends for U.S. Federal income tax purposes to
the extent paid from our current or accumulated earnings and
profits, as determined under U.S. Federal income tax principles.
To the extent that the amount of any distributions exceeds our
current or accumulated earnings and profits for a taxable year,
the distribution will first be treated as a tax-free return of
your basis in the shares of common stock, causing a reduction in
the adjusted basis of the common stock,
and the balance in excess of adjusted basis will be taxed as
capital gain recognized on a disposition of the common stock (as
discussed below). Dividends paid to you generally will be subject
to U.S. withholding tax at a 30% rate or, if a tax treaty
applies, a lower rate specified by the treaty, unless you receive
the dividends in connection with a trade or business you conduct
in the U.S. To receive a reduced treaty rate, you must furnish to
us or our paying agent a duly completed Form 1001 or Form W-8BEN
(or substitute form) certifying to your qualification for the
reduced rate.
Currently,
withholding generally is imposed on the gross amount of a
distribution, regardless of whether we have sufficient earnings
and profits to cause the distribution to be a dividend for U.S.
Federal income tax purposes. However, withholding on
distributions made after December 31, 2000, may be on less than
the gross amount of the distribution if the distribution exceeds
a reasonable estimate of our accumulated and current earnings and
profits.
In order to
claim an exemption from withholding on the ground that the
dividends are effectively connected with a U.S. trade or
business, you must provide to us or our paying agent a duly
completed Form 4224 or Form W-8ECI (or substitute form)
certifying your exemption. However, dividends exempt from U.S.
withholding because they are effectively connected generally are
subject to U.S. Federal income tax on a net income basis at the
regular graduated tax rates. These rules might be altered by an
applicable tax treaty. If you are a corporation, any effectively
connected dividends received by you may, under certain
circumstances, be subject to an additional branch profits tax at
a 30% rate or a lower rate specified by an applicable income tax
treaty.
Under
current U.S. Treasury regulations, dividends paid before January
1, 2001, to an address outside the U.S. are presumed to be paid
to a resident of the country of address, unless the payor has
knowledge to the contrary, for purposes of the withholding
discussed above and for purposes of determining the applicability
of a tax treaty rate. However, U.S. Treasury regulations
applicable to dividends paid after December 31, 2000 eliminate
this presumption, subject to certain transition
rules.
For
dividends paid after December 31, 2000, you generally will be
subject to U.S. backup withholding tax at a 31% rate under the
backup withholding rules described below, rather than at the 30%
or reduced tax treaty rate, as described above, unless you comply
with certain IRS certification or documentary evidence
procedures. Certain changes to these rules apply to dividend
payments made after December 31, 2000 to certain non-U.S. holders
or foreign intermediaries. You should consult your own tax
advisor concerning the effect, if any, of the rules affecting
post-December 31, 2000 dividends on your possible investment in
common stock.
You may
obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund along with the required information
with the IRS.
Gain on
Disposition of Common Stock
You
generally will not be subject to U.S. Federal income tax on a
sale or other disposition of the common stock unless one of the
following apply:
Ÿ
|
if the
gain is effectively connected with a trade or business you
conduct in the U.S. you will, unless an applicable treaty
provides otherwise, be taxed on your net gain on the sale under
regular graduated U.S. Federal income tax rates. If you are a
foreign corporation, you may be subject to an additional branch
profits tax at a 30% rate, unless an applicable income tax
treaty provides for a lower rate.
|
Ÿ
|
if you
are an individual and are present in the U.S. for 183 or more
days in the taxable year of the disposition and certain other
conditions are met, you will be subject to a flat 30% tax on
your gain from the sale, which may be offset by certain U.S.
capital losses.
|
Ÿ
|
if we
are or have been a U.S. real property holding corporation for
U.S. Federal income tax purposes at any time during the shorter
of the five-year period ending on the date of the disposition
or the period
during which you held the common stock, and certain other
conditions apply, you may be taxable in the U.S. on your gain
from a sale of the common stock pursuant to the effectively
connected rules described above. We believe that we never have
been, are not currently and are not likely in the future to
become, a U.S. real property holding corporation for U.S.
Federal income tax purposes.
|
Federal
Estate Tax
If you are
an individual who owns or is treated as owning common stock at
the time of your death or if you have made certain lifetime
transfers of an interest in common stock, you will be required to
include the value of the common stock in your gross estate for
U.S. Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
Information Reporting and Backup Withholding
Tax
We must
report annually to the IRS the amount of dividends paid to you
and the tax withheld with respect to the dividends. These
requirements apply even if withholding was not required on
payments to you. Pursuant to an applicable tax treaty, that
information may also be made available to the tax authorities in
your country of residence.
Backup
withholding tax generally may be imposed at the rate of 31% on
certain payments to persons that fail to furnish certain required
information. Backup withholding generally will not apply to
dividends paid before January 1, 2001 to non-U.S. holders. See
the discussion under “Distributions” above for rules
regarding reporting requirements to avoid backup withholding on
dividends paid after December 31, 2000.
As a
general matter, information reporting and backup withholding will
not apply to a payment to you by or through a foreign office of a
foreign broker of the proceeds of a sale of common stock effected
outside the U.S. However, information reporting requirements, but
not backup withholding, will apply to such a payment if the
broker:
Ÿ
|
is a
foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the
U.S.;
|
Ÿ
|
is a
controlled foreign corporation as defined in the Internal
Revenue Code; or
|
Ÿ
|
is a
foreign partnership with certain U.S. connections (for payments
made after December 31, 2000).
|
Information
reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that you are a
non-U.S. holder and certain conditions are met or you otherwise
establish an exemption.
Payment of
the proceeds of a sale of common stock by or through a U.S.
office of a broker is subject to both backup withholding and
information reporting unless you certify to the payor in the
manner required as to your non-U.S. status under penalties of
perjury or otherwise establish an exemption.
Amounts
withheld under the backup withholding rules do not constitute a
separate U.S. Federal income tax. Rather, any amounts withheld
under the backup withholding rules will be refunded or allowed as
a credit against your U.S. Federal income tax liability, if any,
provided the required information or appropriate claim for refund
is filed with the IRS.
The
foregoing discussion is only a summary of certain U.S. Federal
income and estate tax consequences of the ownership, sale or
other disposition of common stock by non-U.S. holders. You are
urged to consult your own tax advisor with respect to the
particular tax consequences to you of ownership and disposition
of common stock, including the effect of any state, local,
foreign or other tax laws and any applicable income or estate tax
treaties.
Under the
terms and subject to the conditions contained in an underwriting
agreement dated
, 2000, we have
agreed to sell to the underwriters named below, for whom Credit
Suisse First Boston Corporation, Lehman Brothers Inc. and
FleetBoston Robertson Stephens Inc. are acting as
representatives, the following respective numbers of shares of
common stock:
Underwriter
|
|
Number
of Shares
|
| Credit
Suisse First Boston Corporation |
|
|
| Lehman
Brothers Inc. |
|
|
| FleetBoston Robertson Stephens Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Total |
|
|
| |
|
|
The
underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in the
offering if any are purchased, other than those shares covered by
the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be
increased or the offering of common stock may be
terminated.
We have
granted to the underwriters a 30-day option to purchase on a pro
rata basis up to
additional
shares from us at the initial public offering price less the
underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common
stock.
The
underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
concession of $ per share. The
underwriters and the selling group members may allow a discount
of $ per share on sales to other
broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may
be changed by the representatives.
The
following table summarizes the compensation and estimated
expenses we will pay.
|
|
|
Per
Share
|
|
Total
|
|
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
|
Without
Over-allotment
|
|
With
Over-allotment
|
Underwriting Discounts and
Commissions paid by us |
|
$
|
|
$
|
|
$
|
|
$
|
| Expenses
payable by us |
|
$
|
|
$
|
|
$
|
|
$
|
The
underwriters have informed us that they do not expect
discretionary sales to exceed 5% of the shares of common stock
being offered.
We have
agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the
Securities Exchange Commission a registration statement under the
Securities Act relating to, any shares of our common stock or
securities convertible into or exchangeable or exercisable for
any of shares of our common stock, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of
this prospectus, except for grants of employee stock options
pursuant to the terms of any plan in effect on the date of this
prospectus, issuances of securities pursuant to the exercise of
employee stock options outstanding on the date of this
prospectus, employee stock purchases pursuant to the terms of a
plan in effect on the date of this prospectus or the issuance of
shares pursuant to the exercise of any other stock options or
warrants outstanding on the date of this prospectus.
Our
officers, directors, employees and various other stockholders,
who together hold substantially all of our stock, have agreed
that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into or exchangeable or
exercisable for any of our common stock, enter into a transaction
that would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any such aforementioned transaction is to be settled by delivery
of our common stock or such other securities, in cash or
otherwise, or publicly disclose the intention to make any such
offer, sale, pledge or disposition, or enter into any such
transaction, swap, hedge or other arrangement, without, in each
case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this
prospectus.
The
underwriters have reserved for sale at the initial public
offering price up to 1,000,000 shares of common stock for
non-officer employees; friends and family members of our
employees, officers, directors and stockholders; strategic
partners and several companies who participate in our marketplace
as buyers who have expressed an interest in purchasing our common
stock in the offering. The number of shares available for sale to
the general public in the offering will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares.
We have
agreed to indemnify the underwriters against liabilities under
the Securities Act, or contribute to payments which the
underwriters may be required to make in that respect.
We have
applied to list the shares of common stock on The Nasdaq Stock
Market’s National Market under the symbol “SMKT
”.
Prior to
this offering, there has been no public market for the common
stock. The initial public offering price will be determined by
negotiation between us and the representatives, and may not
reflect the market price for the common stock following this
offering. We will consider, among others, the following principal
factors in determining the initial public offering
price:
Ÿ
|
the
information in this prospectus and otherwise available to the
representatives;
|
Ÿ
|
market
conditions for initial public offerings;
|
Ÿ
|
the
history of and prospects for the industry in which we will
compete;
|
Ÿ
|
our past
and present operations;
|
Ÿ
|
our past
and present earnings and current financial
position;
|
Ÿ
|
the
ability of our management;
|
Ÿ
|
our
prospects for future earnings;
|
Ÿ
|
the
present state of our development and our current financial
condition;
|
Ÿ
|
the
recent prices of, and the demand for, publicly traded common
stock of generally comparable companies;
|
Ÿ
|
the
general condition of the securities markets at the time of this
offering; and
|
Ÿ
|
other
relevant factors.
|
We can
offer no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in
the public market subsequent to this offering or that an active
trading market for the common stock will develop and continue
after this offering.
The
representatives may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in
accordance with Regulation M under the Securities Exchange Act of
1934.
Ÿ
|
Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short
position.
|
Ÿ
|
Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not
exceed a specified maximum.
|
Ÿ
|
Syndicate covering transactions involve purchases of the
common stock in the open market after the distribution has been
completed in order to cover syndicate short
positions.
|
Ÿ
|
Penalty
bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold
by the syndicate member is purchased in a stabilizing or
syndicate covering transaction to cover syndicate short
positions.
|
These
stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher
than it would otherwise be in the absence of the transactions.
These transactions may be effected on The Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any
time.
A
prospectus in electronic format may be made available on
the web sites maintained by one or more underwriters
participating in this offering. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet
distributions on the same basis as other allocations.
NOTICE TO CANADIAN RESIDENTS
Resale
Restrictions
The
distribution of the common stock in Canada is being made only on
a private placement basis exempt from the requirement that we
prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are
effected. Accordingly, any resale of the common stock in Canada
must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by
the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale
of the common stock.
Representations of Purchasers
Each
purchaser of the common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer
from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws
to purchase such common stock without the benefit of a prospectus
qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent,
and (iii) such purchaser has reviewed the text above under
“Resale Restrictions”.
Rights
of Action (Ontario Purchasers)
The
securities being offered are those of a foreign issuer and
Ontario purchasers will not receive the contractual right of
action prescribed by Ontario securities law. As a result, Ontario
purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission
or rights of action under the civil liability provisions of the
U.S. federal securities laws.
Enforcement of Legal Rights
All of the
issuer’s directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a
substantial portion of the assets of the issuer and such persons
may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.
Notice
to British Columbia Residents
A purchaser
of common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to
file with the British Columbia Securities Commission a report
within ten days of the sale of any common stock acquired by such
purchaser pursuant to this offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only
one such report must be filed in respect of common stock acquired
on the same date and under the same prospectus
exemption.
Taxation and Eligibility for Investment
Canadian
purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in
the common stock in their particular circumstances and with
respect to the eligibility of the common stock for investment by
the purchaser under relevant Canadian legislation.
The
validity of the common stock offered hereby will be passed upon
for us by Ropes & Gray, Boston, Massachusetts. Cravath,
Swaine & Moore, New York, New York, has represented the
underwriters in this offering. Attorneys of Ropes & Gray own
10,694 shares of our common stock through a collective investment
vehicle.
The
financial statements as of December 31, 1999 and for the period
from inception, February 12, 1999 to December 31, 1999 included
in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We have
filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act concerning the
common stock offered in this offering. This prospectus does not
contain all of the information set forth in the registration
statement or its exhibits and schedules. For further information
about us and our common stock, we refer you to the registration
statement and to its attached exhibits and schedules. Statements
made in this prospectus concerning the contents of any document
are not necessarily complete. With respect to each document filed
as an exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter
involved.
You may
inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New
York, NY 10048, and at 500 West Madison Street, Suite 1400,
Chicago, IL 60661. You may obtain information on the operation of
these reference facilities by calling the Commission at 1 (800)
SEC-0330. You may obtain copies of all or any part of our
registration statement from the Commission upon payment of
prescribed fees. You may also inspect reports, proxy and
information statements and other information that we file
electronically with the Commission without charge at the
Commission’s Internet site, http://www.sec.gov.
We intend
to furnish our stockholders with annual reports containing
financial statements audited by our independent
auditors.
INDEX
TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the
Board of Directors and Stockholders of
SupplierMarket.com, Inc.:
In our
opinion, the accompanying balance sheet and the related
statements of operations, of stockholders’ deficit and of
cash flows present fairly, in all material respects, the
financial position of SupplierMarket.com, Inc. as of December 31,
1999 and the results of its operations and cash flows for the
period from inception (February 12, 1999) through December 31,
1999 in conformity with accounting principles generally accepted
in the United States. 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 audit. We conducted our audit in
accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/
PricewaterhouseCoopers LLP
Boston,
Massachusetts
March 1,
2000
SUPPLIERMARKET.COM, INC.
BALANCE
SHEETS
|
|
|
December 31, 1999
|
|
March
31, 2000
|
|
Pro
Forma
March 31, 2000
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
|
|
|
|
|
Note
2 |
| Assets |
|
|
|
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
$36,761,018 |
|
|
$23,420,956 |
|
|
$23,420,956 |
|
Accounts
receivable, net of allowances of $0 and
$18,076 at December 31, 1999 and March
31, 2000
(unaudited), respectively |
|
7,475 |
|
|
155,320 |
|
|
155,320 |
|
|
Prepaid
expenses and other assets |
|
684,913 |
|
|
3,268,805 |
|
|
3,268,805 |
|
|
Loan
receivable from related party |
|
133,634 |
|
|
133,634 |
|
|
133,634 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
37,587,040 |
|
|
26,978,715 |
|
|
26,978,715 |
|
|
Property
and equipment, net |
|
1,554,043 |
|
|
3,517,955 |
|
|
3,517,955 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$39,141,083 |
|
|
$30,496,670 |
|
|
$30,496,670 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock
and
Stockholders’ (Deficit)
Equity |
|
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
$
1,405,508 |
|
|
$2,461,340 |
|
|
$
2,461,340 |
|
|
Accrued
expenses and other liabilities |
|
396,574 |
|
|
350,175 |
|
|
350,175 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
1,802,082 |
|
|
2,811,515 |
|
|
2,811,515 |
|
| Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
Redeemable convertible Series A preferred stock, $0.001
par
value, 6,612,873 shares authorized,
6,562,873 shares issued
and outstanding; no shares issued
and outstanding on a pro
forma basis (unaudited) |
|
6,080,501 |
|
|
6,080,501 |
|
|
—
|
|
Redeemable convertible Series B preferred stock, $0.001
par
value, 16,040,040 shares
authorized, 14,863,770 and
16,040,039 shares issued and
outstanding at December 31,
1999 and March 31, 2000
(unaudited), respectively; no
shares issued and outstanding on a
pro forma basis
(unaudited) |
|
34,750,003 |
|
|
34,478,339 |
|
|
—
|
|
| Stockholders’ (deficit) equity: |
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 85,000,000 shares
authorized, 9,884,246 and 10,050,519
shares issued
and outstanding at December 31, 1999 and
March 31, 2000 (unaudited),
respectively;
31,196,283 shares issued and
outstanding on a
pro forma basis (unaudited) |
|
9,884 |
|
|
10,051 |
|
|
31,196 |
|
|
Additional paid-in capital |
|
7,946,736 |
|
|
25,165,116 |
|
|
65,702,811 |
|
|
Deferred
stock-based compensation |
|
(5,386,142 |
) |
|
(18,172,218 |
) |
|
(18,172,218 |
) |
|
Accumulated deficit |
|
(6,061,981 |
) |
|
(19,876,634 |
) |
|
(19,876,634 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ (deficit) equity |
|
(3,491,503 |
) |
|
(12,873,685 |
) |
|
27,685,155 |
|
| |
|
|
|
|
|
|
|
|
|
Total
liabilities, redeemable convertible preferred
stock and stockholders’ (deficit)
equity |
|
$39,141,083 |
|
|
$30,496,670 |
|
|
$30,496,670 |
|
| |
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
STATEMENTS OF OPERATIONS
|
|
|
Period From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three
Months
Ended
March 31, 2000
|
|
|
|
|
|
(unaudited) |
| Revenue |
|
$
51,541 |
|
|
$
216,791 |
|
| Operating expenses: |
|
|
|
|
|
|
Costs of
revenue (excluding $5,942 and $41,789 of stock-based
compensation, respectively) |
|
107,605 |
|
|
205,615 |
|
Sales and
marketing (excluding $97,552 and $176,170 of stock-based
compensation, respectively) |
|
2,397,405 |
|
|
10,576,301 |
|
Research
and development (excluding $43,190 and $128,199 of stock-
based compensation, respectively) |
|
515,993 |
|
|
681,116 |
|
General
and administrative (excluding $2,584,831 and $1,048,935 of
stock-based compensation,
respectively) |
|
636,171 |
|
|
1,577,297 |
|
|
Stock-based compensation |
|
2,731,515 |
|
|
1,395,093 |
|
| |
|
|
|
|
|
|
|
Total
operating expenses |
|
6,388,689 |
|
|
14,435,422 |
|
| |
|
|
|
|
|
|
|
Operating
loss |
|
(6,337,148 |
) |
|
(14,218,631 |
) |
| Interest
income |
|
280,109 |
|
|
403,978 |
|
| |
|
|
|
|
|
|
|
Net
loss |
|
$
(6,057,039 |
) |
|
$(13,814,653 |
) |
| |
|
|
|
|
|
|
| Net loss
per share, basic and diluted |
|
$
(2.66 |
) |
|
$
(2.24 |
) |
| |
|
|
|
|
|
|
| Weighted
average common shares outstanding, basic and diluted |
|
2,344,874 |
|
|
6,223,990 |
|
| |
|
|
|
|
|
|
| Unaudited pro forma net loss per share, basic and
diluted |
|
$
(0.58 |
) |
|
$
(0.51 |
) |
| |
|
|
|
|
|
|
Unaudited pro forma weighted average common shares
outstanding, basic
and diluted |
|
10,446,037 |
|
|
27,210,518 |
|
| |
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
STATEMENTS OF STOCKHOLDERS’
DEFICIT
|
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Deferred
Stock-Based
Compensation
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Deficit
|
Issuance
of 9,859,246 shares of
common stock |
|
$
9,859 |
|
$
— |
|
|
$
— |
|
|
$
(4,930 |
) |
|
$
4,929 |
|
Exercise
of stock options for 25,000
shares |
|
25 |
|
—
|
|
|
—
|
|
|
(12 |
) |
|
13 |
|
| Deferred
stock-based compensation |
|
—
|
|
8,117,657 |
|
|
(8,117,657 |
) |
|
—
|
|
|
—
|
|
Amortization of deferred
compensation |
|
—
|
|
—
|
|
|
2,731,515 |
|
|
—
|
|
|
2,731,515 |
|
Accretion of preferred stock to
redemption value |
|
—
|
|
(170,921 |
) |
|
—
|
|
|
—
|
|
|
(170,921 |
) |
| Net
loss |
|
—
|
|
—
|
|
|
—
|
|
|
(6,057,039 |
) |
|
(6,057,039 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance
at December 31, 1999 |
|
9,884 |
|
7,946,736 |
|
|
(5,386,142 |
) |
|
(6,061,981 |
) |
|
(3,491,503 |
) |
Value of
preferred stock beneficial
conversion feature |
|
—
|
|
3,128,876 |
|
|
—
|
|
|
—
|
|
|
3,128,876 |
|
Exercise
of stock options for 166,292
shares |
|
167 |
|
15,549 |
|
|
—
|
|
|
—
|
|
|
15,716 |
|
Deferred
stock-based compensation,
net of option
cancellations |
|
—
|
|
14,181,169 |
|
|
(14,181,169 |
) |
|
—
|
|
|
—
|
|
Amortization of deferred
compensation |
|
—
|
|
—
|
|
|
1,395,093 |
|
|
—
|
|
|
1,395,093 |
|
Accretion of preferred stock to
redemption value |
|
—
|
|
(107,214 |
) |
|
—
|
|
|
—
|
|
|
(107,214 |
) |
| Net
loss |
|
—
|
|
—
|
|
|
—
|
|
|
(13,814,653 |
) |
|
(13,814,653 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2000
(unaudited) |
|
$10,051 |
|
$25,165,116 |
|
|
$(18,172,218 |
) |
|
$(19,876,634 |
) |
|
$(12,873,685 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
STATEMENTS OF CASH FLOWS
|
|
|
Period From
Inception
(February 12, 1999)
Through
December 31, 1999
|
|
Three
Months
Ended
March 31, 2000
|
|
|
|
|
|
(unaudited) |
| Cash
flows from operating activities: |
|
|
|
|
|
|
|
Net
loss |
|
$
(6,057,039 |
) |
|
$(13,814,653 |
) |
Adjustments to reconcile net loss to net cash used in
operating
activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
95,526 |
|
|
266,001 |
|
|
Stock-based compensation |
|
2,731,515 |
|
|
1,395,093 |
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts
receivable |
|
(7,475 |
) |
|
(147,845 |
) |
|
Prepaid
expenses and other assets |
|
(684,913 |
) |
|
(2,583,892 |
) |
|
Loan
receivable from related party |
|
(133,634 |
) |
|
—
|
|
|
Accounts
payable |
|
1,405,508 |
|
|
1,055,832 |
|
|
Accrued
expenses and other liabilities |
|
396,574 |
|
|
(46,399 |
) |
| |
|
|
|
|
|
|
|
Net cash
used in operating activities |
|
(2,253,938 |
) |
|
(13,875,863 |
) |
|
|
|
|
|
|
|
|
| Cash
flows from investing activities: |
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
(1,649,569 |
) |
|
(2,229,913 |
) |
| |
|
|
|
|
|
|
|
Net cash
used in investing activities |
|
(1,649,569 |
) |
|
(2,229,913 |
) |
|
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
Proceeds
from issuance of redeemable convertible preferred
stock |
|
40,659,583 |
|
|
2,749,998 |
|
|
Proceeds
from issuance of common stock |
|
4,942 |
|
|
15,716 |
|
| |
|
|
|
|
|
|
|
Net cash
provided by financing activities |
|
40,664,525 |
|
|
2,765,714 |
|
| |
|
|
|
|
|
|
| Net
increase (decrease) in cash and cash equivalents |
|
36,761,018 |
|
|
(13,340,062 |
) |
| Cash and
cash equivalents, beginning of period |
|
—
|
|
|
36,761,018 |
|
| |
|
|
|
|
|
|
| Cash and
cash equivalents, end of period |
|
$36,761,018 |
|
|
$23,420,956 |
|
| |
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
NOTES
TO FINANCIAL STATEMENTS
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH
31, 2000 IS UNAUDITED)
Note 1.
Description of Business
SupplierMarket.com, Inc. (the “Company”) is a
business-to-business, Internet-based marketplace serving the
direct materials market. Our marketplace allows participants to
buy and sell direct materials across a wide variety of industrial
segments. We feature an anonymous bidding event with a
competitive, reverse auction.
The Company
was formed on February 12, 1999 under the laws of the state of
Delaware. During the period from inception through October 1999,
the Company was a development stage enterprise and did not have
any revenue. During this period, the Company’s operating
activities related to the design and development of our
Internet-based marketplace, the development of our corporate
infrastructure and the establishment of relationships with buyers
and suppliers of direct materials. The Company began providing
business-to-business online bidding events in October 1999
through the launch of its Internet-based marketplace.
The Company
expects to experience continuing operating losses and negative
cash flows as management executes its current business plan. At
December 31, 1999, the Company had cash and cash equivalents
totaling approximately $36,800,000. In June 1999, the Company
completed its Series A preferred stock offering and received net
proceeds of approximately $6,100,000. In November 1999, the
Company conducted a Series B preferred stock offering and
received net proceeds of approximately $34,600,000. The Company
’s Board of Directors has authorized the filing of a
registration statement with the Securities and Exchange
Commission that would permit the Company to sell shares of the
Company’s common stock in a proposed initial public
offering. Management believes that it has sufficient funds,
excluding any proceeds from this offering, to sustain its current
business plan through March 31, 2001.
Note 2.
Summary of Significant Accounting
Policies
|
Unaudited Interim Financial Data
|
The
financial information as of March 31, 2000 and for the three
months ended March 31, 2000 is unaudited. In the opinion of
management, the interim financial information includes all
adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results for the interim
period. The results of operations for the three months ended
March 31, 2000 are not necessarily indicative of the results to
be expected for any future period.
|
Cash
and cash equivalents
|
The Company
considers all unrestricted, highly liquid investments with
initial maturities of less than three months to be cash
equivalents. Such investments are carried at cost, which
approximates fair value.
Property
and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives ranging
from three to five years. Upon sale or retirement, the cost and
related accumulated depreciation are eliminated from the
respective accounts, and the resulting gain or loss is included
in income or loss for the period. Repair and maintenance
expenditures are expensed as incurred. Depreciation expense was
approximately $48,000 for the period from inception (February 12,
1999) through December 31, 1999.
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
The Company
generates revenue from transaction fees earned on bidding events
that result in a buyer selecting a supplier to fulfill its
request for quotation. Revenue is recognized when all of the
following criteria have been met: the Company has rendered its
service to the supplier; the Company has an enforceable right to
collect from the supplier; collection of the transaction fee is
reasonably assured; and, the amount of the transaction fee is
fixed or determinable. Transaction fee revenue is recognized when
the buyer has selected a supplier, the supplier has agreed to the
payment terms, the supplier has issued a purchase order for the
transaction fee and payment is not contingent on a future event.
A sales allowance is recorded for transaction fees which are
subject to adjustment for changes in price and volume of material
ultimately delivered to the buyer.
Costs of
revenue consist primarily of expenses related to staffing and
operation of the Company’s Internet-based marketplace
services and amortization of capitalized web site development
costs.
Advertising
costs are expensed at the time the first advertisement is aired
or printed or when the promotion occurs. No amounts have been
deferred on the balance sheet as of December 31, 1999.
Advertising expense was approximately $461,000 for the period
from inception (February 12, 1999) through December 31,
1999.
|
Capitalized web site development
costs
|
The Company
accounts for costs incurred to design and develop its
Internet-based marketplace in accordance with Statement of
Position 98-1, which requires computer software costs associated
with internal use software to be charged to operations until
certain capitalization criteria are met. Costs of approximately
$424,000 were capitalized for the period from inception (February
12, 1999) through December 31, 1999 and are being amortized over
18 months. Amortization expense was approximately $47,000 for the
period from inception (February 12, 1999) through December 31,
1999. These costs are included in property and equipment (Note
4).
Start-up
costs are expensed as incurred, and primarily include costs to
establish the Company, new locations or new
operations.
|
Stock-based compensation expense
|
The Company
accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board (
“APB”) Opinion No. 25, “Accounting for Stock
Issued to Employees,” and complies with the disclosure
provisions of Statement of Financial Accounting Standards (
“SFAS”) No. 123, “Accounting for Stock-Based
Compensation.” Under APB No. 25, compensation expense is
based on the difference, if any, on the date of the grant between
the fair value of the Company’s stock and the exercise
price. All stock-based awards to non-employees are accounted for
at their fair value in accordance with SFAS No. 123 and Emerging
Issues Task Force Issue No. 96-18.
Basic and
diluted net loss per common share is presented in conformity with
SFAS 128, “Earnings Per Share.” Basic net loss per
share is computed by dividing the net loss for the period by the
weighted average number of common shares outstanding during the
period, excluding unvested restricted stock held by
employees. Diluted net loss per share is computed by dividing the
net loss for the period by the weighted average number of common
and potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares consist of the common
shares issuable upon the exercise of stock options and warrants
(using the treasury stock method) and upon the conversion of
convertible preferred stock (using the if-converted method) as
well as unvested restricted stock held by employees. Potentially
dilutive common shares are excluded from the calculation if their
effect is antidilutive.
Pro forma
net loss per share is computed assuming the conversion of all
outstanding shares of convertible preferred stock, which will
automatically convert into common stock upon an initial public
offering as if the shares converted at the original date of
issuance.
The
following table sets forth the computations of net loss per
share:
|
|
|
Period From
Inception (February 12, 1999)
to December 31, 1999
|
|
Three
Months Ended
March 31, 2000
|
|
|
|
As
Reported
|
|
Pro
Forma
|
|
As
Reported
|
|
Pro
Forma
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
| Basic
and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
$(6,057,039 |
) |
|
$(6,057,039 |
) |
|
$(13,814,653 |
) |
|
$(13,814,653 |
) |
Accretion of preferred stock to
redemption value |
|
(170,921 |
) |
|
—
|
|
|
(107,214 |
) |
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to common
shareholders |
|
$(6,227,960 |
) |
|
$(6,057,039 |
) |
|
$(13,921,867 |
) |
|
$(13,814,653 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
outstanding |
|
2,344,874 |
|
|
2,344,874 |
|
|
6,223,990 |
|
|
6,223,990 |
|
Weighted
average impact of
conversion of preferred stock to
common stock |
|
—
|
|
|
8,101,163 |
|
|
—
|
|
|
20,986,528 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
2,344,874 |
|
|
10,446,037 |
|
|
6,223,990 |
|
|
27,210,518 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss
per share, basic and diluted |
|
$
(2.66 |
) |
|
$
(0.58 |
) |
|
$
(2.24 |
) |
|
$
(0.51 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
For the
period from inception (February 12, 1999) through December 31,
1999 and for the three months ended March 31, 2000, respectively,
as reported, 23,011,439 and 25,040,527 potentially dilutive
common shares in the form of stock options, warrants and
convertible preferred stock were excluded from the calculation of
net loss per share because their effect was antidilutive. In
addition, 3,919,205 and 3,302,033 shares of restricted stock at
December 31, 1999 and at March 31, 2000, respectively, were
excluded from the calculations of basic net loss per share
because the shares revert to the Company if the related vesting
conditions are not met and from the calculations of diluted net
loss per share because their effect was antidilutive.
Upon the
closing of the Company’s proposed initial public offering,
all of the shares of redeemable convertible Series A and Series B
preferred stock outstanding as of March 31, 2000 will
automatically convert into 21,145,764 shares of the Company
’s common stock. The unaudited pro forma presentation of the
balance sheet has been prepared assuming the conversion of the
preferred stock into common stock as of March 31, 2000. All
references to pro forma information in the notes to these
financial statements are unaudited.
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
|
Fair
value of financial instruments
|
The Company
’s financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable are carried
at cost, which approximates their fair value because of the
short-term nature of these instruments.
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
|
Concentration of credit risk
|
Financial
instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents
and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company
’s accounts receivable are derived from revenue earned from
customers located in the U.S. and are denominated in U.S.
dollars. Portions of the Company’s accounts receivable
balances are settled through electronic fund transfers. As a
result, the majority of accounts receivable are collected upon
processing of those transactions. As of December 31, 1999, two
customers accounted for 100% of accounts receivable and, during
the period from inception through December 31, 1999, two
additional customers accounted for 100% of revenue.
Deferred
taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences
are expected to reverse. Valuation allowances are provided if,
based upon the weight of available evidence, it is more likely
than not some or all of the deferred tax assets will not be
realized.
|
Comprehensive income (loss)
|
The Company
has adopted SFAS 130, “Reporting Comprehensive Income,”
effective February 12, 1999. No material differences exist
between net loss and comprehensive loss.
|
Recent accounting pronouncements
|
In June
1998, the FASB issued SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” which
established accounting and reporting standards for derivative
instruments and hedging. It requires entities to recognize all
derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company, to
date, has not engaged in derivative or hedging activities, and
accordingly does not believe the adoption of SFAS No. 133 will
have a material impact on the financial reporting and related
disclosures of the Company. The Company will adopt SFAS No. 133
as required by SFAS No. 137, “Deferral of Effective Date of
the FASB Statement No. 133,” in 2001.
In December
1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements.” This bulletin summarizes certain
views of the staff on
applying generally accepted accounting principles to revenue
recognition in financial statements. The staff believes that
revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered; the
seller’s price to the buyer is fixed or determinable; and
collectibility is reasonably assured. The Company believes that
its current revenue recognition policy complies with the
Commission’s guidelines.
Note 3.
Prepaid expenses and other
assets
Prepaid
expenses and other assets consist of the following:
|
|
|
December 31, 1999
|
|
March
31, 2000
|
| Prepaid
advertising |
|
$
— |
|
$2,107,618 |
| Deposits |
|
156,578 |
|
395,539 |
| Deferred
offering costs |
|
—
|
|
164,985 |
| Other
prepaid expenses |
|
528,335 |
|
600,663 |
| |
|
|
|
|
|
|
|
$684,913 |
|
$3,268,805 |
| |
|
|
|
|
Note 4.
Property and Equipment
Property
and equipment consist of the following:
|
|
|
December 31, 1999
|
|
March
31, 2000
|
| Computer
equipment |
|
$
511,184 |
|
|
$2,355,159 |
|
| Purchased software |
|
437,806 |
|
|
471,606 |
|
| Web site
development costs |
|
424,281 |
|
|
476,781 |
|
| Office
equipment |
|
161,720 |
|
|
243,025 |
|
| Furniture and fixtures |
|
114,578 |
|
|
332,911 |
|
| |
|
|
|
|
|
|
|
|
|
1,649,569 |
|
|
3,879,482 |
|
| Less:
accumulated depreciation and
amortization |
|
(95,526 |
) |
|
(361,527 |
) |
| |
|
|
|
|
|
|
|
|
|
$1,554,043 |
|
|
$3,517,955 |
|
| |
|
|
|
|
|
|
Depreciation and amortization expense was approximately
$96,000 and $266,000 for the period from inception through
December 31, 1999 and for the three months ended March 31, 2000,
respectively.
Note 5.
Accrued Expenses
Accrued
expenses consist of the following:
|
|
|
December 31, 1999
|
|
March
31, 2000
|
| Accrued
payroll and related costs |
|
$114,422 |
|
$160,539 |
| Accrued
commissions |
|
106,750 |
|
145,912 |
| Accrued
other expenses |
|
175,402 |
|
43,724 |
| |
|
|
|
|
|
|
|
$396,574 |
|
$350,175 |
| |
|
|
|
|
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
Note 6. Lines of Credit
In
September 1999, the Company entered into working capital and
equipment lines of credit with its bank. The working capital line
of credit provided for borrowings up to a maximum of $500,000.
The equipment line of credit agreement allowed for borrowings of
up to $1,000,000. Borrowings under these facilities were payable
in 36 equal monthly installments of principal and interest. The
underlying notes were secured by substantially all of the assets
of the Company. Interest on the working capital line was charged
at the prime rate plus 1% (9.5% as of December 31, 1999).
Interest on the equipment line was charged at the 36-month U.S.
Treasury rate plus 245 basis points (8.71% as of December 31,
1999). As of December 31, 1999, there were no amounts outstanding
under either facility. These facilities were terminated by the
Company on February 17, 2000.
In
connection with these agreements, the Company issued a detachable
warrant, which permits the holder to purchase 50,000 shares of
the Company’s Series A Redeemable Convertible Preferred
stock at an exercise price of $0.93 per share. The warrant is
exercisable immediately and expires on September 21, 2006. The
fair value of the warrant at the date of issuance was not
material to the Company’s financial statements.
Note 7.
Income Taxes
The Company
had no income tax provision during the period from inception
through December 31, 1999 since the Company had a net taxable
loss during this period.
Deferred
tax assets and liabilities consist of the following as of
December 31, 1999:
| Net
operating losses |
|
$1,712,606 |
|
| Stock-based compensation |
|
935,617 |
|
| Research
and development tax credits and other |
|
81,580 |
|
| |
|
|
|
| Net
deferred tax assets |
|
2,729,803 |
|
| Valuation allowance |
|
(2,729,803 |
) |
| |
|
|
|
| Net
deferred tax assets |
|
$
—
|
|
| |
|
|
|
In
assessing the realizability of net deferred tax assets,
management considers whether it is more likely than not that some
portion of the net deferred tax assets will not be realized. The
ultimate realization of net deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which temporary differences representing net future deductible
amounts become deductible. Management has established a full
valuation allowance against the net deferred tax assets at
December 31, 1999, since it is more likely than not that these
future tax benefits will not be realized.
As of
December 31, 1999, the Company had available federal and state
net operating loss carryforwards of $4,200,000 and $4,100,000,
respectively. These net operating loss carryforwards may be used
to offset future federal and state income taxes through 2019 and
2009, respectively. However, changes in the Company’s
ownership as defined in the Internal Revenue Code, may limit the
Company’s ability to utilize the net operating loss and tax
credit carryforwards.
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
Note 8. Stockholders’
Equity
|
Redeemable Convertible Preferred
Stock
|
The Company
has authorized 22,652,913 shares of preferred stock. The Company
designated 6,612,873 of these shares as Series A Convertible
Preferred Stock, par value $0.001 (“Series A”) and
16,040,040 of these shares as Series B Convertible Preferred
Stock, par value $0.001 (“Series B”). In July and
August 1999, the Company sold 6,562,873 Series A shares at $0.93
per share. Proceeds from the offering totaled $6,041,000, net of
offering costs of approximately $40,000. In November 1999, the
Company sold 14,863,770 Series B shares at $2.34 per share.
Proceeds from the offering totaled $34,619,000, net of offering
costs of approximately $131,000.
The Company
’s Series A and Series B preferred stock are convertible
into common stock upon a conversion ratio of one-to-two and
two-to-one, respectively, which is subject to adjustment as
defined in the Company’s Amended and Restated Certificate of
Incorporation. All series of preferred stock will be converted
automatically into an appropriate number of common stock
immediately upon the closing of an initial public offering
pursuant to an effective registration statement under the
Securities Act of 1933, as amended. The holders of Series A and
Series B preferred stock each have the right to elect two
directors, for a total of four directors. The holders of the
Series A and Series B preferred stock have a liquidation
preference over the holders of common stock equal to the purchase
price of the preferred stock, adjusted for certain events as
defined in the Amended and Restated Certificate of Incorporation,
and have certain anti-dilution protection.
The Company
is required to redeem the Series A and Series B redeemable
convertible preferred stock from the holders upon receipt of
request from holders of shares representing a majority of the
then outstanding shares of preferred stock. Redemption could
first be required by the holders on June 28, 2004 for Series A
and on November 18, 2004 for Series B and later upon the first
anniversaries thereof. The redemption price is equal to the
purchase price of the preferred stock plus accrued, unpaid
dividends at the redemption date.
The Company
has granted preemptive rights to the holders of Series A and
Series B preferred stock. In the event that the Company seeks to
raise additional capital, these rights allow holders, under
certain circumstances, to maintain their percentage ownership of
the Company. All preemptive rights terminate upon an initial
public offering of the Company’s common stock.
|
Issuance of Additional Preferred
Stock
|
In January
and February 2000, the Company issued 1,176,270 shares of Series
B preferred stock for net proceeds of $2,750,000. Approximately
386,954 shares were sold to related parties. The intrinsic value
of the associated beneficial conversion feature of approximately
$3,100,000 was initially recorded as additional paid-in capital
and as a reduction in the carrying amount of preferred stock.
This amount will be accreted to increase the carrying amount of
preferred stock using the straight-line method over the 58 month
period until the first required redemption date of the preferred
stock.
The Company
has authorized 85,000,000 shares of common stock. On February 29,
2000, the Company effected a one-for-two reverse stock split of
the common stock. All common share and per share amounts in the
accompanying financial statements, including stock options and
warrants, have been restated to reflect the effect of this
reverse stock split. The preferred shares were not affected by
the reverse stock split; however, the conversion features
discussed above reflect the effect of this reverse stock
split.
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
The Company has entered into agreements with two officers of the
Company pursuant to which 6,988,500 shares of common stock were
subject to restriction as to the sale or transfer of the shares
until the restrictions have lapsed. In the event these officers
are no longer employed by the Company before the restrictions
lapse, the Company has the right to repurchase any or all
unvested shares at their original issuance price. Under these
stock restriction agreements, 3,493,250 shares of common stock
owned by the two officers were fully vested and no longer subject
to restriction at December 31, 1999. The remaining 3,495,250
shares vest ratably each month through June 2001. Additionally at
December 31, 1999, an employee and an advisor hold in the
aggregate 423,955 shares of common stock subject to similar
restrictions, which lapse over a two to four year
period.
Note 9.
Stock Plans
In 1999,
the Company adopted the 1999 Stock Option Plan, the “1999
Plan”, that provides for the granting of incentive and
nonqualified stock options. The exercise price for incentive
stock options issued under the 1999 Plan are equal to 100% of the
fair market value of the stock on the date of grant, and 110% for
stockholders with 10% or more ownership of the Company, if
applicable, as determined by the Company’s Board of
Directors. The exercise price of nonqualified stock options may
be less than the fair market value of the common stock on the
date of grant, as determined by the Board of Directors, but in no
case may the exercise price be less than the statutory minimum.
The options have a term of ten years. Vesting of options granted
is set at the discretion of the Board of Directors, but is
generally 12.5% after six months and then monthly for the next 42
months. The aggregate number of common shares authorized to be
issued under the 1999 Plan is 5,251,924.
Through
December 31, 1999, the Company had issued options to purchase a
total of 728,224 shares of common stock to non-employees,
including options to purchase 172,328 shares issued to a related
party, with exercise prices ranging from $0.001-$0.93. In
connection with the grant of these options to non-employees, the
Company recorded deferred compensation of aproximately $6,400,000
at December 31, 1999. Compensation expense related to
non-employee stock options was $2,500,000 in 1999, of which
$579,000 related to grants to related parties. Compensation
expense related to non-employee stock options was $802,000 for
the three months ended March 31, 2000, of which none related to
grants to related parties.
In
connection with the grant of certain stock options to employees
during 1999, the Company recorded deferred compensation of
approximately $2,800,000, representing the difference between the
option exercise price and the subsequently determined fair value
of the common stock at the grant date multiplied by the 1,650,584
shares under option. Such amount is presented as deferred
compensation in stockholders’ deficit and is amortized over
the vesting periods of the applicable options. The Company
recorded compensation expense of $166,000 in 1999 related to
these options. In the three months ended March 31, 2000, the
Company recorded additional deferred compensation of
approximately $14,200,000 related to the grants to employees of
stock options to purchase 1,822,625 shares.
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
A summary of the options granted under the 1999 Plan during the
period from inception (February 12, 1999) through December 31,
1999 and for the three months ended March 31, 2000 is presented
below:
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
| Granted |
|
2,378,808 |
|
|
$0.31 |
| Exercised |
|
(25,000 |
) |
|
0.00 |
| Cancelled |
|
—
|
|
|
—
|
| |
|
|
|
|
|
|
Options
outstanding at December 31, 1999 |
|
2,353,808 |
|
|
0.38 |
| Granted |
|
1,822,625 |
|
|
1.86 |
| Exercised |
|
(166,273 |
) |
|
0.10 |
| Cancelled |
|
(215,400 |
) |
|
0.91 |
| |
|
|
|
|
|
|
Options
outstanding at March 31, 2000 |
|
3,794,760 |
|
|
$1.07 |
| |
|
|
|
|
|
The
following table summarizes information about the options
outstanding as of December 31, 1999:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range
of
Prices
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Weighted Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted Average
Exercise Price
|
| $0.093-$0.935 |
|
2,353,808 |
|
9.74 |
|
$0.38 |
|
49,921 |
|
$0.093 |
At December
31, 1999, there were 2,873,116 shares available for future grant
under the 1999 Plan. The weighted average fair value of options
granted during 1999 was $6.99.
The Company
applies the provisions of APB No. 25 and its related
interpretations in accounting for its stock option plans. Had the
Company accounted for these plans under SFAS No. 123, the Company
’s net loss and net loss per share would have been increased
to the following pro forma amounts for the period from inception
through December 31, 1999:
| Net loss
attributable to common stockholders: |
|
|
|
As
reported |
|
$(6,227,960 |
) |
| |
|
|
|
|
Pro
forma |
|
$(6,274,960 |
) |
| |
|
|
|
| Net loss
per share, basic and diluted |
|
|
|
|
As
reported |
|
$
(2.66 |
) |
| |
|
|
|
|
Pro
forma |
|
$
(2.68 |
) |
| |
|
|
|
For the
purpose of determining stock-based compensation expense, the fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants during the period from inception
through December 31, 1999: risk-free interest rate of 6%; no
expected dividend yield; expected life of 4.0 years; and an
expected volatility of 0%.
SUPPLIERMARKET.COM, INC.
NOTES
TO FINANCIAL STATEMENTS—(Continued)
(THE
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IS UNAUDITED)
Note 10. Commitments and
Contingencies
The Company
is party to a non-cancelable lease agreement for its corporate
headquarters. Rent expense under this non-cancelable operating
lease totaled approximately $70,000 for the period from inception
(February 12, 1999) through December 31, 1999. Minimum future
lease obligations under the non-cancelable operating lease in
effect at December 31, 1999 are as follows:
| Year
Ending December 31, |
|
|
|
2000 |
|
$
741,051 |
|
2001 |
|
761,089 |
|
2002 |
|
761,089 |
|
2003 |
|
761,089 |
|
2004 |
|
761,089 |
| |
|
|
|
Total |
|
$3,785,407 |
| |
|
|
Note 11.
Loan Receivable from Related
Party
During
1999, the Company loaned approximately $134,000 to its President
which was paid in full in April 2000.
Note 12.
Subsequent Events
|
Common stock purchase warrants
|
The Company
has executed non-binding letters of intent with several strategic
partners (“Partners”) whereby the Partners receive
consideration, in the form of common stock purchase warrants, in
exchange for utilizing the Company’s service for their
direct materials purchasing. It is expected that the majority of
the warrants, if issued, will vest during the final three
calendar quarters of 2000 and each calendar quarter of
2001,contingent upon the quarterly volume of each Partners’
RFQs submitted to the Company’s marketplace which result in
an executed purchase order between the Company and the supplier
for the RFQ.
[INSIDE BACK COVER PAGE OF PROSPECTUS]
Graphic
features large arrows pointing into the middle of the page from
the upper-right corner of the page and from the lower-left corner
of the page. Both arrows point to the SupplierMarket.com logo and
the following text in the middle of the page: “People buy
parts. People sell parts. This is where they meet.
”
[BACK
COVER]
Graphic of
SupplierMarket.com logo.
PART
II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and
Distribution.
The
following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant
in connection with the sale of the securities being registered.
All amounts are estimates except the SEC registration fee, the
NASD fee and the Nasdaq National Market listing fee.
| SEC
registration fee |
|
$
33,500 |
| NASD
filing fee |
|
13,150 |
| Nasdaq
National Market listing fee |
|
81,000 |
| Printing |
|
80,000 |
| Legal
fees and expenses |
|
450,000 |
| Accounting fees and expenses |
|
250,000 |
| Blue sky
fees and expenses |
|
7,000 |
| Transfer
agent and registrar fees |
|
15,000 |
| Miscellaneous |
|
20,350 |
| |
|
|
|
Total |
|
$950,000 |
| |
|
|
Item 14.
Indemnification of Directors and
Officers.
Section 145
of the Delaware General Corporation Law authorizes a court to
award, or a corporation’s board of directors to grant,
indemnity to directors and officers in terms sufficiently broad
to permit such indemnification under certain circumstances for
liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the
“Securities Act”).
As
permitted by the Delaware General Corporation Law, the Registrant
’s certificate of incorporation includes a provision that
eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director’s duty of
loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under section 174
of the Delaware General Corporation Law (regarding unlawful
dividends and stock purchases) or (iv) for any transaction from
which the director derived an improper personal
benefit.
As
permitted by the Delaware General Corporation Law, the by-laws of
the Registrant provide that (i) the Registrant is required to
indemnify its directors, officers, employees and agents to the
fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions, (ii) the Registrant
is required to advance expenses, as incurred, to its directors,
officers, employees and agents in connection with a legal
proceeding to the fullest extent permitted by the Delaware
General Corporation Law, subject to certain very limited
exceptions and (iii) the rights conferred in the by-laws are not
exclusive. At present, the Registrant is not aware of any pending
or threatened litigation or proceeding involving a director,
officer, employee or agent of the Registrant which may result in
claims for indemnification.
Reference
is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and
controlling persons of the Registrant against certain
liabilities. The indemnification provisions in the Registrant
’s certificate of incorporation, by-laws and the
Indemnification Agreements entered into between the Registrant
and each of its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant
’s directors and executive officers for liabilities arising
under the Securities Act.
The
Registrant, with approval from the Registrant’s board of
directors, expects to obtain directors’ and officers’
liability insurance.
Reference
is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification
provisions described above and elsewhere herein:
Document
|
|
Exhibit
Number
|
| Form of
Underwriting Agreement |
|
1.1 |
| Amended
and Restated Certificate of Incorporation |
|
3.1 |
| Form of
Third Amended and Restated Certificate of
Incorporation |
|
3.4 |
| By-laws |
|
3.5 |
| Form of
Amended and Restated By-laws |
|
3.6 |
Item 15.
Recent Sales of Unregistered
Securities.
From our
inception in February 1999, we have issued the securities listed
below in reliance on exemptions from the securities laws. In each
instance we have identified those purchasers of securities who
are officers, directors, 5% stockholders or immediate family
members of the foregoing.
1.
|
On June
2, 1999, we issued 4,659,000 shares of common stock to Jonathan
Burgstone, 4,659,000 shares of common stock to Asif Satchu,
292,000 shares of common stock to one employee and 100,000
shares of common stock to one other investor for aggregate
consideration of $4,855. We relied on Section 4(2) of the
Securities Act for the determination that this issuance, our
initial capitalization, was exempt from
registration.
|
2.
|
On June
18, 1999, we issued 149,246 shares to one employee for
aggregate consideration of $75. We relied on Section 4(2) of
the Securities Act for the determination that this issuance,
part of our initial capitalization, was exempt from
registration.
|
3.
|
On June
28, 1999, we issued 4,317,324 shares of Series A preferred
stock to three entities affiliated with Battery Ventures for
aggregate consideration of $4,000,001. We relied on Section
4(2) of the Securities Act for the determination that this
issuance was exempt from registration. The issuance met the
requirements of Rule 506, and neither we nor anyone acting on
our behalf offered the securities by general solicitation as
prohibited by Rule 502.
|
4.
|
On July
22, 1999, we issued 1,618,997 shares of Series A preferred
stock to five entities affiliated with Sequoia Capital for
aggregate consideration of $1,500,001. We relied on Section
4(2) of the Securities Act for the determination that this
issuance was exempt from registration. The issuance met the
requirements of Rule 506 as all investors represented to us
that they were “accredited investors” as defined in
Rule 501, and neither we nor anyone acting on our behalf
offered the securities by general solicitation as prohibited by
Rule 502.
|
5.
|
On
August 17, 1999, we issued 68,357 shares of Series A preferred
stock to Peter Lamm, 68,357 shares of Series A preferred stock
to Reza Satchu and 489,838 shares of Series A preferred stock
to 18 other investors for aggregate consideration of $580,500.
We relied on Section 4(2) of the Securities Act for the
determination that this issuance was exempt from registration.
The issuance met the requirements of Rule 506 as all investors
represented to us that they were “accredited investors
” as defined in Rule 501, and neither we nor anyone acting
on our behalf offered the securities by general solicitation as
prohibited by Rule 502.
|
6.
|
On
September 21, 1999, we issued a warrant to purchase 50,000
shares of Series A preferred stock to Silicon Valley Bank for
aggregate consideration of $1.00. We relied on Section 4(2) of
the Securities Act for the determination that this issuance was
exempt from registration.
|
7.
|
On
November 18, 1999, we issued 2,138,672 shares of Series B
preferred stock to three entities affiliated with Battery
Ventures, 1,283,203 shares of Series B preferred stock to five
entities affiliated with Sequoia
Capital, 3,421,875 shares of Series B preferred stock to Aurora
Investments, LLC, 3,421,875 shares of Series B preferred stock
to Fenway Partners Capital Fund II, L.P., and 4,598,145 shares
of Series B preferred stock to eight other investors for
aggregate consideration of $34,750,003. We relied on Section
4(2) of the Securities Act for the determination that this
issuance was exempt from registration. The issuance met the
requirements of Rule 506 as all investors represented to us
that they were “accredited investors” as defined in
Rule 501, and neither we nor anyone acting on our behalf
offered the securities by general solicitation as prohibited by
Rule 502.
|
8.
|
On
January 21, 2000, we issued 78,630 shares of Series B preferred
stock to Peter Lamm, 78,630 shares of Series B preferred stock
to Reza Satchu, 17,109 shares of Series B preferred stock to
Marco Iansiti, 99,322 shares of Series B preferred stock to
Rustom and Zarina Satchu and 737,985 shares of Series B
preferred stock to 27 other investors for aggregate
consideration of $2,365,197. We relied on Section 4(2) of the
Securities Act for the determination that this issuance was
exempt from registration. The issuance met the requirements of
Rule 506 as all investors represented to us that they were
“accredited investors” as defined in Rule 501, and
neither we nor anyone acting on our behalf offered the
securities by general solicitation as prohibited by Rule
502.
|
9.
|
On
February 16, 2000, we issued 56,632 shares of Series B
preferred stock to Karen Andrews, 56,632 shares of Series B
preferred stock to Rustom and Zarina Satchu, 8,555 shares of
Series B preferred stock to a trust revocable by Robert Lanigan
and 42,774 shares of Series B preferred stock to one other
investor for aggregate consideration of $384,803. We relied on
Section 4(2) of the Securities Act for the determination that
this issuance was exempt from registration. The issuance met
the requirements of Rule 506 as all investors represented to us
that they were “accredited investors” as defined in
Rule 501, and neither we nor anyone acting on our behalf
offered the securities by general solicitation as prohibited by
Rule 502.
|
10.
|
As of
March 31, 2000, we had granted options to purchase an aggregate
of 4,312,183 shares of common stock to a number of our
employees and consultants. We have not received consideration
from any grantee of any of our options. As of March 31, 2000,
options to purchase 191,292 shares have been exercised for an
aggregate consideration of $15,729. We relied on Section 4(2)
of the Securities Act and on Rule 701 promulgated under the
Securities Act for the determination that these issuances were
exempt from registration. For issuances to employees (other
than executive officers as described below), the issuances
satisfied the requirements of Rule 701 as all issuances to
employees were pursuant to our 1999 Stock Option Plan. In the
event that issuances under our 1999 Stock Option Plan exceed
the limits prescribed by Rule 701, we rely on Section 4(2) of
the Securities Act for issuances of stock pursuant to option
exercises by our executive officers as they are
“accredited investors” within the meaning of Rule
501. For issuances to our advisors, we relied on Section 4(2)
of the Securities Act. These advisors represented to us that
they were “accredited investors” as defined in Rule
501, and neither we nor anyone acting on our behalf offered the
securities by general solicitation as prohibited by Rule
502.
|
The
recipients of securities in each transaction described above
represented to us their intentions to acquire the securities for
investment only and not with a view to, or for sale in connection
with, any distribution. We affixed appropriate legends to the
share certificates, warrants and options issued in the
transactions described above. We believe that all recipients had
adequate access, through their relationships with us, to
information about us.
Item
16. Exhibits and Financial Statement
Schedules
(a)
Exhibits. The following
exhibits are filed as part of this registration
statement:
Number
|
|
Description
|
| 1.1* |
|
Form of
Underwriting Agreement. |
| 3.1** |
|
Amended
and Restated Certificate of Incorporation of the
Registrant. |
| 3.2** |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on February 29,
2000. |
| 3.3 |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on April 10,
2000. |
| 3.4 |
|
Form of
Third Amended and Restated Certificate of Incorporation of the
Registrant (to be effective
upon the closing of this offering). |
| 3.5** |
|
By-laws
of the Registrant. |
| 3.6 |
|
Form of
Amended and Restated By-laws of the Registrant (to be effective
upon the closing of this
offering). |
| 4.1* |
|
Form of
Specimen Certificate for Common Stock of the
Registrant. |
| 4.2** |
|
Amended
and Restated Registration Rights Agreement dated as of November
18, 1999 among the
Registrant, the Purchasers (as defined therein) and the Founders
(as defined therein). |
| 4.3 |
|
Warrant
to Purchase Stock issued by the Registrant to Silicon Valley
Bank on September 21, 1999. |
| 5.1* |
|
Opinion
of Ropes & Gray. |
| 10.1** |
|
Lease
dated December 15, 1999 between the Registrant and Mortimer
Zuckerman and Edward
Linde, as Trustees of Mall Road Trust dated October 11,
1983. |
| 10.2 |
|
Employment Agreement dated March 1, 2000 between the
Registrant and Asif Satchu |
| 10.3** |
|
Employment Agreement dated January 24, 2000 between the
Registrant and Jonathan Burgstone. |
| 10.4 |
|
Amended
and Restated Stock Restriction Agreement dated March 1, 2000
between the Registrant
and Asif Satchu. |
| 10.5** |
|
Amended
and Restated Stock Restriction Agreement dated January 24, 2000
between the Registrant
and Jonathan Burgstone. |
| 10.6** |
|
1999
Stock Option Plan. |
| 10.7** |
|
Service
Agreement dated July 1, 1999 between the Registrant and TriNet
Employer Group, Inc. |
| 23.1 |
|
Consent
of PricewaterhouseCoopers LLP. |
| 23.2* |
|
Consent
of Ropes & Gray (included in Exhibit 5.1). |
| 24.1 |
|
Power of
Attorney (included on signature page). |
| 27.1 |
|
Financial Data Schedule. |
*
|
To be
filed by amendment.
|
(b)
Financial Statement Schedules.
Financial
statement schedules have been omitted because they are
inapplicable or are not required under applicable provisions of
Regulation S-X or because the information that would otherwise be
included in such schedules is contained in SupplierMarket.com
’s financial statements or notes thereto.
Item
17. Undertakings.
The
undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as
indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under Item
14 above, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
The
undersigned Registrant hereby undertakes that:
(1)
For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(2)
For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, State of Massachusetts, on the
12th day of April, 2000.
Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature
|
|
Title
|
|
|
/S
/ JONATHAN
BURGSTONE
Jonathan Burgstone |
|
Chief
Executive Officer and Director |
|
|
*
Asif
Satchu |
|
Chairman, President, Secretary and Director |
|
|
*
Brian Bethers |
|
Chief
Financial Officer (Principal Financial and Accounting
Officer) and Treasurer |
|
|
*
Robert Barrett |
|
Director |
|
|
*
Peter Lamm |
|
Director |
|
|
*
Marc
Lipschultz |
|
Director |
|
|
*
Ravi
Mohan |
|
Director |
|
|
*
Marco Iansiti |
|
Director |
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears
immediately below constitutes and appoints Jonathan Burgstone,
Asif Satchu or Brian Bethers, or any of them, his or her true
and lawful attorney-in-fact and agent, with full power of
substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and any and all additional registration statements
pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, in connection with or related to the offering
contemplated by this Registration Statement and its amendments,
if any, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Commission,
granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and
agent or his or her substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Signature
|
|
Title
|
|
|
/S
/ ROBERT
LANIGAN
Robert Lanigan |
|
Director |
|
|
| /S
/ JONATHAN
BURGSTONE
|
*By:
|
|
Jonathan
Burgstone, attorney-in-fact, pursuant to powers of
attorney previously filed as part of this registration
statement |
|
EXHIBIT INDEX
Number
|
|
Description
|
| 1.1* |
|
Form of
Underwriting Agreement. |
| 3.1** |
|
Amended
and Restated Certificate of Incorporation of the
Registrant. |
| 3.2** |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on February 29,
2000. |
| 3.3 |
|
Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on April 10,
2000. |
| 3.4 |
|
Form of
Third Amended and Restated Certificate of Incorporation of the
Registrant (to be effective
upon the closing of this offering). |
| 3.5** |
|
By-laws
of the Registrant. |
| 3.6 |
|
Form of
Amended and Restated By-laws of the Registrant (to be
effective upon the closing of this
offering). |
| 4.1* |
|
Form of
Specimen Certificate for Common Stock of the
Registrant. |
| 4.2** |
|
Amended
and Restated Registration Rights Agreement dated as of
November 18, 1999 among the
Registrant, the Purchasers (as defined therein) and the Founders
(as defined therein). |
| 4.3 |
|
Warrant
to Purchase Stock issued by the Registrant to Silicon Valley
Bank on September 21, 1999. |
| 5.1* |
|
Opinion
of Ropes & Gray. |
| 10.1** |
|
Lease
dated December 15, 1999 between the Registrant and Mortimer
Zuckerman and Edward
Linde, as Trustees of Mall Road Trust dated October 11,
1983. |
| 10.2 |
|
Employment Agreement dated March 1, 2000 between the
Registrant and Asif Satchu. |
| 10.3** |
|
Employment Agreement dated January 24, 2000 between the
Registrant and Jonathan Burgstone. |
| 10.4 |
|
Amended
and Restated Stock Restriction Agreement dated March 1, 2000
between the Registrant
and Asif Satchu. |
| 10.5** |
|
Amended
and Restated Stock Restriction Agreement dated January 24,
2000 between the Registrant
and Jonathan Burgstone. |
| 10.6** |
|
1999
Stock Option Plan. |
| 10.7** |
|
Service
Agreement dated July 1, 1999 between the Registrant and the
TriNet Employer Group, Inc. |
| 23.1 |
|
Consent
of PricewaterhouseCoopers LLP. |
| 23.2* |
|
Consent
of Ropes & Gray (included in Exhibit 5.1). |
| 24.1 |
|
Power
of Attorney (included on signature page). |
| 27.1 |
|
Financial Data Schedule. |
*
|
To be
filed by amendment.
|
**Previously filed.
