<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 2000
REGISTRATION NO. 333-32660
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
PRE EFFECTIVE
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
GREENFIELD ONLINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8732 91-061440369
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
15 RIVER ROAD, SUITE 310
WILTON, CT 06897
(203) 834-8585
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
RUDY NADILO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GREENFIELD ONLINE, INC.
15 RIVER ROAD, SUITE 310
WILTON, CT 06897
(203) 834-8585
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
Copies of all communications to:
<TABLE>
<S> <C> <C>
G. SCOTT GREENBURG JONATHAN A. FLATOW MARC M. ROSSELL
JAMIE D. PEDERSEN VICE PRESIDENT AND GENERAL COUNSEL SHEARMAN & STERLING
MAJA D. CHAFFE GREENFIELD ONLINE, INC. 599 LEXINGTON AVENUE
PRESTON GATES & ELLIS LLP 15 RIVER ROAD, SUITE 310 NEW YORK, NY 10022
701 FIFTH AVENUE, SUITE 5000 WILTON, CT 06897 (212) 848-4000
SEATTLE, WA 98104 (203) 834-8585
(206) 623-7580
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement as the
underwriters shall determine.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
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,
check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock, $0.001
par value per share.......................... $ $86,250,000 $22,770(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Fee paid previously.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 21, 2000
Shares
Greenfield Online [Logo]
Leading the Research Revolution
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "GFOL."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON
PAGE 6.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS GREENFIELD ONLINE
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per share............................................... $ $ $
Total................................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
The date of this prospectus is , 2000.
<PAGE>
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................ 1
RISK FACTORS.................................. 6
CAUTIONARY NOTE REGARDING FORWARD-
LOOKING STATEMENTS.......................... 16
USE OF PROCEEDS............................... 17
DIVIDEND POLICY............................... 17
CAPITALIZATION................................ 18
DILUTION...................................... 20
SELECTED FINANCIAL DATA....................... 21
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................... 23
BUSINESS...................................... 34
MANAGEMENT.................................... 49
<CAPTION>
PAGE
-----
<S> <C>
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................ 58
PRINCIPAL SHAREHOLDERS........................ 60
DESCRIPTION OF CAPITAL STOCK.................. 62
CERTAIN U.S. FEDERAL TAX CONSEQUENCES
FOR NON-U.S. INVESTORS...................... 64
SHARES ELIGIBLE FOR FUTURE SALE............... 67
UNDERWRITING.................................. 69
NOTICE TO CANADIAN RESIDENTS.................. 71
LEGAL MATTERS................................. 72
EXPERTS....................................... 72
WHERE YOU CAN FIND MORE
INFORMATION................................. 72
INDEX TO FINANCIAL STATEMENTS................. F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000, 25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully, including our financial statements and the risks of
investing in our common stock discussed under "Risk Factors" before making an
investment decision.
GREENFIELD ONLINE, INC.
OUR BUSINESS
We are a pioneer and leading provider of marketing research using the
Internet. Businesses use marketing research to decide which products and
services to offer, as well as how to advertise, promote and distribute them.
Marketing researchers gather feedback from consumers using survey methods and
compile and interpret the data to deliver marketing information to clients. We
believe we produce faster, better and richer research than available using
offline survey methods through a combination of our 100% Internet-enabled
proprietary technology, high-quality online respondent panels and experienced
marketing research professionals. We believe the Internet is becoming the
dominant means for performing marketing research and that we are well positioned
to lead the transition to the Internet.
OUR OPPORTUNITY
According to the European Society of Opinion and Marketing Research, an
independent trade association, approximately $13.4 billion was spent on
marketing research worldwide in 1998, of which $5.2 billion was spent in North
America. Comparable worldwide or regional figures for spending on online
marketing research are unavailable. However, in a study conducted among 24
online marketing research companies, including Greenfield Online, by Inside
Research, a newsletter for research industry executives, the companies surveyed
reported estimated 2000 revenues from online marketing research to be
$229.9 million. Although offline marketing research companies have attempted to
automate some research processes, offline methods remain, for the most part,
inefficient and expensive.
We believe the Internet is fundamentally changing the marketing research
industry and that online marketing research will account for an increasing
percentage of overall marketing research spending. By using Internet-focused
technologies, marketing researchers can more rapidly access, collect and process
larger amounts of data than possible using offline methods. As more people use
the Internet, marketing researchers are increasingly able to survey a very
broad, diverse population. International Data Corporation, an information
technology data and analysis company, estimates that the number of worldwide
Internet users is expected to grow from 196 million in 1999 to 502 million by
the end of 2003. By effectively surveying this large pool of Internet users, we
believe that online marketing research can provide faster, better and richer
research for our clients.
OUR ADVANTAGE
Internet-focused technology. We are a 100% Internet-enabled company. We
developed our proprietary Web Research Engine to harness the power of the
Internet to provide marketing research to our clients. Our Web Research Engine
consists of integrated technologies that seamlessly interface with our clients,
our experienced researchers and our online panels. Our Web Research Engine
allows large numbers of surveys to be created, gathered and processed
efficiently. The key components of our Web Research Engine are:
o Survey Wizard: Our Survey Wizard software allows us to create and execute
complex, Web-enabled surveys that can incorporate sophisticated
multimedia. This technology automates the coding of questions and
generates Web-ready surveys from common desktop software.
o NetTap: Our NetTap technology is comprised of a proprietary set of
database tools that interface with our Survey Wizard software allowing us
to select targeted respondents from our online panels, launch surveys and
capture data.
1
<PAGE>
o QuickTake: Our proprietary QuickTake software allows users to design,
create and launch short surveys over the Internet. Through QuickTake.com,
our clients can conduct their own surveys among online audiences from the
Web or from their own lists or databases. Clients can view and tabulate
results in real time.
High-quality online panels. Since 1995, we have used our proprietary
NetReach Internet recruiting techniques to recruit and register over 500,000
respondents, residing in households containing approximately 1.6 million
individuals and about whom we have collected as many as 70 fields of demographic
and lifestyle information. Using our Web Research Engine, we can use this
information to target very specific segments of our online panels to meet our
clients' marketing research needs.
Experienced researchers. Our products and services are designed, sold and
delivered by experienced marketing research professionals. We believe our
researchers deliver quality data to our clients by effectively using their
knowledge of marketing research principles, our Web-based technology and our
online panels.
OUR PRODUCTS AND SERVICES
Using our Internet-based technology and high-quality online panels, we
offer marketing research designed to meet our clients' diverse needs. Our
products and services range from highly customized research projects that
require a significant investment of resources to quickly accessible
off-the-shelf and self-directed research. We offer:
o Custom research--full-service quantitative and qualitative research
tailored to our clients' specific research needs;
o Syndicated research--research and data compiled and packaged for
off-the-shelf or subscription sales to multiple clients; and
o Self-directed research--easy-to-use short online surveys that our clients
can create on their own using our proprietary software.
Since 1995, we have completed marketing research projects for over 350
clients. Our diverse client base includes traditional marketing-intensive
companies in industries such as consumer packaged goods, consumer services,
healthcare/pharmaceuticals, advertising and research and consulting, as well as
new Internet-related and technology companies.
OUR STRATEGY
We have developed a strategy to be the largest and most recognized supplier
of marketing research worldwide, as measured by market share, product quality,
geographic coverage and strength of brand name. We intend to:
o expand the online research market by converting present users of offline
marketing research, increasing sales to current clients and attracting
new clients with new products and services;
o build and maintain our high-quality online research panels;
o develop and enhance our scalable, proprietary Internet technology;
o attract and retain experienced marketing research professionals; and
o increase our brand awareness.
WHERE TO FIND US
Our principal executive offices are located at 15 River Road, Suite 310,
Wilton, CT 06897. Our telephone number at that address is (203) 834-8585. Our
principal website address is www.greenfield.com. The information contained on
our websites does not constitute part of this prospectus.
2
<PAGE>
OTHER INFORMATION
We were founded in 1994 as a business unit of Greenfield Consulting Group,
Inc. We were incorporated in Connecticut in 1995 under the name Greenfield
Online Research Center, Inc. We changed our name to Greenfield Online, Inc. in
1997 and moved our state of incorporation to Delaware in February 2000.
References in this prospectus to "Greenfield Online," "we," "our company" and
"us" refer to Greenfield Online, Inc.
The names Greenfield(R) and Greenfield Online(TM) are owned by Greenfield
Consulting Group, LLC, an affiliated company that holds a minority interest in
us. Greenfield Consulting Group holds a United States trademark registration for
the mark Greenfield and has filed for trademark registration of the mark
Greenfield Online. We have a right to use the Greenfield Online trademark and
the continuing right to use the name Greenfield in connection with our use of
the name Greenfield in our domain name www.greenfield.com. This prospectus also
includes other trademarks, trade names and service marks of Greenfield Online
and of other parties. All other trademarks, trade names or service marks used in
this prospectus are the property of their respective owners. We currently hold
United States trademark registrations for the marks Research Revolution(R),
NetReach(R), NetTap(R) and FieldSource(R) and have filed in the United States
for registration of the marks Survey Wizard(TM), QuickTake(TM),
QuickTake.com(TM), FocusChat(TM), MindStorm(TM) and Digital Consumer(TM).
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.................................... shares
Common stock to be outstanding after
this offering......................................... shares, excluding 2,953,350 shares issuable upon
exercise of outstanding options at a weighted average
exercise price of $1.36 per share and 1,949,700 shares
available for future issuance under our 1999 Stock
Option Plan, 150,000 shares available for future
issuance under our 2000 Directors Stock Option Plan and
200,000 shares available for future issuance under our
2000 Employee Stock Purchase Plan.
Use of proceeds......................................... To repay outstanding corporate debt and for general
corporate purposes and working capital.
Proposed Nasdaq National Market symbol.................. GFOL
</TABLE>
Unless otherwise indicated, all information contained in this prospectus
gives effect to a 2-for-1 stock split, which took place in March 2000, and
assumes:
o no exercise of outstanding options or warrants, except for the assumed
exercise of warrants to purchase 307,668 shares of our common stock that
are currently exercisable;
o the conversion of all authorized and outstanding class A common stock and
class B common stock into a single class of common stock on a 1-for-1
basis to be effective upon the completion of this offering;
o the filing of our restated certificate of incorporation; and
o no exercise of the underwriters' over-allotment option.
4
<PAGE>
SUMMARY FINANCIAL DATA
You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The following table summarizes our statement of
operations data for each of the years ended December 31, 1997 and 1998 and for
the periods from January 1, 1999 through May 16, 1999 and from May 17, 1999
through December 31, 1999, our unaudited pro forma statement of operations data
for the full year ended December 31, 1999, our unaudited statement of operations
data for the quarters ended March 31, 1999 and March 31, 2000, our balance sheet
data as of December 31, 1997, 1998 and 1999 and our unaudited balance sheet data
as of March 31, 2000.
As a result of a management buyout effected on May 17, 1999, a change in
control of our company occurred and a new reporting entity was organized. For
purposes of presentation and disclosure, we refer to ourselves as the
predecessor as of and for all periods up to the point of the management buyout
and as the successor as of and for all periods thereafter. Because the financial
statements of the successor are not directly comparable to those of the
predecessor, a dark bar has been inserted in the accompanying table to clearly
separate the financial position and the results of operation before and after
the change of control.
As a result of the management buyout, the statement of operations data
below includes two periods for 1999. The summarized financial data below also
include unaudited pro forma statement of operations data for the full year ended
December 31, 1999. The unaudited pro forma statement of operations data for the
year ended December 31, 1999 gives effect to the management buyout as if it had
occurred on January 1, 1999. The historical results below are not necessarily
indicative of future results. Amounts included below are in thousands, except
per share data.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------------------- -----------------------------------------
YEAR ENDED JANUARY 1 QUARTER MAY 17 PRO FORMA QUARTER
DECEMBER 31, THROUGH ENDED THROUGH YEAR ENDED ENDED
------------------ MAY 16, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 1999 2000
------- ------- ------------ --------- ------------ ------------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 1,203 $ 2,791 $ 1,734 $ 1,068 $ 5,558 $ 7,291 $ 3,683
Cost of revenues............ 521 1,251 702 444 2,517 3,219 1,575
------- ------- -------- ------- -------- -------- ---------
Gross profit................ 682 1,540 1,032 624 3,041 4,072 2,108
Depreciation and
amortization.............. 85 322 156 113 3,844 7,344 1,975
Total operating expenses.... 1,582 3,870 5,613 1,072 16,753 28,295 10,910
------- ------- -------- ------- -------- -------- ---------
Operating loss.............. (900) (2,330) (4,581) (448) (13,712) (24,223) (8,802)
Net loss.................... $ (916) $(2,445) $ (4,631) $ (453) $(13,789) $(24,819) $ (9,625)
======= ======= ======== ======= ======== ======== =========
Basic and diluted net loss
per share................. $ (0.02) $ (0.05) $ (0.10) $ (0.01) $ (0.56) $ (1.01) $ (0.37)
======= ======= ======== ======= ======== ======== =========
Weighted average shares
outstanding--basic and
diluted................... 45,000 45,000 45,000 45,000 24,707 24,563 25,791
======= ======= ======== ======= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ ---------------------------
YEAR ENDED
DECEMBER 31,
------------------ DECEMBER 31, MARCH 31,
1997 1998 1999 2000
------- ------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 148 $ 114 $ 1,709 $ 4,835
Working capital (deficiency).................................. (1,650) (4,452) (1,200) 565
Goodwill, net(1).............................................. -- -- 14,853 13,367
Total assets.................................................. 809 1,692 23,353 28,154
Long-term liabilities......................................... -- 90 17,360 20,079
Total stockholders' equity (deficit).......................... $(1,298) $(3,743) $ 323 $ (512)
</TABLE>
- ------------------
(1) Goodwill is being amortized over its estimated period of benefit of 3 years.
5
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below before making a decision to
buy our common stock. If any of the following risks occurs, our business may be
harmed. In that case, the trading price of our common stock could decline and
you may lose all or part of your investment. You should also carefully consider
the other information in this prospectus, including our financial statements and
the related notes, before deciding to purchase shares of our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT NET LOSSES SINCE OUR INCEPTION AND EXPECT TO
CONTINUE TO INCUR NET LOSSES FOR THE FORESEEABLE FUTURE.
We incurred net losses of $18.4 million in the year ended December 31,
1999. As of March 31, 2000, our stockholders' equity was $512,094. On May 17,
1999, a management buyout occurred that caused a change in control. As a result,
we recorded net proceeds from capital contributions of $8.6 million,
disbursements for treasury stock repurchases of $17.2 million and $19.2 million
of intangible assets due to the step up of valuation at the change of control
date, net of deferred taxes. The net impact of the management buyout on our
equity was to increase net equity by $10.6 million as of May 17, 1999. Given the
level of our planned operating expenditures, including costs associated with the
maintenance of our technology infrastructure, we expect to continue to incur
significant losses for the foreseeable future.
If our revenues grow at a slower rate than we anticipate, or if our
spending levels exceed our expectations or cannot be adjusted to reflect slower
revenue growth, we may not be able to achieve profitability. Even if we achieve
profitability in the future, we may be unable to sustain or increase
profitability on a quarterly or annual basis.
IF OUR PANELISTS BECOME UNRESPONSIVE OR WE ARE UNABLE TO MAINTAIN THE QUALITY OF
OUR PANELS, WE MAY NEED TO INCREASE THE INCENTIVES TO ATTRACT PANELISTS AND OUR
SURVEYS MAY BE LESS RELIABLE. THIS WOULD LIKELY RESULT IN A LOSS OF REVENUES.
The commercial viability of our marketing research data, and our overall
business, depends on our ability to attract and regenerate active online
panelists and to ensure that panel composition is maintained to accommodate a
broad variety of marketing research requests. Our online panelists are not
obligated to participate in our surveys and can choose to discontinue their
participation at any time. There is currently no historical benchmark by which
to predict the optimal size of our online research panels so as to ensure high
response rates. If we are unable to accurately determine that optimal size and
build appropriately sized panels, our current panelists may become overused and
our panelists may become unresponsive to our requests. If we fail to maintain
optimal panel size or to regenerate our online panels with new and active
panelists on a regular basis, the quality of our surveys may decrease and we may
experience a loss of revenues.
If the number of panelists in any of our online panels decreases
significantly or the demographic composition of any of our online panels
narrows, our ability to provide our clients with accurate and statistically
valid information could also suffer. This risk is likely to increase as our
business expands and as more demographically diverse surveys are requested by
our clients.
Additionally, in the past, the responsiveness of our online panels has been
variable and a function of the length of the surveys to be completed and the
incentives offered to participants. The incentives we offer panelists to join
our online panels and participate in surveys generally consist of cash
incentives or the opportunity to enter into a drawing for prizes. If we are
required to increase incentives or undertake more costly campaigns to recruit
additional panelists or retain our current panelists or if our panelists become
otherwise dissatisfied with the forms of participation incentives we provide,
our operating expenses may increase and we could experience a decrease in
revenues and profitability.
6
<PAGE>
FLUCTUATIONS IN OUR OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO DECLINE.
In the past, our operating results fluctuated significantly from quarter to
quarter and are expected to continue to do so in the future. Factors outside of
our control that have caused our operating results to fluctuate in the past and
that may affect us in the future, include:
o fluctuations in general economic conditions;
o fluctuations in the marketing research budgets of our clients;
o development of products and services by our competitors;
o technical difficulties or system downtime affecting the Internet
generally;
o demand for marketing research products and services generally; and
o seasonal fluctuations resulting from decreases in requests for marketing
research services during the summer and year-end vacation and holiday
periods.
Factors within our control that have caused our operating results to
fluctuate in the past and that may affect us in the future, include:
o our ability to increase the size and diversity of our online panels for
use in developing new products and services;
o our ability to develop products and services;
o technical difficulties or downtime of individual components of our
computer systems; and
o our ability to deliver projects to our clients in a timely fashion.
The factors listed above may affect both our quarter-to-quarter operating
results as well as our long-term success. Given the fluctuations in our
operating results, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of our future performance or to determine
any trend in our performance.
IF THE MARKETPLACE DOES NOT ACCEPT INTERNET-BASED MARKETING RESEARCH, OUR GROWTH
WILL BE ADVERSELY AFFECTED.
The success of our business depends on our ability to develop and market
Internet-based products and services that achieve broad market acceptance by our
potential clients and on continued acceptance of our products and services by
our current clients. These clients must accept the Internet as a medium for
conducting marketing research and have confidence in the results derived from
Internet-based marketing research.
Because online marketing research is based on the electronic exchange of
information and opinions, it can only be conducted among people who own or have
access to computers and the Internet. As a result, Internet-based marketing
research methodologies presently cannot draw a statistically relevant sample of
the general population. When we first began conducting our marketing research in
1995, many potential clients were hesitant to use our services because of
concerns that any marketing research results obtained over the Internet were
inherently biased toward the views, experiences and attitudes of an
unrepresentative group of persons. If our potential clients do not accept our
Internet-based methodologies as reliable and unbiased, or our current clients do
not continue to have confidence in the reliability of these methodologies, our
revenues may not meet expectations or may decline and we may not be able to grow
our business successfully.
IF WE EXPERIENCE PROBLEMS TRANSFERRING TO OUR NEW ACCOUNTING SYSTEM, OUR
EXISTING ACCOUNTING SYSTEM MAY NOT BE ABLE TO MEET OUR PROJECTED GROWTH
REQUIREMENTS.
We are currently in the process of implementing a new accounting system
that includes an integrated suite of general ledger, accounts receivable,
accounts payable, fixed assets and project management software and related
hardware. We expect to transition our present bookkeeping functions to the new
system in the second half of fiscal 2000. If we are unable to implement this new
accounting system or if we experience
7
<PAGE>
material delays in doing so, our accounting management and personnel could be
distracted and our expenses could increase to cover the added cost of personnel
to manage the existing system.
OUR COMPETITORS MAY DEVELOP SUPERIOR TECHNOLOGICAL KNOWLEDGE AND ESTABLISH
RELATIONSHIPS WITH OUR EXISTING AND POTENTIAL CLIENTS, WHICH COULD HARM OUR
PROFITABILITY.
The markets for our products and services are highly competitive. We
compete with marketing research firms offering Internet-based services, such as
Harris Interactive Inc., InsightExpress L.L.C. and The NPD Group Online
Division, as well as offline services, such as Market Facts, Inc., NFO
Worldwide, Inc. and The NPD Group, Inc. We expect to face competition in the
future from other marketing research firms that develop Internet-based products
and services or other companies with access to large databases of individuals
with whom they can communicate on the Internet. These companies may, either
alone or in alliances with other firms, penetrate the Internet-based marketing
research market.
Many of our current and potential competitors have longer operating
histories, greater name recognition and significantly greater financial and
marketing resources than we do. These competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and make
more attractive offers to potential employees, strategic partners and customers.
In addition, our competitors and potential competitors may develop technologies
that are superior to ours or that achieve greater market acceptance than our
own. If we do not successfully compete with these companies, we could experience
a loss of market share or reduced levels of revenue and profitability for our
business.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN THE CURRENT MEMBERS OF OUR SENIOR
MANAGEMENT TEAM AND OTHER KEY PERSONNEL.
Our success depends on the continued services of our core senior management
team, especially Rudy Nadilo, our Chairman, President and Chief Executive
Officer. If one or more of these persons were unable or unwilling to continue in
their present position, our business would be disrupted. Except for a key-person
life insurance policy for Mr. Nadilo in the amount of $4 million, we do not
maintain key-person life insurance for any of our other management personnel or
employees.
WE MUST ATTRACT AND RETAIN MARKETING RESEARCH PROFESSIONALS AND OTHER HIGHLY
SKILLED PERSONNEL OR WE WILL BE UNABLE TO EXECUTE OUR BUSINESS STRATEGY
SUCCESSFULLY.
Our business model is based, and our success depends, upon our ability to
attract, retain and motivate highly skilled marketing research professionals and
technical, managerial, marketing, sales and client support personnel. Because
competition to attract trained technical and marketing research personnel is
intense in our industry, we may experience difficulty attracting, integrating or
retaining the number of qualified personnel our business plan requires for
successful implementation. For example, we recently reorganized our technology
staffing structure and moved our former Chief Technology Officer to a full-time
research and development position. We have employed an interim Chief Technology
Officer, and we intend to fill this position permanently in the near future.
However, because of the scarcity of candidates with sufficient technical skills,
we may have trouble recruiting a candidate for this position. If we are delayed
in recruiting a Chief Technology Officer, or other key employees, we may be
forced to incur significant additional recruitment, compensation and relocation
expenses. If we are unable to hire and retain skilled employees in the future,
our business may suffer, we would not be able to successfully develop our
business.
IF WE ARE UNABLE TO MANAGE AND SUPPORT OUR GROWTH EFFECTIVELY, WE MAY NOT BE
ABLE TO EXECUTE OUR BUSINESS STRATEGY SUCCESSFULLY.
We are rapidly expanding and integrating new personnel to support our
growth, which makes it difficult to maintain our standards, controls and
procedures. Members of our senior management team will be required to devote
considerable amounts of their time to this expansion, which may reduce the time
they will have to provide management and other necessary services to us and to
research and negotiate investments in, and alliances with, companies
complementary to ours. To continue to develop our business, we must hire a
substantial number of new employees. Our employee base has grown from 2 in 1994
to 135 as of April 15, 2000. We may need to hire a significant number of
additional employees in the future. The recruiting, hiring, training and
integration of a large number of employees will place a significant strain on
our management
8
<PAGE>
and operational resources. To manage our growth effectively, we must
successfully develop, implement, maintain and enhance our financial and
accounting systems and controls, integrate new personnel and manage expanded
operations. If we are unable to do so, our revenues may not meet expectations or
may decline and our business may suffer.
IF WE DO NOT KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE
COMPETITION OF THE MARKETING RESEARCH INDUSTRY, WE MAY BE UNABLE TO IMPLEMENT
OUR BUSINESS PLAN SUCCESSFULLY.
The marketing research industry, particularly the online marketing research
industry, is characterized by intense competition, new product and service
developments and evolving technologies and research methodologies. The number of
Internet users is rapidly growing, and this growth intensifies these market
characteristics. To succeed, we will need to effectively develop and integrate
the various technologies and methodologies required to enhance and improve our
marketing research products and services. Any enhancements of new products or
services must meet the needs of our current and potential clients and achieve
significant market acceptance. Our success also depends on our ability to adapt
to rapidly changing Internet technologies, especially Internet infrastructure
technologies, by continually improving the performance features and reliability
of our products and services. We may experience difficulties that could delay or
prevent the successful development, introduction or marketing of new products
and services. We could also incur substantial costs if we need to modify our
services or infrastructure to adapt to these changes.
OUR NETWORK INFRASTRUCTURE MAY BE COMPROMISED OR DAMAGED, WHICH COULD HARM OUR
BUSINESS AND FINANCIAL CONDITION.
We depend on UUNET Technologies, Inc., an off-site facility located in
Fairfax, Virginia, to cohost our primary Web-survey and panel-management
systems. We also have a secondary hosting facility at our headquarters in
Wilton, Connecticut. While we are in the process of mirroring the hosting
functions that UUNET performs for us at our headquarters, our systems may not
seamlessly or adequately replicate UUNET's services in case of technical
difficulties, if at all. The successful delivery of our services is
substantially dependent on our ability and the ability of UUNET to protect our
server and network infrastructure against damage from:
o fire;
o earthquake;
o hurricane;
o power loss;
o telecommunications failure;
o online or physical sabotage; and
o intentional acts of vandalism.
The occurrence of natural disasters or other unanticipated problems at our
respective facilities could result in interruptions in the delivery of our
products and services or cause significant damage to our server and network
structure. If any of these events occur, our business, as well as our reputation
and brand name, may be harmed.
ANY FAILURE IN THE PERFORMANCE OF OUR INTERNET-BASED TECHNOLOGY INFRASTRUCTURE
OR THE INTERNET AS A WHOLE COULD HARM OUR BUSINESS AND OUR REPUTATION.
In the past, we have experienced technical difficulties with, and downtime
of individual components of, our computer systems primarily as a result of
testing and implementing new and undeveloped software. Technical difficulties
and downtime may continue to occur from time to time in the future. The impact
of technical difficulties on our systems or operations may, however, be more
severe in the future. In addition, we are wholly dependent on the Internet for
the performance of marketing research and the delivery of our services. Any
extended disruption in Internet service could disrupt our business severely. We
currently have an internal formal disaster recovery plan in effect, including
business interruption insurance. Our business
9
<PAGE>
interruption insurance, however, may not adequately compensate us for any losses
that may occur due to any failures in our systems or the systems of third
parties and any resulting interruptions in our communications with our Internet
panels or in our data collection efforts. In addition, our servers and software
must be able to accommodate a high volume of traffic. Any increase in demands on
our servers beyond that which we currently anticipate will require us to expand
and adapt our network infrastructure. If we are unable to add additional
software and hardware to accommodate increased demand, unanticipated system
disruptions and slower data collection may result. If any of these events occur
and our infrastructure fails, our business and our reputation may be harmed.
LOSS OF TECHNICAL SUPPORT FROM THIRD PARTIES COULD DISRUPT OUR BUSINESS.
We often engage third-party vendors to build the architecture we design for
our technological infrastructure. Technical support from third parties in the
future may not continue to be available to us on commercially reasonable terms,
if at all. If this support were to become unavailable, our business would be
disrupted. The inability to engage third parties to support the building and
maintenance of the technology important to our business would require us to
obtain substitute technology that might be of lower quality or performance
standards, or might be of comparable quality yet obtainable only at a greater
cost. Our inability to outsource select technical projects on a commercially
reasonable basis could delay us from providing our products and services to our
clients, which may have a material adverse impact on our ability to successfully
implement our business plan.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR
BUSINESS.
Our ability to compete and implement our business strategy successfully
depends on our use of our proprietary technologies, trademarks and other
intellectual property, which are protected through a combination of patent,
copyright, trade secret and trademark laws. Because our business depends on
technology and intellectual property, if we are unable to protect these assets,
our business may suffer.
Our trademark or patent applications may not be approved or, if approved,
our trademarks or patents could be successfully challenged by others or
invalidated. Our trademark applications may not be approved because third
parties own these trademarks. Use of these trademarks may also be restricted
unless we enter into arrangements with the third-party owners. If we do not gain
approval for any of these pending patent or trademark applications, our brand
recognition and business may suffer.
The steps we have taken to protect our proprietary rights may not be
adequate or third parties may infringe or misappropriate our copyrights,
trademarks, trade secrets and similar proprietary rights, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the U.S. In addition, other parties may assert
claims of infringement of intellectual property against us. Also, parties may
violate their confidentiality agreements with us and attempt to disclose, obtain
or use our technologies. For example, companies have recently brought claims
against other companies regarding alleged infringement of patent rights relating
to methods of doing business over the Internet. We cannot be aware of the
content of the patent applications pending and whether or not our current
business practices may be in violation of any patent rights which may be granted
to the holders of those patent applications. Any of these claims could require
us to spend significant sums on litigation, pay damages, delay product
introductions, develop non-infringing intellectual property or acquire licenses
to intellectual property that is the subject of any such infringement. We may be
unable to offer all of our products and services until equivalent intellectual
property is identified, developed or licensed, and integrated into our business.
Licenses, if required, may not be available on commercially reasonable terms, if
at all. In addition, effective copyright and trademark protection may be
unenforceable or limited in certain countries and, due to the global nature of
the Internet, we may be unable to control the dissemination of our content and
products and the use of our services. Our ability to execute our business
strategy will suffer if a successful claim of infringement is brought against us
and we are unable to introduce new trademarks, develop non-infringing technology
or license the infringed or similar technology on a timely basis. Moreover, our
general liability insurance may not cover, or may not be adequate to cover, all
costs incurred in the defense of potential patent and trademark infringement
claims or to indemnify us for all liability that may be imposed.
10
<PAGE>
IF REVENUES FROM OUR TWO LARGEST CLIENTS MATERIALLY DECREASE OR DISAPPEAR, OUR
BUSINESS MAY SUFFER.
In fiscal 1999, we derived approximately 7% of our total revenues from
Forrester Research, Inc. and approximately 4% of our total revenues from
Microsoft Corporation. We have a contract dated May 13, 1999, with Forrester
Research for a term of 18 months, which automatically renews unless terminated
by either party within 90 days prior to termination. We sell our marketing
research products to Microsoft under a standard purchase order. Either client
may terminate or reduce its use of our products or services at any time. The
reduction or loss in business from either one of these clients may result in our
revenues not meeting expectations.
WE MIGHT HAVE DIFFICULTY OBTAINING ADDITIONAL CAPITAL, WHICH COULD PREVENT US
FROM ACHIEVING OUR BUSINESS OBJECTIVES.
We may need to raise additional capital in the future to fund the expansion
of our Internet panels and the marketing of our products and services, or to
acquire or invest in complementary businesses, technologies or services.
Additional financing may be unavailable on terms favorable to us, if at all. All
of our assets are currently pledged to secure our outstanding loans and credit
facilities and any prospective lender may not be willing to be subordinate to
these existing lenders. If we raise additional funds by issuing additional
shares of our common stock, you will experience significant dilution to your
ownership interest in us. If we raise funds by issuing shares of a different
class of stock other than our common stock, the holders of the different classes
of stock may have rights senior to the rights of the holders of our common
stock.
If additional financing is not available on acceptable terms, we may be
unable to fund the development and expansion of our business, attract qualified
personnel, promote our brand name successfully, take advantage of business
opportunities or respond to competitive pressures. Any of these may disrupt our
plan for growth and prohibit us from achieving our business objectives.
THE AMOUNT OF OUR GOODWILL MAY HINDER OUR ABILITY TO ACHIEVE PROFITABILITY.
As a result of our management buyout, we generated a significant amount of
goodwill that we will amortize over the estimated period of benefit. The amount
of goodwill that we amortize in any given year will be treated as a charge
against earnings under generally accepted accounting principles. As a result,
the amortization of our goodwill may hinder our ability to achieve
profitability. For the period from May 17, 1999 through December 31, 1999,
amortization of goodwill was approximately $3.0 million, as compared to total
assets of $23.4 million and stockholders' equity of $0.3 million. Amortization
of goodwill is expected to result in a $5 million charge to earnings per year
through May 2002. Also, if we continue to incur significant losses, we may not
be able to demonstrate an ability to recover the amount of our goodwill. As a
result, we may be required to write-off our goodwill as a one-time non-cash
charge. If we are required to write-off our goodwill or accelerate the
amortization of our goodwill, our results of operations, stockholders' equity or
profitability could be materially adversely affected.
RISKS RELATED TO OUR INDUSTRY
IF THE INTERNET DOES NOT GROW AS PROJECTED, WE WILL BE UNABLE TO ATTRACT CLIENTS
FOR OUR INTERNET-BASED MARKETING RESEARCH.
We rely on the widespread acceptance and growth of the Internet for the
critical aspects of our business, including the recruitment of our online
panelists. If Internet usage declines or grows at a significantly slower rate
than currently projected, we may be unable to attract additional online
panelists or clients for our Internet-based marketing research products and
services. If this were to occur, we would not achieve our anticipated revenue
growth and our operations may suffer.
FUTURE GOVERNMENT REGULATION COULD ADVERSELY IMPACT OUR INTERNET-DEPENDENT
BUSINESS.
We expect more stringent laws and regulations that specifically regulate
communications over the Internet to be enacted both domestically and
internationally in the near future due to the increasing popularity and use of
the Internet. Any new legislation or regulations or the application of existing
laws and regulations
11
<PAGE>
to the Internet could limit our effectiveness in conducting Internet-based
marketing research and increase our operating expenses. In addition, the
application of existing laws to the Internet could expose us to substantial
liability for which we might not be indemnified by content providers or other
third parties. Existing laws and regulations currently address, and new laws and
regulations and industry self-regulatory initiatives are likely to address, a
variety of issues that could have a direct impact on our business, including:
o user privacy and expression;
o the rights and safety of children;
o intellectual property;
o information security;
o anticompetitive practices;
o the convergence of offline channels with Internet commerce;
o taxation and pricing; and
o the characteristics and quality of products and services.
Those current laws that explicitly apply to the Internet have not yet been
interpreted by the U.S. courts, and their applicability and scope are not yet
defined. Any new laws or regulations relating to the Internet could have an
impact on the growth of the Internet and, as a result, may adversely affect our
business.
The Internet Tax Freedom Act prohibits states or political subdivisions
from imposing taxes on Internet access, unless imposed and enforced prior to
October 1, 1998 and multiple or discriminatory taxes on electronic commerce
during the period beginning October 1, 1998 and ending October 21, 2001. If the
current moratorium on the application of these taxes is not extended beyond
October 21, 2001, states may impose discriminatory, multiple or special taxes on
users of the Internet. If the moratorium ends, federal taxes may also be imposed
on electronic commerce. Any new taxes on Internet access and electronic commerce
may adversely affect our financial results.
WE ARE SUSCEPTIBLE TO BREACHES OF DATABASE SECURITY AND DENIAL OF SERVICE
ATTACKS.
Our infrastructure is potentially vulnerable to physical or electronic
break-ins. A party who is able to circumvent our security measures could
misappropriate the personal information of our online panelists or interrupt our
operations. As a result, we may be required to expend capital and other
resources to protect against the threat of security breaches or to alleviate
problems caused by these breaches. These increased expenditures could have a
material adverse effect on our business, results of operations and financial
condition. In addition, security breaches that result in access to the
confidential information of our online panelists or clients could damage our
reputation and expose us to risk of loss or liability.
Our computer systems are susceptible to planned overloads, commonly
referred to as denial of service attacks. By designing software applications
that trigger simultaneous overload traffic directed at a single website,
intruders have recently been able to temporarily impair the websites of
companies with more mature infrastructure systems than our own. If we become the
target of similar attacks, our websites could be temporarily disabled and our
business may suffer.
SECURITY CONCERNS COULD HINDER OUR ABILITY TO OBTAIN SUFFICIENT AND RELIABLE
RESPONSES FROM OUR ONLINE PANELISTS, WHICH WOULD REDUCE THE QUALITY OF OUR
SURVEYS, LEAD TO DISSATISFIED CLIENTS AND RESULT IN A DECREASE IN REVENUES.
The need to transmit confidential information securely has been a
significant barrier to communications over the Internet in the past. Security
concerns could cause some of our online panelists to reduce their participation
levels, provide inaccurate responses or terminate their membership in our online
panels. Breaches in confidentiality, or perceived breaches in confidentiality,
could adversely affect the commercial viability of our research and harm our
credibility with our current clients and online panelists. If our clients
12
<PAGE>
become dissatisfied with our services, they may stop using our products and
services, and our reputation could be damaged. A loss of online panelists or a
loss of clients could hurt our efforts to generate revenues.
LIABILITY FOR THE UNAUTHORIZED USE OF THE PERSONAL INFORMATION OF OUR ONLINE
PANELISTS COULD BE COSTLY.
Liability claims could be initiated against us by our online panelists for
misuse of the personal information they provide to us if intruders gain access
to this information. If a person circumvents the security measures imposed by
us, that person could misappropriate proprietary information and use it for
unauthorized purposes. Any claims resulting from the unauthorized use of
information concerning our online panelists could expose us to a risk of loss or
result in costly litigation. In addition, the Federal Trade Commission and state
agencies have recently been investigating various Internet companies regarding
their use of personal information. We could incur additional costs and expenses
if new regulations regarding the use of personal information are introduced or
if our privacy practices are investigated.
WE MAY BE UNABLE TO CREATE QUALITY INTERNATIONAL ONLINE PANELS OR OVERCOME OTHER
RISKS OF EXPANDING INTERNATIONALLY AND MAY INCUR SIGNIFICANT EXPENSES ATTEMPTING
TO GROW INTERNATIONALLY WITHOUT A CORRESPONDING GROWTH IN REVENUES.
Our growth plans may include operations outside of the U.S. If we are
required to expand our business and panels to operate on an international level,
we could face the following risks:
o More restrictive privacy laws;
o Unexpected changes in regulatory requirements;
o Export controls relating to encryption technology;
o Lower penetration of Internet use internationally;
o Currency exchange fluctuations;
o Problems in collecting accounts receivable and longer collection periods;
o Potential adverse tax consequences;
o Political instability; and
o Internet access restrictions.
In addition, if we attempt to expand our international operations, we may
encounter more restrictive regulations and laws in Europe and elsewhere,
particularly laws related to privacy rights. These laws could inhibit our
ability to expand our online panels in a particular country or region. If we
expand internationally, we may incur significant expenses in facing these risks
without a corresponding growth in revenues.
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS.
The trading prices of many Internet companies have been highly volatile.
The market price of our common stock may also be subject to wide fluctuations.
If our revenues do not grow, or grow more slowly than we anticipate, or if
operating or capital expenditures exceed our expectations and cannot be adjusted
accordingly, the market price of our common stock may decline.
In addition, if the market for Internet-related stocks or the stock market
in general experiences a loss in investor confidence or otherwise falls, the
market price of our common stock may fall for reasons unrelated to our business,
results of operations or financial condition. As a result, investors might be
unable to resell their shares of our common stock at or above the offering
price. In the past, some companies that have experienced volatility in the
market price of their stock have been the subject of securities class action
litigation. If we were to become the subject of a class action litigation, we
could incur substantial costs and our management team's attention and resources
could be diverted from our business.
13
<PAGE>
OUR STOCK PRICE MAY DECLINE IF A LARGE NUMBER OF SHARES ARE SOLD AFTER THE
OFFERING OR THERE IS A PERCEPTION THAT THESE SALES MAY OCCUR.
Following this offering, we will have a large number of shares of common
stock outstanding and available for resale beginning at various points in time.
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the open market following this
offering, or the perception that these sales could occur. After the effective
date of the offering:
o except the shares of common stock to be sold in this offering,
no shares of common stock will be eligible for sale immediately;
o 111,000 shares of common stock purchased pursuant to options issued under
our stock option plans, not subject to lock-up restrictions, will be
eligible for sale beginning 90 days after the effective date of this
offering;
o shares of common stock, constituting more than times the
number of shares to be issued in this offering, will be eligible for sale
beginning 181 days after the effective date of the offering; and
o shares of common stock to be issued upon exercise of currently
outstanding options and warrants.
We have granted registration rights to holders of 26,507,156 shares of our
common stock, including shares issuable upon exercise of outstanding warrants,
allowing them to register their shares of our common stock that are currently
unregistered. We also intend to file a registration statement after this
offering to register 6,588,550 shares reserved for issuance under our stock
option plans. Registering these shares allows the holders to freely trade their
shares currently held or purchased on exercise of their options. The sale of
these shares, or the perception that these shares may be sold in the relatively
near future, might make it difficult for us to sell equity securities in the
future. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE PRO FORMA AS ADJUSTED
NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE.
We estimate that the initial public offering price of our common stock will
be $ per share. This amount is substantially higher than the pro forma as
adjusted net tangible book value, assuming exercise of the over-allotment in
full by the underwriters of $ per share that our outstanding common stock
will have immediately after this offering. Accordingly, if you purchase shares
of our common stock at its assumed initial public offering price, you will incur
immediate and substantial dilution of $ per share. If the holders of
outstanding options or warrants exercise those options or warrants, you will
suffer dilution of $ per share.
In addition, the issuance or exercise of additional options or warrants to
purchase our common stock could be dilutive to purchasers of shares in this
offering. The table below shows the number of outstanding options and warrants,
including reserved but unissued options, as of April 21, 2000. For more
information on the options, see "Description of Capital Stock--General" and, for
more information on the warrants, see "Description of Capital Stock--Warrants
and Other Rights."
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING OUTSTANDING OPTIONS
AND/OR WARRANTS PLUS NUMBER OF
PLAN OR GROUP RESERVED BUT UNISSUED OPTIONS AND/OR SHARES
- ------------------------------------------------------------------ ------------------------------------------------
<S> <C>
1999 Stock Option Plan............................................ 4,903,050
2000 Directors Stock Option Plan.................................. 150,000
2000 Employee Stock Purchase Plan................................. 200,000
Warrants.......................................................... 307,668
</TABLE>
14
<PAGE>
ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MIGHT DELAY OR
PREVENT TENDER OFFERS OR TAKEOVER ATTEMPTS, WHICH COULD ADVERSELY AFFECT OUR
STOCK PRICE.
Our restated certificate of incorporation provides for the division of our
board of directors into three classes and provides our board of directors with
the power to issue shares of preferred stock without stockholder approval. The
holders of this preferred stock could have voting rights, including voting
rights that could be superior to those holders of our common stock. Our board of
directors has the power to determine these voting rights. In addition, as a
Delaware corporation, we will be required to comply with Section 203 of the
Delaware General Corporation Law. In general, this law prevents a person who
becomes the owner of 15% or more of our outstanding voting stock from engaging
in specified business combinations for those years in which specified conditions
are satisfied. The effect of these provisions in our restated certificate of
incorporation and of Delaware law could discourage or prevent third parties from
seeking to obtain control of us, including transactions in which the holders of
common stock might receive a premium for their shares over prevailing market
prices.
OUR CURRENT DIRECTORS AND MANAGEMENT STOCKHOLDERS MAY ADOPT POLICIES THAT ARE
NOT IN THE BEST INTERESTS OF OUR NON-MANAGEMENT STOCKHOLDERS, WHICH MAY CAUSE
OUR STOCK PRICE TO DECLINE.
Our directors, executive officers, members of their families and entities
affiliated with them will, in the aggregate, beneficially own approximately
% of our common stock following the completion of this offering, or
approximately % of our common stock in the event that the underwriters'
over-allotment option is exercised in full. As a result, these stockholders will
be able to exercise control over all matters requiring approval by our
stockholders, including:
o election of directors;
o approval of mergers, consolidations, sales of assets and
recapitalizations; and
o amendments to our restated certificate of incorporation.
These shareholders may take actions with which you do not agree, including
actions that delay, defer or prevent a change of control and could adversely
affect the price investors might be willing to pay in the future for our common
stock.
BECAUSE AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP AFTER THIS
OFFERING, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR SHARES.
There was no public market for our common stock before this offering. We do
not know the extent to which investor interest will lead to the development of a
trading market or how liquid that market might be. Further, our stock price may
drop below the price increases that may occur immediately after our stock begins
to be publicly traded. If an active and liquid trading market does not develop
for our common stock, you may have difficulty selling your shares.
WE HAVE DISCRETION AS TO THE USE OF PROCEEDS FROM THIS OFFERING AND MAY NOT USE
THESE IN A MANNER STOCKHOLDERS WOULD PREFER.
Other than the repayment of some of our corporate debt, we have not
identified specific uses for all of the proceeds from this offering, and our
management will have broad discretion in how we use them. In addition, we are
unable to determine how much of the proceeds will be used for any identified
purpose because circumstances regarding our planned use of the proceeds may
change. You will not have the opportunity to evaluate the economic, financial or
other information on which we base our decisions on how to use the proceeds. The
failure of our management to apply these funds effectively may have a material
adverse effect on our business and financial performance.
15
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our business and our
industry that address, among other things:
o our ability to attract and retain experienced research professionals;
o the acceptance of Internet-based marketing research by existing and
potential clients;
o our ability to expand our Internet panels both domestically and
internationally;
o our ability to market our products and services;
o our ability to establish strategic relationships;
o our ability to continue to develop and improve our technology
infrastructure; and
o significant increases in competitive pressures in the marketing research
industry.
These forward-looking statements may be found in the sections of this
prospectus entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and in this prospectus generally. When used in this
prospectus, the words "expects," "anticipates," "intends," "plans," "believes,"
"seeks" and "estimates" and similar expressions are generally intended to
identify forward-looking statements. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors, as
more fully described in the "Risk Factors" section and elsewhere in this
prospectus.
16
<PAGE>
USE OF PROCEEDS
Our net proceeds, after deducting the estimated underwriting discounts and
commissions and offering expenses, from the sale of the shares of
common stock at the assumed public offering price of $ per share are
estimated to be $ million, or $ million if the underwriters' over-
allotment option is exercised in full. We intend to use the net proceeds of this
offering to repay outstanding loans and for general corporate purposes and
working capital. As of the date of this prospectus, we have no specific plans to
use the net proceeds from this offering other than as set forth below.
We intend to use the proceeds from this offering to repay:
o a $14.1 million loan to us from Greenfield Holdings, with an initial
interest rate of 7.5% from May 17, 1999 through May 17, 2001. This loan
has an original maturity date of May 17, 2009;
o a $6.0 million credit facility provided to us by Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, with an
interest rate of the highest LIBOR rate in effect during each month plus
5.0%, provided that the interest rate in effect in each month shall not
be less than 8.0% per year. This facility has an maturity date of
March 31, 2001, but can be renewed; and
o a $2.5 million promissory note payable to us from Greenfield Holdings,
with an interest rate of 10.0%. This note has an maturity date of
June 30, 2001.
The remaining $ million of the net proceeds will be used for
general corporate and working capital purposes to fund our expansion plans.
Pending our use of the net proceeds of this offering, we intend to invest
the net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock or
other securities. We anticipate that we will retain all of our future earnings
for use in the expansion and operation of our business and do not anticipate
paying cash dividends in the foreseeable future. Any future determination as to
the payment of dividends will be at our board of directors' discretion and will
depend on our financial condition, operating results, current and anticipated
cash needs, plans for expansion and other factors that our board of directors
considers to be relevant.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. Our
capitalization is presented on an actual basis and unaudited pro forma basis.
The unaudited pro forma information reflects the following as though the
transactions occurred as of March 31, 2000:
o Reclassification of our class A and class B common stock into a single
class of common stock and an increase in the common shares authorized to
100,000,000 shares;
o Exercise of warrants to purchase 307,668 shares of common stock at an
exercise price of $3.575 per share; and
o The sale of shares of common stock at an initial public offering price
of $ per share in this offering, after deducting underwriting
discounts and commissions and estimated offering expenses, and the
application of the estimated net proceeds. See "Use of Proceeds."
You should read this information together with the sections of this
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------
ACTUAL PRO FORMA
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 4,835,492
===========
Term loan, net...................................................................... $ 3,199,387
Revolving credit facility........................................................... 477,771
Subordinated credit facility........................................................ 1,708,763
Notes payable to stockholder, net................................................... 13,886,638
-----------
19,272,559
-----------
Stockholders' equity:
Common stock--Class A, $.01 par value--45,000,000 shares authorized and issued and
4,446,838 shares outstanding, actual.............................................. 450,000
Common stock--Class B, $.01 par value--45,000,000 shares authorized and 21,855,150
shares issued and outstanding, actual............................................. 218,552
Additional paid-in-capital.......................................................... 56,373,937
Class A treasury stock, at cost--40,553,162 shares, actual.......................... (16,446,572)
Notes receivable from stockholders.................................................. (500,088)
Unearned stock-based compensation................................................... (17,194,715)
Accumulated deficit................................................................. (23,413,208)
-----------
Total stockholders' equity.......................................................... (512,094)
-----------
Total capitalization, including borrowings........................................ $18,760,465
===========
</TABLE>
18
<PAGE>
- ------------------
The outstanding share information in the table above excludes:
o an aggregate of 2,953,350 shares issuable upon exercise of outstanding
stock options under our 1999 Stock Option Plan at a weighted average
exercise price of $1.36 per share;
o 1,949,700 shares of common stock available for future grants under our
1999 Stock Option Plan;
o 150,000 shares of common stock available for future grants under our 2000
Directors Stock Option Plan; and
o 200,000 shares of common stock available for future issuance under our
2000 Employee Stock Purchase Plan.
19
<PAGE>
DILUTION
As of March 31, 2000, our historical net tangible book value was
approximately $ million or $ per share of common stock. Net tangible
book value represents total tangible assets less total liabilities divided by
the number of all shares of common stock outstanding at that date. After giving
effect to our receipt of the net proceeds of $ million from the sale
of the shares of common stock in this offering at the assumed public
offering price of $ per share and application of estimated net proceeds of
$ million from this sale after deducting the underwriters' discounts and
commissions and estimated offering expenses, the net tangible book value at
March 31, 2000, would have been approximately $ million or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing shareholders and an immediate dilution of $
per share to new investors purchasing shares of common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share......................................... $
Pro forma net tangible book value per share as of March 31, 2000........................
Increase per share attributable to new investors........................................
Pro forma as adjusted net tangible book value per share after giving effect to this
offering..............................................................................
------------
Dilution in pro forma net tangible book value per share to new investors................ $
============
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value at March 31, 2000, would have been
approximately $ per share, representing an immediate increase in net tangible
book value of $ to existing shareholders and an immediate dilution in net
tangible book value of $ per share to new investors. The maximum amount of
dilution in the pro forma net tangible book value per share to new investors,
including the assumed exercise of all outstanding options and warrants, would be
$ per share.
The following table summarizes, on a pro forma basis, as of March 31, 2000,
the differences between the number and percentage of shares of common stock
issued to our existing shareholders and new investors purchasing shares of
common stock in this offering, as well as the aggregate consideration and the
average price per share paid by them:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------ ------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................... % $ % $
New investors.......................................
------- --- ------- ---
Total............................................... 100% $ 100%
======= === ======= ===
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
following will occur:
o The percentage of the total number of shares of common stock held by
existing shareholders will decrease to % after the offering;
and
o The number of shares held by new investors will increase to
or approximately % of the total number of shares of our
common stock outstanding after the offering.
- ------------------
The outstanding share information in the table above excludes, except where
otherwise noted:
o an aggregate of 2,953,350 shares issuable upon exercise of
outstanding stock options under our 1999 Stock Option Plan at a
weighted average exercise price of $1.36 per share;
o 1,949,700 shares of common stock available for future grants under
our 1999 Stock Option Plan;
o 150,000 shares of common stock available for future grants under our
2000 Directors Stock Option Plan; and
o 200,000 shares of common stock available for future issuance under
our 2000 Employee Stock Purchase Plan.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes, which are included
elsewhere in this prospectus. The selected statement of operations data for each
of years ended December 31, 1997 and 1998 and for the periods from January 1,
1999 through May 16, 1999 and from May 17, 1999 through December 31, 1999 and
the selected balance sheet data as of December 31, 1998 and 1999 are derived
from our audited financial statements, which are included elsewhere in this
prospectus. The selected balance sheet data as of December 31, 1997 is derived
from audited financial statements not included in this prospectus. The statement
of operations data for the years ended December 31, 1995 and 1996 and for the
quarters ended March 31, 1999 and 2000 and the balance sheet data as of
December 31, 1995 and 1996 and March 31, 2000 are derived from unaudited
financial statements prepared by management and includes, in the opinion of
management, all adjustments necessary for the fair presentation of our financial
position and results of operations.
The selected financial data below include unaudited pro forma statement of
operations data for the full year ended December 31, 1999. The unaudited pro
forma statement of operations data for the year ended December 31, 1999 were
derived from unaudited financial statements prepared by management and give
effect to the management buyout of our company as if it had occurred on
January 1, 1999. The selected financial data for the years ended December 31,
1995, 1996, 1997 and 1998, the period from January 1, 1999 through May 16, 1999
and the quarter ended March 31, 1999 reflect the result of operations and
balance sheet data of the predecessor. The selected financial data for the
period from May 17, 1999 through December 31, 1999 and the quarter ended
March 31, 2000 reflect the results of operations and balance sheet data of the
successor. Because the selected financial data of the successor are not directly
comparable to those of the predecessor, a dark bar has been inserted in the
accompanying table to clearly separate the financial position and results of
operations before and after the change in control. The historical results below
are not necessarily indicative of future results. Amounts included below are in
thousands, except per share data.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------------------------------------------- ------------
JANUARY 1 QUARTER MAY 17
YEAR ENDED DECEMBER 31, THROUGH ENDED THROUGH
-------------------------------------------- MAY 16, MARCH 31, DECEMBER 31,
1995 1996 1997 1998 1999 1999 1999
----------- ----------- ------- ------- --------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:............................ $ -- $ 645 $ 1,203 $ 2,791 $ 1,734 $ 1,068 $ 5,558
Cost of revenues (excluding stock-
based compensation of $20, $20
and $14, respectively)........... -- 177 521 1,251 702 444 2,517
------- ------- ------- ------- ------- ----------- --------
Gross profit....................... -- 468 682 1,540 1,032 624 3,041
Operating expenses:
Selling, general and administrative
expenses (excluding stock-based
compensation of $4,513, $7,098
and $2,073, respectively)........ 1 451 1,293 3,262 5,244 805 6,822
Depreciation and amortization...... -- 4 85 322 156 113 3,844
Research and development (excluding
stock-based compensation of $649,
$649 and $458, respectively)..... -- 68 143 223 186 135 792
Panel acquisition expenses......... -- 67 61 63 27 19 112
Stock-based compensation expense... -- -- -- -- -- -- 5,183
------- ------- ------- ------- ------- ----------- --------
Total operating expenses......... 1 590 1,582 3,870 5,613 1,072 16,753
------- ------- ------- ------- ------- ----------- --------
Operating loss................... (1) (122) (900) (2,330) (4,581) (448) (13,712)
Interest expense, net................ -- (4) (16) (115) (50) (5) (1,017)
------- ------- ------- ------- ------- ----------- --------
Loss before income taxes......... (1) (126) (916) (2,445) (4,631) (453) (14,729)
Income tax benefit................... -- -- -- -- -- -- 940
------- ------- ------- ------- ------- ----------- --------
Net loss............................. $ (1) $ (126) $ (916) $(2,445) $(4,631) $ (453) $(13,789)
======= ======= ======= ======= ======= =========== ========
Basic and diluted net loss per
share.............................. $ -- $ -- $ (0.02) $ (0.05) $ (0.10) $ (0.01) $ (0.56)
======= ======= ======= ======= ======= =========== ========
Weighted average shares outstanding--
basic and diluted.................. 45,000 45,000 45,000 45,000 45,000 45,000 24,707
======= ======= ======= ======= ======= =========== ========
<CAPTION>
PRO FORMA
YEAR QUARTER
ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues:............................ $ 7,291 $ 3,683
Cost of revenues (excluding stock-
based compensation of $20, $20
and $14, respectively)........... 3,219 1,575
-------- -----------
Gross profit....................... 4,072 2,108
Operating expenses:
Selling, general and administrative
expenses (excluding stock-based
compensation of $4,513, $7,098
and $2,073, respectively)........ 12,066 5,527
Depreciation and amortization...... 7,344 1,975
Research and development (excluding
stock-based compensation of $649,
$649 and $458, respectively)..... 979 600
Panel acquisition expenses......... 139 263
Stock-based compensation expense... 7,767 2,545
-------- -----------
Total operating expenses......... 28,295 10,910
-------- -----------
Operating loss................... (24,223) (8,802)
Interest expense, net................ (1,536) 823
-------- -----------
Loss before income taxes......... (25,759) (9,625)
Income tax benefit................... 940 --
-------- -----------
Net loss............................. $(24,819) $ (9,625)
======== ===========
Basic and diluted net loss per
share.............................. $ (1.01) $ (0.37)
======== ===========
Weighted average shares outstanding--
basic and diluted.................. 24,563 25,791
======== ===========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------- -------------------------------------
AS OF DECEMBER 31, AS OF
----------------------------------- AS OF DECEMBER 31, MARCH 31,
1995 1996 1997 1998 1999 2000
---- ----- ------- ------- ------------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $1 $ 30 $ 148 $ 114 $ 1,709 $ 4,835
Working capital (deficiency)................ -- (397) (1,650) (4,452) (1,200) 565
Total assets................................ 1 210 809 1,692 23,353 28,154
Long-term liabilities....................... -- -- -- 90 17,360 20,079
Total stockholders' equity (deficit)........ $1 $(381) $(1,298) $(3,743) $ 323 $ (512)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes starting on page F-1 of this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of the factors discussed in "Risk Factors" starting on
page 6 of this prospectus.
OVERVIEW
We are a leading provider of Internet-enabled marketing research using our
proprietary technologies. Businesses use marketing research to decide what
products and services to offer and the best ways to advertise, promote and
distribute those products and services. Marketing researchers gather information
from consumers using survey methods and compile and interpret the information to
deliver research results to clients. We have developed proprietary automated
methodologies using the Internet by which surveys are created and distributed to
our voluntary community of online survey panelists and by which survey results
are captured and compiled. Our marketing research professionals work closely
with our clients to create surveys customized to meet each client's information
needs. In addition, we have developed products and services that provide
self-directed research capabilities, allowing clients to create and distribute
their own online surveys. Further, we offer online focus groups and online
brainstorming, as well as syndicated, multi-client products sold on a
subscription or per-study basis.
We were founded in 1994 as a business unit of Greenfield Consulting Group,
Inc., specifically to develop technologies and methodologies that use the
Internet to perform marketing research. We were incorporated in 1995 and
reorganized on May 17, 1999, as a result of a management buyout. Our principal
service is custom marketing research. We derived a majority of our revenues
during the year ended December 31, 1999 from custom marketing research. We also
provide syndicated marketing research and launched our self-directed Internet
survey service, QuickTake.com, in February 2000. While we expect custom
marketing research to continue to provide the majority of our revenues in
ensuing years, we expect our syndicated and self-directed research to become an
increasing portion of our revenue mix.
MANAGEMENT BUYOUT
On May 17, 1999, our management team and a group of new investors executed
a management buyout in which approximately 97% of our outstanding common stock
was acquired by Greenfield Holdings, LLC, a company formed specifically to
effect the buyout, and certain other investors.
As a result of the management buyout, a change in control occurred, and a
new reporting entity was established. For purposes of presentation and
disclosure, we refer to ourselves as the predecessor as of and for all periods
up to the point of the management buyout and as the successor as of and for all
periods thereafter.
SOURCES OF REVENUES AND REVENUE RECOGNITION POLICY
We generate revenues from the performance and delivery of custom and
proprietary marketing research products and services, from syndicated marketing
research and from sales of self-directed surveys.
We recognize revenues from custom marketing research in the period in which
the product is delivered. Our custom research results are compiled as reports or
studies and are delivered within a short period, generally ranging from a few
days to eight weeks. Our syndicated marketing research is sold on a subscription
basis for periods of up to one year or on a per-study basis. We recognize
revenues from syndicated marketing research ratably over the term of the related
subscription as services are provided. Invoices billed prior to performance of
services, as well as customer advances, are recorded as deferred project
revenues.
Prior to 1999, our revenues were derived from a small client base.
Expansion of our client base has reduced this concentration. For the year ended
December 31, 1997, 18% and 15% of our revenues were from
23
<PAGE>
two customers, respectively. Further, for the year ended December 31, 1998, 13%
of our revenues was from one customer, which was neither of the customers
referred to in the previous sentence. For the periods from January 1, 1999
through May 16, 1999 and from May 17, 1999 through December 31, 1999, no single
customer represented greater than 10% of our revenues. Provisions for estimated
contract losses, if any, are also included as a variable project cost and are
recognized in the period such losses are determined.
COST OF REVENUES
Our cost of revenues represents project costs and associated direct labor.
Direct labor costs consist primarily of salaries, wages, incentives and benefits
for personnel directly related to the projects. Project costs also include
incentives paid to participating survey respondents and fees associated with the
preparation of survey results.
OPERATING EXPENSES
Our operating expenses consist of selling, general and administrative
expenses, depreciation and amortization, research and development, panel
acquisition costs and stock-based compensation.
Our selling, general and administrative expenses consist primarily of
salaries and benefits paid to sales and marketing personnel and program
expenses, public relations, advertising and promotion costs, commissions and
other marketing expenses as well as payroll taxes, costs of information
technology administration, general corporate functions and occupancy costs.
Our depreciation and amortization consists of depreciation of fixed assets
and internal-use software and amortization of goodwill and intangible assets
recorded in connection with the management buyout.
Our research and development expenses are all associated with new product
development, training and maintenance. In addition, we expense the costs
associated with maintenance and upgrades of our current technologies as these
costs are incurred.
Our panel acquisition costs are incurred in conjunction with recruiting and
retaining Web-based panel participants through our proprietary recruiting
process and are expensed as incurred.
Stock-based compensation expense represents noncash charges related to the
issuance of stock options and notes receivable to stockholders collateralized by
our stock. At December 31, 1999, we had unearned stock compensation charges of
$7,229,767 included in our balance sheet. These deferred charges represent
compensation expenses that will be recognized over the remaining vesting period
of the related options.
INTEREST EXPENSE, NET
Interest expense, net consists of interest expense on borrowings, net of
interest income.
INCOME TAX PROVISION (BENEFIT)
Our income tax provision (benefit) consists of a deferred tax benefit
arising from the net operating loss carryforwards of the company that eliminated
a net deferred tax liability established at the date of the management buyout.
Prior to the management buyout, we were an S corporation for tax purposes and
had no tax provision or benefit at the corporate level.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth a statement of operations data for the
periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------------- -----------------------------------------
PRO
FORMA
YEAR YEAR JANUARY 1 QUARTER MAY 17 YEAR QUARTER
ENDED ENDED THROUGH ENDED THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, MAY 16, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 1999 2000
------------ ------------ ---------- ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....... 43.3 44.8 40.5 41.5 45.3 44.1 42.8
------ ------ ------ ------ -------- ------ -------
Gross margin........... 56.7 55.2 59.5 58.5 54.7 55.9 57.2
Selling, general and
administrative
expenses............. 107.5 116.9 302.5 75.3 122.8 165.5 150.1
Depreciation and
amortization......... 7.1 11.5 9.0 10.5 69.2 100.7 53.6
Research and
development.......... 11.9 8.0 10.7 12.6 14.3 13.4 16.3
Panel acquisition
expenses............. 5.1 2.2 1.6 1.8 2.0 1.9 7.1
Stock-based
compensation
expenses............. -- -- -- -- 93.3 106.5 69.1
------ ------ ------ ------ -------- ------ -------
Total operating
expenses............. 131.5 138.6 323.8 100.3 301.4 388.1 296.2
------ ------ ------ ------ -------- ------ -------
Operating loss......... (74.9) (83.5) (264.3) (41.8) (246.7) (332.2) (239.0)
Interest expense, net.. (1.3) (4.1) (2.9) (0.5) (18.3) (21.1) (22.4)
Income tax benefit..... -- -- -- -- 16.9 12.9 --
------ ------ ------ ------ -------- ------ -------
Net loss............... (76.2)% (87.6)% (267.1)% (42.3)% (248.1)% (340.4)% (261.3)%
====== ====== ====== ====== ======== ====== =======
</TABLE>
SUPPLEMENTAL COMPARISON OF THE QUARTER ENDED MARCH 31, 2000 TO THE QUARTER ENDED
MARCH 31, 1999
REVENUES
Total revenues for the quarter ended March 31, 2000 increased $2,614,526,
or 244.7%, to $3,682,969 from $1,068,443 for the quarter ended March 31, 1999,
primarily as a result of the growth in the number and size of custom research
projects. This rapid growth reflects our relatively early stage of development,
the continued growing acceptance of Internet-based marketing research, an
increase in the number of sales and marketing personnel in the latter half of
1999 and first quarter of 2000, and, to a lesser extent, the introduction of our
self-directed research product, QuickTake.com, during February 2000.
COST OF REVENUES
Cost of revenues increased $1,131,492, or 254.9%, to $1,575,343 for the
quarter ended March 31, 2000, representing 42.8% of total revenues. Cost of
revenues for the quarter ended March 31, 1999 were $443,851, representing 41.5%
of total revenues. The overall increase in the cost of revenues was primarily
due to increased number of custom research projects and the related project
costs. The increase in cost of revenues as a percentage of revenues is
attributable to the introduction of the QuickTake.com product during February
2000, and the cost of revenues associated with QuickTake.com revenues generated
from QuickTake.com for the initial client engagements during the quarter.
25
<PAGE>
OPERATING EXPENSES
Selling, General and Administrative. Selling, general and administrative
expenses increased $4,722,076, or 586.9%, to $5,526,667 for the quarter ended
March 31, 2000, representing 150.1% of total revenues for the year. For the
quarter ended March 31, 1999, selling, general and administrative expenses were
$804,591, representing 75.3% of total revenues. The spending increases were due
to the addition of selling, general and administrative personnel, increased
commissions, and expenses associated with our expanded advertising, marketing
and public relations campaign.
Depreciation and Amortization. Depreciation and amortization increased
$1,862,569 to $1,975,227 for the quarter ended March 31, 2000, representing
53.6% of revenues. For the quarter ended March 31, 1999, depreciation and
amortization expense was $112,658, representing 10.5% of total revenues. The
increase is attributable to increased amortization related to goodwill and
intangible assets recorded as part of the management buyout of the Company in
May 1999, as well as increased depreciation and amortization related to
continued investments in property and equipment as well as capitalized software
during the 1999 calendar year and the first quarter of 2000.
Research and Development. Research and development expenses increased
$465,529, or 345.3%, to $600,363 for the quarter ended March 31, 2000,
representing 16.3% of total revenues. For the quarter ended March 31, 1999,
research and development expenses were $134,834, or 12.6% of total revenues. The
overall increase in research and development expenses was primarily due to
increased spending on new product development, maintenance upgrades of current
products and technology, research and development conducted by outside
consulting firms and technical staffing increases in research and development.
Panel Acquisition. Panel acquisition expenses increased $242,958, or
1244.9%, to $262,474 for the quarter ended March 31, 2000, representing 7.1% of
total revenues. For the quarter ended March 31, 1999, panel acquisition expenses
were $19,516, or 1.8% of total revenues. The overall increase in panel
acquisition expenses was primarily due to the Company's continued investment in
panelists to support a higher number of survey requests, due to the higher
number of custom research projects. The increase in panel acquisition expenses
as a percentage of revenues is expected to continue as we recruit larger panels
that support greater survey capacity.
Stock Based Compensation Expense. Stock based compensation increased
$2,545,013 to $2,545,013 for the quarter ended March 31, 2000, representing
69.1% of total revenues for the quarter. For the quarter ended March 31, 1999,
there were no charges associated with stock-based compensation expense. The
increase is attributable to the issuance of stock options to employees and
directors during 1999 as well as during the quarter ended March 31, 2000 for
which compensation expense was recorded, and the issuance of two notes
receivable from stockholders during 1999, which are collateralized by our common
stock and were accounted for using variable plan accounting.
INTEREST EXPENSE--NET
Net interest expense increased $818,327 to $823,170 for the quarter ended
March 31, 2000, representing 22.4% of total revenues. Interest expense was
approximately $4,843 for the quarter ended March 31, 1999, representing 0.5% of
total revenues. Interest expense, net increased primarily as a result of the
issuance of a note payable to our majority shareholder in the principal amount
of $14,136,452 in May 1999, the increase in borrowings associated with our
credit facility entered into in December 1999 as well as the new subordinated
credit facility entered into with our majority shareholder in March 2000.
COMPARISON OF PRO FORMA YEAR ENDED DECEMBER 31, 1999 UNAUDITED, AND 1998
REVENUES
Revenues for the pro forma year ended December 31, 1999 increased
$4,499,821, or 161.2%, to $7,291,185 from $2,791,364 for the year ended
December 31, 1998. This was primarily a result of the growth in the number and
size of custom research projects. This rapid growth reflects our relatively
early stage of development, the growing acceptance of Internet-based marketing
research and an increase in our
26
<PAGE>
number of sales and marketing personnel in the later half of 1999. We expect to
grow at a somewhat lower rate through 2000 as acceptance of Internet-based
marketing research continues, as we continue to add sales and marketing
personnel and as we increase advertising and marketing activities.
COST OF REVENUES
Cost of revenues increased $1,968,050, or 157.3%, to $3,218,947 for the pro
forma year ended December 31, 1999, exclusive of stock-based compensation,
representing 44.1% of revenues. Cost of revenues for the year ended
December 31, 1998, was $1,250,897, representing 44.8% of revenues. The overall
increase in the cost of revenues was primarily due to the increased number of
custom research projects and the related project costs. The decline in the cost
of revenues as a percentage of revenues reflects a trend to larger projects with
higher pricing and the efficiencies of our proprietary technologies in
supporting these larger projects. We expect improvements in our cost of revenues
as a percentage of revenues through 2000.
OPERATING EXPENSES
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $8,803,111, or
269.8%, to $12,065,510 for the pro forma year ended December 31, 1999, exclusive
of stock-based compensation, representing 165.5% of revenues. For the year ended
December 31, 1998, selling, general and administrative expenses were $3,262,399,
representing 116.9% of revenues. The increase was primarily due to the payment
of management bonuses of approximately $3,260,000 in conjunction with the
management buyout effected in May 1999, which were recorded as selling, general
and administrative expenses. Other increases were due to the addition of
personnel, increased commissions and other expenses associated with our expanded
advertising, marketing and public relations campaign. Excluding the management
bonuses, selling, general and administrative expenses as a percentage of
revenues would have been comparable between 1999 and 1998. In the foreseeable
future, we expect to continue to spend at approximately the same percentage of
revenues as we have in the pro forma year ended December 31, 1999.
Depreciation and Amortization
Depreciation and amortization increased $7,022,579 to $7,344,455 for the
pro forma year ended December 31, 1999, representing 100.7% of revenues. For the
year ended December 31, 1998, depreciation and amortization expenses was
$321,876, representing 11.5% of revenues. The increase was primarily due to
amortization of goodwill and intangible assets associated with the management
buyout, which accounted for 95.0% of depreciation and amortization expenses in
1999 and will continue through 2003. The increase was also a result of
depreciation related to further investments in property, equipment and
internal-use software. We expect depreciation and amortization to continue to
increase as a percentage of revenues in the foreseeable future as we invest
further in internal use software and expand our facilities and infrastructure.
Research and Development
Research and development expenses increased $755,317, or 338.4%, to
$978,550 for the pro forma year ended December 31, 1999, exclusive of
stock-based compensation, representing 13.4% of revenues. For the year ended
December 31, 1998, research and development expenses were $223,233, or 8.0% of
revenues. The overall increase in research and development expenses were
primarily attributable to increased spending on new product development,
maintenance, upgrades of current products and technology and research and
development conducted by outside consulting firms. We expect substantial
additional increases in research and development expenses both in absolute terms
and as a percentage of revenues through 2000 as we upgrade our software and
technology, develop new products and develop new technology directed toward
improving productivity. We expect to continue to spend in research and
development as a percentage of revenues consistent with spending in the pro
forma year ended December 31, 1999.
27
<PAGE>
Panel Acquisition Expenses
Panel acquisition expenses for the pro forma year ended December 31, 1999,
were $139,800, representing 1.9% of revenues. For the year ended December 31,
1998, panel acquisition expenses were $62,682, or 2.2% of revenues. The overall
increase in panel acquisition expenses was primarily due to our continued
investment in panel acquisition to support a higher number of survey requests,
due to the increase in custom research projects. The decrease in panel
acquisition expenses as a percentage of revenues is not expected to continue.
Panel acquisition as a percentage of sales will increase as we recruit larger
panels that support greater survey capacity.
Stock-Based Compensation
We recognized $7,766,576 of stock-based compensation for the pro forma year
ended December 31, 1999, representing 106.5% of revenues. For the year ended
December 31, 1998, there were no charges associated with stock-based
compensation expenses. The increase is attributable to the issuance of stock
options to employees and directors during the period from May 17, 1999 through
December 31, 1999, for which compensation expense was recorded, and the issuance
of two notes receivable from stockholders. These notes receivable are
nonrecourse notes collateralized by our common stock and are accounted for using
variable plan accounting.
INTEREST EXPENSE, NET
Interest expense, net increased $1,421,549 to $1,536,329 for the pro forma
year ended December 31, 1999, representing 21.1% of revenues. Interest expense,
net was approximately $114,780 for the year ended December 31, 1998,
representing 4.1% of revenues. Interest expense, net increased primarily as a
result of the issuance of a note payable to our majority shareholder in the
principal amount of $14,136,452 in May 1999 and the increase in borrowings
associated with our new credit facility entered into in December 1999.
INCOME TAX PROVISION (BENEFIT)
Our income tax benefit of $940,452 for the pro forma year ended December
31, 1999, consists of a deferred tax benefit arising from our operating loss
carryforwards during the pro forma year. These net operating losses eliminated a
net deferred tax liability that was established in pushdown accounting at the
date of the management buyout. Prior to the management buyout, we were an
S corporation for tax purposes and had no tax provision or benefit at the
corporate level.
COMPARISON OF THE PERIOD FROM MAY 17, 1999 THROUGH DECEMBER 31, 1999 AND THE
YEAR ENDED DECEMBER 31, 1998
As a result of the management buyout, we include the following comparison
of the period from May 17, 1999 through December 31, 1999, which is
approximately 7 1/2 months, to the year ended December 31, 1998. Changes in
revenues and expenses shown in this comparison are partially attributable to the
periods containing different numbers of months.
REVENUES
Revenues for the period from May 17, 1999 through December 31, 1999
increased $2,766,101, or 99.1%, to $5,557,465 from $2,791,364 for the year ended
December 31, 1998. This increase was primarily a result of the growth in the
number and size of custom research projects. This growth reflects our relatively
early stage of development, the growing acceptance of Internet-based marketing
research during 1999 and an increase in our number of sales and marketing
personnel in the later half of 1999. We expect to grow at a somewhat lower rate
through 2000 as acceptance of Internet-based marketing research continues, as we
continue to add sales and marketing personnel and as we increase advertising and
marketing activities.
28
<PAGE>
COST OF REVENUES
Cost of revenues increased $1,265,861, or 101.2%, to $2,516,758 for the
period from May 17, 1999 through December 31, 1999, exclusive of stock-based
compensation, representing 45.3% of total revenues. Cost of revenues for the
year ended December 31, 1998, was $1,250,897, representing 44.8% of total
revenues. The overall increase in the cost of revenues was primarily due to an
increased number of custom research projects and the related project costs. The
decline in the cost of revenues as a percentage of revenues reflects a trend to
larger projects with higher pricing and the efficiencies of our proprietary
technologies in supporting these larger projects. We expect continued
improvements in our cost of revenues as a percentage of revenues through 2000.
OPERATING EXPENSES
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3,559,300, or
109.1%, to $6,821,699 for the period from May 17, 1999 through December 31,
1999, exclusive of stock-based compensation, representing 122.8% of total
revenues for the year. For the year ended December 31, 1998, selling, general
and administrative expenses were $3,262,399, representing 116.9% of revenues.
The large increase was primarily due to payment of management bonuses of
approximately $3,260,000 in conjunction with the management buyout, which were
recorded as selling, general and administrative expenses. Other increases were
due to the addition of personnel, increased commissions and other expenses
associated with our expanded advertising, marketing and public relations
campaign. Excluding the management bonuses, selling, general and administrative
expenses as a percentage of revenues would have been comparable between 1999 and
1998.
Depreciation and Amortization
Depreciation and amortization increased $3,521,752 to $3,843,628 for the
period from May 17, 1999 through December 31, 1999, representing 69.2% of
revenues. For the year ended December 31, 1998, depreciation and amortization
expenses were $321,876, representing 11.5% of revenues. The increase was
primarily due to amortization of goodwill and intangible assets associated with
the management buyout, which accounted for 87.0% of depreciation and
amortization expense in 1999 and will continue through 2003. The increase was
also a result of depreciation related to further investments in property,
equipment and internal-use software.
Research and Development
Research and development increased $569,035, or 254.9%, to $792,268 for the
period from May 17, 1999 through December 31, 1999, exclusive of stock-based
compensation, representing 14.3% of revenues. For the year ended December 31,
1998, research and development was $223,233, or 8.0% of revenues. The overall
increase in research and development expenses were primarily attributable to
increased spending on new product development, maintenance upgrades of current
products and technology and research and development conducted by outside
consulting firms. We expect additional increases in research and development
expenses as a percentage of revenues through 2000 as we upgrade our software and
technology, develop new products and develop new technology directed toward
improving productivity.
Panel Acquisition Expenses
Panel acquisition expenses increased $49,849, or 79.5%, to $112,531 for the
period from May 17, 1999 through December 31, 1999, representing 2.0% of
revenues. For the year ended December 31, 1998, panel acquisition expenses were
$62,682, or 2.2% of revenues. The overall increase in panel acquisition expenses
was primarily due to our continued investment in panel acquisition to support a
higher number of survey requests, due to the increase in custom research
projects. The decrease in panel acquisition expenses as a percentage of revenues
is not expected to continue. Panel acquisition as a percentage of revenues will
increase as we recruit larger panels that support greater survey capacity.
29
<PAGE>
Stock-Based Compensation
We recognized $5,182,715 of stock-based compensation for the period from
May 17, 1999 through December 31, 1999, representing 93.3% of revenues. For the
year ended December 31, 1998, there were no charges associated with stock-based
compensation expenses. The increase is attributable to the issuance of stock
options to employees and directors during the period from May 17, 1999 through
December 31, 1999, with exercise prices below estimated fair value and the
issuance of two notes receivable from stockholders. These notes receivable are
collateralized by our common stock and are accounted for using variable plan
accounting.
INTEREST EXPENSE, NET
Interest expense, net increased $901,459 to $1,016,239 for the period from
May 17, 1999 through December 31, 1999, representing 18.3% of revenues. Interest
expense, net approximately $114,780 for the year ended December 31, 1998,
representing 4.1% of revenues. Interest expense, net increased primarily as a
result of the issuance of a note payable to our majority shareholder in the
amount of $14,136,452 in May 1999 and the increase in borrowings associated with
our credit facility entered into in December 1999.
INCOME TAX PROVISION (BENEFIT)
Our income tax benefit of $940,452 for the period from May 17, 1999 through
December 31, 1999, consists of a deferred tax benefit arising from the net
operating loss carryforwards of the company during the year. These net operating
losses eliminated a net deferred tax liability that was established in pushdown
accounting at the date of the management buyout. Prior to the management buyout,
we were an S corporation for tax purposes and had no tax provision or benefit at
the corporate level.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Revenues for the year ended December 31, 1998, increased $1,588,312, or
132.0%, to $2,791,364 from $1,203,052 for the year ended December 31, 1997. This
was primarily a result of the growth in the number and size of our custom
research projects.
COST OF REVENUES
Cost of revenues increased $729,639, or 140.0%, to $1,250,897 for the year
ended December 31, 1998, representing 44.8% of revenues. Cost of revenues for
the year ended December 31, 1997, were $521,258, representing 43.3% of revenues.
The overall increase in the cost of revenues was primarily due to an increased
number of custom research projects and the related project expenses.
OPERATING EXPENSES
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,969,603, or
152.4%, to $3,262,399 for the year ended December 31, 1998, representing 116.9%
of revenues. For the year ended December 31, 1997, selling, general and
administrative expenses were $1,292,796, representing 107.5% of revenues. The
spending increases were due to the addition of personnel, increased commissions
and other expenses associated with our expanding advertising, marketing and
public relations campaigns.
Depreciation and Amortization
Depreciation and amortization increased $236,912 to $321,876 for the year
ended December 31, 1998, representing 11.5% of revenues. For the year ended
December 31, 1997, depreciation and amortization expense was $84,964,
representing 7.1% of revenues. The increase was primarily due to the
depreciation related to further investments in property, equipment and
internal-use software.
30
<PAGE>
Research and Development
Research and development expenses increased $79,754, or 55.6%, to $223,233
for the year ended December 31, 1998, representing 8.0% of total revenues. For
the year ended December 31, 1997, research and development expenses were
$143,479, or 11.9% of revenues. The overall increase in research and development
expenses was primarily attributable to increased spending on new product
development, maintenance upgrades of current products and technology and
research and development conducted by outside consulting firms.
Panel Acquisition Expenses
Panel acquisition expenses for the year ended December 31, 1998, were
$62,682, representing 2.2% of total revenues. For the year ended December 31,
1997, panel acquisition expenses were $61,135, or 5.1% of total revenues. The
decrease in panel acquisition expenses as a percentage of revenue was due to
costs incurred in 1997 to support higher volumes of surveys expected in future
periods.
INTEREST EXPENSE, NET
Interest expense, net increased $98,835, or 619.9%, to $114,780 for the
year ended December 31, 1998, representing 4.1% of revenues. Interest expense,
net was $15,945 for the year ended December 31, 1997, representing 1.3% of
revenues. Interest expense, net increased primarily as a result of the increased
borrowings from one of our affiliates in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
At December 31, 1999, we had cash and cash equivalents of approximately
$1.7 million. We regularly invest excess funds in short-term money market funds,
government securities and commercial paper. On March 31, 2000, we had cash and
cash equivalents of $4.8 million and additional borrowing capacity of
approximately $4.0 million. We currently anticipate that our available cash and
cash equivalents and our line of credit, combined with the net proceeds from
this offering, will be sufficient to fulfill our growth plan over the next
12 months.
We had negative cash flows from operations of approximately $6.7 million
and $3.6 million for the period from May 17, 1999 through December 31, 1999 and
the quarter ended March 31, 2000, respectively. We used cash in investing
activities of $1 million and $1.6 million for the period from May 17, 1999
through December 31, 1999 and the quarter ended March 31, 2000, respectively,
primarily due to cash used for capital expenditures. We generated cash from
financing activities of approximately $9.2 million and $8.3 million for the
period from May 17, 1999 through December 31, 1999 and the quarter ended March
31, 2000, respectively, primarily reflecting proceeds from the management buyout
and additional debt and equity financing, less the cost of reacquiring treasury
stock from the former sole stockholder of the company.
We have consistently sustained net losses and negative cash flows from
operations and have a working capital deficiency. Our ability to meet our
obligations in the ordinary course of business is dependent upon our ability to
attract capital from new and existing investors. To date, we have been able to
attract sufficient capital to support our operating needs and meet our
obligations as they come due. During 1999, we received approximately $27.0
million of debt and equity financing from various sources, including investors
participating in the management buyout, as well as from a financial institution.
In March 2000, we closed an additional debt and equity financing in the amount
of $10.4 million. These funds are being used to expand operations, including
hiring additional employees and continuing to invest in proprietary survey
products and technologies. Management believes that these funds, together with
available cash and the proceeds of this offering are sufficient to support our
operations.
31
<PAGE>
Capital Resources
We have a substantial amount of debt. We intend to repay all of our debt
outstanding to our lenders with a portion of the proceeds from this offering.
The substantial amount of debt that is payable to Greenfield Holdings and
Greyrock Capital has created a highly leveraged balance sheet, and our debt
service levels would require us to achieve profitability early in 2001 in order
to sustain operations under the current capital structure. In the event that we
are unable to complete an initial public offering of our stock in which a
portion of the proceeds would be used to pay off all outstanding debt with
Greenfield Holdings and Greyrock Capital, it would be our intent to refinance
the Greenfield Holdings debt to an equity form of capital, such as convertible
preferred stock. We believe that our unique relationship with Greenfield
Holdings affords us the ability to refinance the debt, if necessary.
This back-up refinancing plan, in conjunction with $5.0 million of equity
capital we raised in March 2000 with an institutional investor, would
appropriately balance our capital structure and minimize our debt service levels
going forward.
To further expand our operations, we may need to raise additional funds in
the future to fund more rapid expansion, to develop new products and to respond
to competitive pressures or to acquire complementary businesses or technologies.
If additional funds are raised through the issuance of additional equity
securities, the percentage equity ownership of our stockholders will be reduced,
stockholders may experience dilution and these equity securities may have
rights, preferences or privileges senior to those of our common stockholders. We
cannot assure you that additional financing will be available when needed on
terms favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance products,
unable to take advantage of future opportunities or respond to competitive
pressures.
YEAR 2000 DISCLOSURE
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries in the date code filed. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, it has been necessary to update the computer systems and/or
software used by many companies and governmental agencies to comply with Year
2000 requirements so as not to risk system failure or miscalculations causing
disruptions of normal business activities. Most reports to date, however, are
that computer systems are functioning normally and the compliance and
remediation work accomplished leading up to the Year 2000 was effective to
prevent material problems. Computer experts have warned, however, that there may
still be residual consequences.
We are exposed to the risk that the systems on which we depend to conduct
our operations are not Year 2000 compliant and we cannot assure you that any
Year 2000 problems will not result in disruptions.
Based on initial reports, we believe that our information technology
systems, which include our hardware and software, and our non-information
technology systems, which include the telephone systems and other office
equipment we use internally, are Year 2000 compliant.
In addition, to date, we have not experienced any significant problems
relating to the Year 2000 compliance of our major vendors. However, we cannot
assure you that these vendors will not experience a Year 2000 problem in the
future. In the event that any of them experience a Year 2000 problem and we are
unable to locate an acceptable alternative, our business would be harmed.
Although our initial reports have not identified any material Year 2000
problems affecting our material third-party vendors, it is possible that certain
Year 2000 problems may have residual consequences or that our third-party
vendors were mistaken in certifying that their systems are Year 2000 compliant.
If we fail to fix our internal systems or to fix or replace material third-party
software, hardware or services on a timely basis, we may suffer lost revenues,
increased operating costs and other business interruptions, any of which could
have a material adverse effect on our business, results of operations and
financial condition.
Although initial reports are that computer systems are functioning
normally, we cannot assure you that governmental agencies, utility companies,
Internet access companies, third-party service providers and others
32
<PAGE>
outside our control will not develop Year 2000 problems. If those entities fail
to be Year 2000 compliant, there may be a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could have a material adverse effect on our business, results of operations and
financial condition.
Based on our assessment of our Year 2000 readiness, we do not anticipate
being required to implement any material aspects of a contingency plan to
address Year 2000 readiness of our critical operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors including those
set forth in the "Risk Factors" section of this prospectus.
Interest Rate Risk
Our exposure to market risk is for changes in interest rates for long-term
debt obligations. We use proceeds from these debt obligations to support general
corporate requirements, including capital expenditures and working capital
needs. We have interest rate exposure on our borrowings that bear variable
interest rates.
As disclosed in the notes to our financial statements, our debt obligations
as of December 31, 1999, included a long-term, unsecured promissory note and a
credit facility with a financial institution including a one-year renewable term
loan and a revolving credit line. Interest rates on the promissory note are
fixed for specified intervals and will increase with time until the note
matures. During the period in which the note is outstanding, changes in
prevailing market rates could have an effect on operations and cash flows.
Interest rates on the credit facility float with the market. A hypothetical
10.0% change in prevailing interest rates would have the effect of increasing or
decreasing annual interest expense by approximately $200,000 and would increase
or decrease the fair value of outstanding debt by approximately $900,000. Actual
gains and losses in the future may differ materially from that analysis,
however, based on changes in the timing and amount of actual interest rate
movements.
We invest our cash and cash equivalents in investment-grade, highly liquid
investments, consisting of money market instruments and bank certificates of
deposit. We anticipate using a portion of our proceeds from this offering to
retire our debt obligations to affiliates and financial institutions and to
invest the remainder in similar investment-grade and highly liquid investments
pending their use as described in this prospectus.
Foreign Currency Exchange Rate Risk
We have no derivative financial instruments. We do not materially transact
in foreign currencies, and there is no impact of currency fluctuations on our
operations. As we consider expanding our operations outside the U.S., we could
be exposed to fluctuations in exchange rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, "SFAS No. 133." The new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for the company beginning in fiscal 2001. Management does not
expect SFAS No. 133 to have a material effect on our financial position or
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition, "SAB 101," which provides
guidance on the recognition, presentation and disclosure of revenues in
financial statements filed with the Securities and Exchange Commission. SAB 101
outlines the basic criteria that must be met to recognize revenues and provides
guidance for disclosure related to revenue recognition policies. Management
believes that its revenue recognition policies and practices are in conformance
with SAB 101.
33
<PAGE>
BUSINESS
BUSINESS OVERVIEW
We are a pioneer in the use of the Internet to conduct marketing research.
We believe the Internet has become a viable medium for conducting marketing
research, and we are well positioned to lead the transition to the Internet.
Founded in 1994, we performed our first Internet-based research project in 1995
and continue to be a leading provider of Internet-based marketing research.
Societal changes and today's complex business environment have accelerated
businesses' need for marketing research. We have developed products and services
that include custom research, syndicated research and easy-to-use, self-directed
research to address our clients' diverse marketing research needs. We believe
that the combination of our proprietary Internet-based technology, our
high-quality online respondent panels and experienced research professionals
produces faster, better and richer results than those obtained using offline
marketing research methods. Our Internet-based technology provides a highly
automated platform to perform a large volume of marketing research. Our
proprietary online research panels contain over 500,000 registered respondents
who have provided us with information allowing us to reach highly targeted
groups of people quickly and efficiently. Our experienced marketing researchers
use their knowledge of marketing research, our Internet-based technology and our
online panels to deliver marketing research information to our clients.
INDUSTRY OVERVIEW
Growth and Acceptance of the Internet
International Data Corporation, an information technology data and analysis
company, estimates the number of worldwide Internet users will grow from
196 million at the end of 1999 to 502 million at the end of 2003. Jupiter
Communications, a provider of e-commerce research, estimates the percentage of
households in the U.S. that will be online will increase from 44% in 1999 to 63%
in 2003. We believe this growth and acceptance of the Internet is principally
driven by the widespread adoption of personal computers and Web-enabled devices
as they have become increasingly prevalent and affordable. In addition, the cost
of Internet access has declined as Internet Service Providers have moved to
flat-rate and low- or no-cost rate structures.
We believe the Internet has become an effective medium for conducting
marketing research because of its widespread growth and acceptance. Due to the
decreasing cost of personal computers and Web access, an increasingly diverse
group of people with demographics more reflective of the general population is
using the Internet. As a result, we believe marketing research conducted on the
Internet increasingly provides quality results that accurately reflect the
preferences of the general population and those segments of the population that
businesses want to understand better.
Offline Marketing Research Industry
Businesses rely on feedback from the marketplace to make decisions about
the products and services they offer. The more information businesses can gather
about their customers, their potential customers and their competition, the more
likely it is that they will be able to develop and sell products and services
that people will buy and use. Marketing research is a critical tool used to
gather the information that businesses need to make decisions regarding product
portfolios, advertising and promotion efforts and channels of distribution.
According to the European Society of Opinion and Marketing Research, an
independent trade association, approximately $13.4 billion was spent on
marketing research worldwide in 1998, a 10% increase from 1997.
Marketing research requires expertise in designing, gathering, processing
and analyzing information in order to provide accurate and reliable feedback.
Methods generally used by offline marketing researchers include in-person and
telephone interviews and direct mail surveys. We do not believe that any of the
offline marketing research firms supplement their offline marketing research
data with data gathered using online techniques. These offline methods are
costly because they involve time-consuming and labor-intensive efforts to find
and interview people and to process and analyze information. Data acquisition
costs are also high due to declining cooperation rates among offline survey
participants. According to a survey conducted by the
34
<PAGE>
Council for Marketing and Opinion Research, an independent trade organization,
the percentage of Americans agreeing to participate in offline surveys declined
from 20% in 1995 to 14% in 1999. Marketing researchers have adopted technology
such as automated phone interviews and product scanner tracking in an attempt to
increase efficiencies in data collection and processing. However, these methods
still require a high degree of manual processing, remain time-consuming and
labor-intensive and do not address declining participation rates.
Societal changes and the complexity of today's business environment have
greatly increased demand for high-quality marketing research. Increased
competition, globalization of products, technological innovation and rapidly
changing consumer preferences and lifestyles have accelerated the need for
marketing information. The risk to marketing research in this environment is
that businesses will forgo spending on marketing research because the time and
cost outweighs its value. Because of the expense, marketing research has
historically been primarily affordable to FORTUNE 1000 companies and
prohibitively expensive for small and mid-sized businesses. We believe that
before the Internet became available as a research tool, the marketing research
industry was unable to satisfy the increasing demand for fast, affordable and
quality research.
Online Marketing Research
We believe the Internet is fundamentally changing the marketing research
industry and allowing researchers to better meet the challenges posed by today's
business environment. Using the Internet, marketing researchers can rapidly
access, collect and process large amounts of data from diverse groups. Online
marketing research lowers data acquisition costs and provides opportunities to
expand the market to include companies that previously could not afford the high
cost of research. The Internet provides direct access to potential survey
participants and offers a convenient and unique environment for participants to
view and respond to surveys.
Internet-enabled survey methods speed up the information-gathering process
by preparing and delivering surveys and retrieving information electronically.
As surveys are completed, the results are captured and stored automatically.
These methods eliminate the need to print and distribute surveys and
substantially reduce the time required for entering and compiling data.
Further, we believe the Internet provides a superior, cost-efficient
platform for marketing research. The Internet eliminates the time-consuming,
labor-intensive and costly processes associated with offline research,
significantly reducing the cost of each completed survey. Lower per-survey costs
allow online marketing researchers to collect more data from larger audiences.
With lower cost access to large groups, online researchers are able to reach and
provide information from highly targeted demographic segments at speed and costs
unavailable through offline research methodologies.
It is our belief that the Internet also provides a unique and user-friendly
environment for conducting surveys. Internet-enabled surveys can accommodate a
variety of new media, including websites and streaming audio and video that
cannot be integrated into offline surveys. We believe that exposing participants
to these media allows researchers to capture feedback needed by marketers to
assess new product offerings and test new advertising messages more accurately.
Using the Internet, participants can complete surveys at their convenience and
are not subject to the bias that may be introduced by an interviewer. We believe
the convenience and anonymity offered by Internet surveys lead to richer, more
detailed responses.
Challenges of Moving Marketing Research Online From Offline Methods
Although the Internet presents a significant opportunity for marketing
researchers, transitioning from offline research to an online environment
presents substantial challenges. To use the Internet for marketing research,
companies must convert or abandon offline methodologies, develop Internet
expertise and invest in new infrastructure and technology. Marketing research
companies must also gain access to people who are online and willing to
participate in research. We believe that, to successfully compete in an online
environment, marketing research companies must develop online panels of survey
respondents and integrate their online panels with their online technologies.
35
<PAGE>
We believe that some marketing research firms that have attempted to
migrate to online methodologies have encountered difficulties in doing so. We
believe this is because of the high investment costs required to develop new
technologies and expertise, a reluctance to abandon existing business models and
a lack of understanding about online panel building and the online environment.
Most offline marketing research companies rely on direct mail and telephone
surveys that are supported by dated technology systems, known as legacy systems.
These legacy systems cannot be modified to meet the particular demands of the
Internet and must be abandoned by companies attempting to conduct online
marketing research, often at high cost.
We believe that many offline marketing research companies have not
recognized that, to be effective, online marketing research should be conducted
using panels of respondents who have provided the researcher with detailed
demographic information and who have given their permission to be surveyed.
Creating and maintaining online panels requires knowledge and expertise that
these companies have not gained by building and using offline panels or other
survey methods. We believe online panel building and maintenance requires an
understanding of online communities and Internet users which can be gained only
through years of online experience.
THE GREENFIELD ONLINE ADVANTAGE
We are a pioneer in the use of the Internet as a foundation to build a
marketing research business. We were founded in 1994 and conducted our first
Internet-based marketing research project in 1995. Our early entry and
first-mover advantage have enabled us to develop a strong brand position for
Internet-based marketing research. We believe our five years of Internet
experience have provided us with a critical mass of knowledge and expertise,
which cannot be replicated without a similar investment of time and resources.
We believe that the combination of our Internet-focused technology, high-quality
online panels and experienced marketing research professionals provides us with
the ability to meet the challenges of the marketing research industry and
produce faster, better and richer results than can be obtained using offline
marketing research methods.
Internet-Focused Technology
We are a 100% Internet-enabled company. Since 1994, we have developed our
technology with the specific goal of harnessing the Internet to perform
marketing research. The technologies we have developed provide a highly
efficient platform to perform online marketing research and allow us to offer
research to a broad range of clients. Our core technology is our Web Research
Engine, comprised of three proprietary technologies: NetTap, Survey Wizard and
QuickTake. Our Web Research Engine allows us to reduce data acquisition costs by
expediting, and in some cases eliminating, many of the labor-intensive functions
of offline marketing research such as survey creation, identification of
potential respondents and data collection and input. Our technology also allows
us to deliver information faster than offline methods by automating
questionnaire design, reducing in-field survey time and facilitating data
collection and compiling. Using our technology, we believe we provide enhanced
services to our clients by conducting surveys that elicit detailed and accurate
information from the specific groups that match our clients' cost and timing
needs. Our technologies are also designed to be easy to use and eliminate the
need for highly skilled computer programmers to set up and process surveys.
High-Quality Online Panels
We have spent the last five years building, refining and investing in our
proprietary research panels. Our proprietary NetReach Internet recruiting
techniques enable us to build and replenish online panels comprised of
responsive and geographically and demographically diverse participants. We are
able to target very specific segments of our panels based on the marketing
research needs of our clients because each panelist has provided us with a
detailed personal profile comprised of up to 70 fields of information. We
believe that because each of our panelists has joined us voluntarily, we receive
timely and accurate responses to our surveys. The combination of our technology
and our online panels also significantly reduces the cost of conducting surveys
when compared with offline data collection methods. Response and participation
rates, sample gathering and survey delivery costs that impede offline research
have less impact on our marketing
36
<PAGE>
research because our online methodologies permit us to identify, contact and
survey additional respondents with minimal cost and effort.
Experienced Researchers
Marketing research requires special skills and training due to the
complexity of developing and producing surveys that deliver reliable, actionable
data. Therefore, we require the involvement of experienced researchers at every
stage of the process, from the consultative sale to report delivery. We believe
that the relevant industry experience and the combined knowledge and expertise
of our researchers provide us with a distinct competitive advantage. As a
result, our researchers drive the decisions, technology and product development
of our company.
OUR STRATEGY
Our goal is to expand our position as a leading Internet-based marketing
research company. We have developed a strategy to be the largest and most
recognized supplier of marketing research worldwide, measured by market share,
product quality, geographic coverage and strength of brand name. Our strategy is
to:
Expand the Market
Our strategy to expand the market for online marketing research is
threefold.
o Convert users of offline marketing research to online research. We
attract buyers of offline marketing research by demonstrating the
advantages of Web-enabled marketing research and the superiority of our
technology, panels and researchers. These advantages enable us to provide
clients with a faster, better and richer marketing research solution.
Since our inception, we have expanded our client base to include clients
who have traditionally relied upon offline marketing research.
o Grow sales to current clients. We intend to increase our sales to current
clients by offering a comprehensive suite of marketing research products
and services that will strengthen client loyalty and increase recurring
revenues. We also establish long-term relationships with our clients by
developing and marketing updated, subscription-based services as well as
customized systems and online panels. By offering our clients
comprehensive, continuing and customized services, we believe we will
cultivate high-value relationships that increase client loyalty.
o Expand addressable market. We also intend to expand our addressable
market by developing and offering products and services at various price
points to clients for whom marketing research has historically been
prohibitively expensive. We intend to provide quality research not only
to large FORTUNE 1000 corporations but also to small and mid-sized
businesses, which have been traditionally underserved by the marketing
research industry. In 1999, approximately 72% of our revenues were
derived from small and mid-sized businesses. To address the needs of this
market, we will continue to develop a range of self-directed, Web-based
products that allow our clients to quickly and cost effectively receive
feedback on questions they need answered prior to or instead of
committing substantial resources to larger research studies. We launched
our first Web-based self-directed service, QuickTake.com, in February
2000. Visitors to QuickTake.com conduct surveys on their own and start
obtaining results in a matter of hours. We will continue to develop
online products and services that expand our market by providing more
direct access to information. For example, in April 2000, we introduced a
wireless extension to our QuickTake.com product and are taking steps to
introduce wireless capabilities to our products and services.
Build and Maintain Our High-Quality Online Research Panels
We believe the most critical element of successful online marketing
research is panels that provide reliable, high-quality responses that accurately
mirror the opinions and attitudes of targeted groups. By building a quality
general consumer panel and highly targeted vertical panels, we believe that we
can accurately research both the general population and specific
hard-to-research demographic groups.
37
<PAGE>
We use our proprietary NetReach recruiting process to build and grow the
broadest and most representative panels. By providing access to highly targeted
panels and entering into strategic alliances with other companies to codevelop
or gain access to additional highly targeted panels, we intend to meet our
clients' need to target hard-to-research demographic groups. Through the
addition of demographic, lifestyle and other relevant panelist data, we
continuously improve our panels. We strive to preserve panelist participation
and longevity by building a sense of community and involvement among our panel
members. We maintain panel relations programs featuring newsletters,
personalized emails and selected research results.
Develop and Enhance Our Scalable, Proprietary Internet Technology
Our proprietary Web Research Engine enables us to efficiently perform
marketing research and deliver results online. We continuously develop and
enhance our technology to maintain and improve the speed and reliability of our
marketing research services. Our efforts are initially focused on automating all
functions of the marketing research process. In the longer term, we intend to
continue to develop technologies that will enable us to introduce new products
and services. We also intend to continue to enhance our Web Research Engine and
our websites to ensure speed, sophistication, flexibility, functionality and
security.
Attract and Retain High-Quality, Experienced Marketing Research Professionals
As we grow our client base and increase the number of products and services
we offer, we will need to increase the number of experienced researchers to
service our clients. We believe that marketing researchers with significant
experience most effectively sell to and service our clients. To meet the
expected growth in our business, we intend to increase the number of people with
relevant industry experience through an aggressive recruiting campaign and an
internal referral program. In addition, we have implemented appropriate
performance-based compensation strategies to attract and retain research
professionals.
Increase Brand Awareness
Since inception, we have worked to build strong brand awareness among the
purchasers of marketing research. We strive to be the recognized authority in
marketing research. We believe that brand awareness increases our credibility,
increases demand for our services and positions us as the quality provider of
marketing research. We intend to continue to build our brand awareness through a
concerted effort that includes public relations campaigns as well as online and
offline advertising.
OUR WEB RESEARCH PLATFORM
We believe the technologies and online panels we have developed provide a
highly efficient platform to perform online marketing research and allow us to
offer research to a broad range of clients.
Web Research Engine
Our core technology is our Web Research Engine. All of our products and
services rely on Internet technologies that we have developed or adapted to
collect, process, analyze and report marketing research information. These
integrated technologies, which seamlessly interface with each other and our
online panels, are what we call our Web Research Engine. Our Web Research Engine
is comprised of highly secure applications, an underlying database system and
QuickTake technology, which allow large numbers of surveys to be created,
gathered and processed efficiently. Our software was designed to be
user-friendly and compatible with a broad range of technologies. The key
components of our Web Research Engine are:
Survey Wizard. Our Survey Wizard software allows us to create and execute
complex Web-enabled surveys that can incorporate sophisticated multimedia.
Survey Wizard allows our researchers to create surveys easily and efficiently
with commonly available desktop software. This technology automates the coding
of questions, generates Web-ready surveys, and collects and stores data. This
automation eliminates the need to employ numerous skilled programmers to code
each survey and reduces the time required to create Web surveys. Our Survey
Wizard software has features that enhance the quality of our surveys by reducing
the number of incomplete responses as well as the time and cost of editing.
Survey Wizard can dynamically control how information from respondents is
captured, thereby reducing inaccuracy and inconsistency in the
38
<PAGE>
data. By directing different questions to the respondent based upon their prior
answers, Survey Wizard allows for a more custom and detailed set of responses.
NetTap. NetTap is a proprietary set of database tools that provides a
user-friendly interface for executing marketing research studies. NetTap
seamlessly interfaces with Survey Wizard and our online panels and allows us to:
o select a sample of respondents from our online panels;
o generate email invitations to the selected sample;
o publish surveys on the Web; and
o collect, store and retrieve data.
QuickTake. QuickTake is a 100% Web-based survey tool that allows us to
offer self-directed surveys for clients who need quick feedback. QuickTake
provides a Web-based interface and allows surveys to be conducted without the
use of a research staff. QuickTake is a powerful and user-friendly software tool
and features built-in functionality for easy navigation, flexible survey
formatting and real-time reporting of results. QuickTake can be used to perform
surveys among online audiences from the Web or from the user's own lists or
databases, such as employee groups, business partners, customers or website
visitors.
Each of our proprietary technologies that makes up our Web Research Engine
allows users, either our researchers or our clients, to launch and monitor
surveys and compile survey data from their personal computers, eliminating the
multistep, multiperson processes used by offline marketing research firms.
Greenfield Online Panels
All of our products and services rely on online panels of respondents that
we have recruited to participate in our marketing research studies. Using
NetReach, our continuous, dynamic proprietary technique for building and
maintaining online respondent panels, we attract potential panelists from the
entire spectrum of the Internet. We also obtain new members from our
www.quicktake.com website. Upon completing a survey launched from QuickTake.com,
respondents are invited to become members of our Greenfield Online panels. The
only way someone can become a panel member is by registering at our panelist
website, www.greenfieldonline.com, and completing a demographic and lifestyle
profile. This registration process is completely voluntary and automates the
capture of detailed demographic and lifestyle information that is needed to
target the various populations that our clients want to research. Our panel
relations program encourages a commitment to participate by upholding strict
security and privacy standards and maintaining regular contact with our panel
members. All of our marketing research studies report aggregate information
about groups, not individuals. Individually identifiable information is never
reviewed or published as part of a research survey. The combination of our
recruiting techniques, registration process and panel relations program allows
us to have highly diverse and comprehensively profiled online panels that can
support a wide range of marketing research products and services.
To date, we have recruited and registered over 500,000 respondents,
residing in households containing approximately 1.6 million people. We have
collected and maintain up to 70 fields of demographic and lifestyle information
from each of these respondents. We believe that the level of detail we have
compiled about these panelists and their households provides us with a strategic
advantage. Our NetReach recruiting program contrasts with the recruiting
strategies of many of our competitors who maintain larger databases but lack our
detailed profiles. Our online panels are comprised of:
General Consumer Panel. Our large, general consumer panel consists of a
cross section of people who access the Internet from the U.S. and more than 100
other countries. This online panel is built and maintained through our panelist
website, www.greenfieldonline.com, which provides access to our surveys,
information relevant to our panel members and a means for communicating
questions or comments to us.
Targeted Vertical Panels. Our vertical online panels target people
representing segments of the population that are important to the marketing
efforts of our clients, but who are difficult to reach through offline research
methods. These panels currently include college students, teens, mothers with
babies, gays
39
<PAGE>
and lesbians, pet owners and veterinarians, seniors, traveling executives and
future brides. We expect to continue to build additional targeted vertical
panels based on the research needs of our clients.
PRODUCTS AND SERVICES
We offer a comprehensive suite of marketing research products and services
exclusively using Internet-based methodologies supported by our Web Research
Platform. We currently offer custom, syndicated and self-directed marketing
research.
<TABLE>
<CAPTION>
PRODUCTS AND SERVICES
CUSTOM RESEARCH SYNDICATED RESEARCH SELF-DIRECTED RESEARCH
- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Full-service quantitative and Our research and data compiled and Easy-to-use online research
qualitative research designed to packaged for off-the-shelf or designed by individual users
meet each client's specific needs subscription sales to multiple
clients
BRANDED SERVICES DIGITAL CONSUMER STUDIES QUICKTAKE.COM
o FocusChat--online focus groups o Market intelligence on selected o A self-directed Internet-based
o MindStorm--online brainstorming research topics survey tool that rapidly
PRIVATE-LABEL SERVICES captures feedback from general
o FieldSource--data collection NETREACH VERTICAL MARKET STUDIES or targeted audiences
services for marketing o Studies conducted among our
researchers who have no or NetReach vertical panels
limited Internet research representing hard-to-research
capabilities groups
DIGITAL CONSUMER STORE
o Allows immediate online purchase
of our Digital Consumer branded
studies
WEB RESEARCH PLATFORM
GREENFIELD ONLINE PANELS
General consumer panel
Targeted vertical panels
WEB RESEARCH ENGINE
Survey Wizard--automated survey preparation
NetTap--survey distribution and collection; panel member selection
QuickTake--Web-based self-directed survey tool
</TABLE>
Custom Research
Custom marketing research services include studies designed to elicit
information on topics specifically identified by a client from populations they
wish to target. Our clients generally invest in custom research to minimize the
risk associated with making decisions involving large expenditures for their
businesses. We believe that our experience base allows us to design marketing
research that elicits the accurate and reliable
40
<PAGE>
information our clients need to make more informed decisions about their
marketing efforts. Our custom research services are based on proven quantitative
and qualitative marketing research principles.
In contrast to companies that focus on one area of marketing research, such
as customer satisfaction, we offer a full range of custom research to help
marketers make decisions. We offer services to guide our clients' marketing
efforts, including new product development, advertising and promotion, customer
acquisition and retention and e-commerce strategies.
For all of our custom research studies, we work closely with our clients to
understand their specific information needs. Based on our understanding of our
clients' needs and our experience in conducting online marketing research, we
design, execute and analyze research studies. The services we provide for a
typical custom research survey include questionnaire design, data collection and
processing, analysis and interpretation of results. Although we can use our
technology to collect and process data, we rely on our researchers to design and
analyze the research to provide high-quality information to our clients.
Questionnaires are designed by experienced research professionals who know how
to ask unbiased questions to elicit the specific information needed. Beyond
simply reporting the results, our researchers analyze and interpret the data to
help our clients understand what the results mean to their business.
Branded Services. We have developed custom research services that rely on
proprietary techniques and technologies. The branded custom services we
currently offer are FocusChat and MindStorm, which are analogous to focus groups
and brainstorming in offline research services. We developed these services to
provide unique and efficient methods to collect and deliver custom research
services. By conducting these custom research services online, we eliminate the
travel costs associated with gathering together a group of people and a
moderator in one location to conduct the research sessions. Through the use of
our Internet-based technologies, we also significantly reduce the time
associated with compiling the data after the research is completed.
o FocusChat. Group interviewing is a common research methodology used to
explore ideas or gain in-depth insights among small groups of people,
facilitated by a moderator. We conduct online group discussions for our
clients, using FocusChat, our proprietary software. By conducting these
group interviews online using FocusChat we can assemble and engage
respondents, clients and the group moderator from around the world in a
highly interactive discussion and provide the resulting transcripts for
immediate review and analysis.
o MindStorm. Brainstorming is a common research technique where
participants engage in an open discussion without the leadership of a
moderator. MindStorm is our proprietary software that acts as an online
think tank. This software permits participants from around the world to
brainstorm on a series of topics or questions that are posted on an
electronic bulletin board. This technique creates an environment for
unstructured discussion that provides our clients with realistic and
detailed feedback. Using MindStorm, we can monitor the progress of the
discussion, encourage and prompt participants to remain continuously
engaged throughout the session and electronically capture the information
and ideas formed by our participants for immediate review and analysis.
Private-Label Services. We offer data collection services through our
FieldSource service for other marketing research companies that have no or
limited Internet research capabilities.
o FieldSource. Through FieldSource, we expand the market for our services
by providing marketing research and consulting companies with access to
our online panels and our Web Research Engine. FieldSource enables these
companies to buy market data collection services from a recognized source
rather than building their own Internet-based marketing research
capabilities. Many FieldSource clients are well-established marketing
research companies that have developed long-standing customer
relationships by providing expertise for a particular industry or highly
specialized research. Through FieldSource, we can serve as a supplier to
these marketing researchers rather than competing with them by building
industry-specific expertise in-house at considerable cost.
41
<PAGE>
Syndicated Research
We conduct research and create syndicated reports that we sell to multiple
clients on an off-the-shelf basis. These reports are of general interest to our
clients and enable them to find information without the expense of a custom
research study. We offer two types of syndicated information products: Digital
Consumer studies and NetReach vertical market studies. Digital Consumer studies
can be purchased online through our Digital Consumer store.
Digital Consumer Studies. We have designed our Digital Consumer studies to
provide our clients with market intelligence about Internet commerce, consumer
use of the Internet and other topical issues. We select our research topics
based on market demand and our core competencies: in-depth knowledge of the
Internet and its impact upon consumers and the ability to access and research
hard-to-reach groups. This syndicated research is conducted among samples
derived from our panels. Once conducted and analyzed, the reports are made
generally available for purchase.
To date, we have produced the following studies:
<TABLE>
<CAPTION>
NAME TOPIC
- -------------------------- ---------------------------------------------------------------------------------
<S> <C>
Brides Decide Annual study of the purchasing decisions made by future brides
Dollars and $ense Study about how consumers are using the Internet to fulfill their financial needs
e-Merging Music Semiannual study of online music shoppers, with a supplement analyzing popular
music websites
Executives in Motion Semiannual study of the products and services executives are using while on
business trips
Eye on Apparel Semiannual study of online clothing shoppers, including an analysis of the top
clothing websites
Home for the Holidays Annual study of online shopping and purchasing intentions for the holiday season
Lowdown on the Countdown Study about Internet consumers' perspectives on the new millennium, including Y2K
fears and preparations
NetStyles Semiannual study of how Internet usage is changing family life, including
Internet usage in the U.S., Asia/Pacific, Australia, Canada, the United Kingdom
and other European countries
Ordering Groceries Online Semiannual study about consumer reactions to online shopping
Picture Perfect Study to understand the picture-taking habits of mothers and to examine the
growth and/or crossover to digital and Web-based photo activities
Shopping Index Quarterly study of what Americans are buying and doing on the Internet
Surfing Seniors Semiannual study of how the 55+ age group is using the Internet
Toy Purchasing Study Study that examines the toy shopping and purchasing behaviors of mothers with
small children using our Moms & Babies panel
Website Evaluation Study of opinions toward leading websites aimed at mothers
What Are the Odds? Study profiling online and offline gamblers
</TABLE>
- --------------------------------------------------------------------------------
NetReach Vertical Market Studies. NetReach vertical market studies include
surveys conducted among our NetReach vertical market panels of hard-to-research
groups. Each vertical market study is designed to provide trends and in-depth
information about purchasing, media usage, lifestyle, brand and/or product
preferences about a particular NetReach vertical market. For our current
vertical market studies, we have entered into strategic relationships where we
combine our expertise with the experience of firms that help us gain access to
hard-to-research groups, maximize our understanding of these groups, establish
credibility through the use of their brand name and help us market these
studies. The studies are conducted and reported
42
<PAGE>
on an ongoing basis. Clients can purchase our NetReach vertical market studies
individually or on a subscription basis. Our ongoing NetReach vertical market
studies currently include the Pulsefinder On-Campus Market Study and the Lesbian
& Gay Market Study.
Digital Consumer Store. As an added convenience to our clients, we offer
our Digital Consumer branded studies for immediate purchase at the Digital
Consumer store on our website. Our Digital Consumer store allows us to deliver
our products to a broader audience. We intend to increase the number of research
products available for sale online.
Self-Directed Research
We believe the Internet affords new opportunities for easy-to-use,
cost-effective online research. The time and cost involved in executing
marketing research offline historically has meant that many small to mid-sized
companies could not afford research. We have developed Internet survey tools
that reduce the time and cost of marketing research, making research more
accessible to anyone who needs to gather information. We offer products and
services at various price points to address a wide range of needs. Combining our
knowledge and marketing research expertise with our understanding of the
Internet environment and technologies, we believe we offer superior
self-directed online research tools. We intend to continue to develop and refine
our self-directed products and services.
QuickTake.com. In February 2000, we launched QuickTake.com, our 100%
Web-based self-directed research offering. At www.quicktake.com, users can
quickly and easily open an account, design a questionnaire of up to ten
questions and obtain access to broad or highly targeted audiences. QuickTake.com
allows users to rapidly design surveys or put together questions using templates
of commonly used research question formats. QuickTake.com offers options for
surveying between 50 and 500 people who meet specific demographic, geographic,
lifestyle or usage criteria in over 40 predefined categories. When a survey is
launched, real-time results are automatically compiled and can be viewed online
from a user's account. We believe QuickTake.com is especially useful for clients
who either cannot afford custom marketing research services, want only quick
feedback without the analysis our researchers provide or who require input
before making an investment in a larger custom marketing research project. In
April 2000, we added to Quicktake.com, a wireless capability allowing users of
Palm VII wireless devices to directly download Quicktake.com results.
STRATEGIC BUSINESS RELATIONSHIPS
We establish business relationships, both formal and informal, with
companies that we believe complement our business objectives in the following
areas:
o Building and enhancing our online research panels;
o Developing new products and services;
o Strengthening and using our technological expertise; and
o Increasing our brand awareness.
Of the strategic business relationships that we have entered into, we
believe the following three relationships best meet the above criteria and
provide us with a competitive advantage.
Forrester Research. We are a preferred provider of online marketing
research services for Forrester, a leading information technology research firm.
Through this relationship, we have the right to use Forrester's
Technographics(R) scale to classify our panelists, which enables us to target
people based on their attitudes toward technology. We believe that our
relationship with Forrester has enhanced our panels and targeting capabilities
as well as our overall market exposure.
Flackett Stevens and Associates Ltd. Flackett Stevens and Associates Ltd.
is an international marketing research company that has developed a research
program for tracking the sale of baby products in Europe. We have an exclusive
agreement with Flackett Stevens to develop and market this program in the U.S.
We believe this relationship provides us with international exposure as well as
expands our existing syndicated services.
YouthStream Media Networks, Inc. Through our relationship with YouthStream,
a media company, we have built a panel of over 30,000 college students and have
jointly developed an ongoing tracking study of this market. The agreement with
YouthStream provides us with the exclusive right to access this panel and
43
<PAGE>
all marketing research derived from this panel. This relationship has helped us
to gain access to a market demographic that has traditionally been difficult to
research and to develop new products and services.
CLIENT DEVELOPMENT, MARKETING AND PUBLIC RELATIONS
Client Development
We have made a substantial investment in our client development
professionals to better serve our clients and service additional markets. Our
sales strategies are based on a consulting model in which we learn about our
clients' business needs so that we can help them purchase appropriate marketing
research. We believe this kind of selling is best accomplished by people with
professional training in marketing research methodologies and years of sales
experience. Trained professionals fully understand the client's business and how
specific marketing issues can be addressed by research. In addition, client
projects are often confidential and complex, requiring the establishment of a
relationship of trust with our clients. We recruit and maintain salespeople
experienced in marketing research. As of March 13, 2000, we employ 16 sales
professionals with an average of 17 years of marketing research experience. To
serve our clients locally, we have established an office in San Francisco,
California, and have client development representatives located in Redmond,
Washington; St. Louis, Missouri; and Chicago, Illinois.
Marketing
Our marketing activities are directed by an internal marketing department
and through the use of outside consultants. We employ an integrated marketing
approach to reinforce our brand and promote our products and services. This
marketing approach is comprised of:
o Websites. We use our websites to build brand awareness and communicate
with our clients, potential clients and panelists. Our advertising and
marketing efforts direct clients and potential clients to our corporate
website, www.greenfield.com. We use this website to introduce potential
clients to our company. Our panel recruiting and survey website,
www.greenfieldonline.com, helps us to build our various online panels,
conduct surveys and create an atmosphere of community for participants.
Our self-directed survey website, www.quicktake.com, markets, sells and
executes our QuickTake services.
o Advertising and Promotion. We build brand recognition and generate client
leads in separate advertising campaigns for Greenfield Online and for
QuickTake. We advertise in a variety of national print media, including
magazines and newspapers, as well as trade journals and other industry
publications. We also regularly mail promotional and survey materials to
our clients and potential clients. In addition, we present at a number of
trade shows and conferences. In September 1999, we hosted our Information
Edge conference in San Diego, California. Planned as an annual event, the
conference brings together senior marketing executives to network, share
ideas and interact with industry leaders.
Public Relations
Through our internal public relations department and the use of two public
relations agencies, we have a vigorous, ongoing campaign of press releases.
These releases provide free research information of general or industry-specific
interest. Our research results have been featured in The Wall Street Journal,
USA Today, The New York Times, Business Week, NBC Nightly News and other major
media outlets.
TECHNOLOGY AND INFRASTRUCTURE
Since 1994, we have spent and will continue to spend significant financial
and management resources to develop and build our robust, scalable user
interface and transaction processing system for conducting online marketing
research. Our system is based on internally developed proprietary software. Our
system has been designed around industry-standard architectures and has been
designed to reduce downtime in the event of outages or catastrophic occurrences.
Our technology infrastructure provides 24-hour-a-day, seven-day-a-week
availability. Our primary Web-survey and panel-management systems are hosted by
UUNET under a colocation service agreement which provides for redundant power
supply and communications systems. To maintain reliability and allow offline
survey development and analysis of panel and survey data, we are in the process
of replicating the functionality of the UUNET system at our Wilton, Connecticut
facility. Our Wilton facility is equipped with our own uninterruptible power
supply, heating, ventilation and fire suppression
44
<PAGE>
systems. Data is backed up on a daily basis at both the UUNET and Wilton
locations, and we routinely remove backed-up data from our primary storage
facilities.
Regular capacity planning allows us to quickly upgrade existing hardware
and integrate new hardware to react quickly to a rapidly expanding member base
and increased traffic to our websites. Our in-house technology group designs our
system architecture and supervises its development and deployment. We license
commercially available technology when appropriate in lieu of dedicating our own
human or financial resources.
We employ several layers of security to protect data transmission and
prevent unauthorized access. Strict password management and physical security
measures are followed. Computer emergency response team alerts are read and,
where appropriate, recommended action is taken to address security risks and
vulnerabilities. From time to time, we use the services of third-party computer
security experts. We rely on encryption and authentication technology licensed
from third parties to provide the security and authentication technology to
effect secure transmission of confidential information, including customer
credit card numbers. Advances in computer capabilities, new discoveries in the
field of cryptography or other developments may result in a compromise of the
technology used by us to protect customer transaction data. Any such compromise
of our security could harm our reputation and, therefore, our business. In
addition, a party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
OUR CLIENTS
Our client base has grown to a diversified group of over 350 clients from a
variety of industries. No one client accounted for 10% of our total revenues in
1999. Since January 1, 1998, the following clients have purchased in excess of
$75,000 for online marketing research services from us, as listed below:
<TABLE>
<CAPTION>
CONSUMER PACKAGED GOODS TECHNOLOGY/INTERNET ADVERTISING AGENCIES
- ----------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Canandaigua Wine Company Brandwise, LLC J Walter Thompson Company
Frito-Lay, Inc. Microsoft Corporation
Tandy Corporation Modem Media Poppe Tyson
Unilever Home & Personal Care
-USA
</TABLE>
<TABLE>
<CAPTION>
CONSUMER SERVICES RESEARCH AND CONSULTING
- ------------------------------------ ------------------------------------
<S> <C>
American Express Travel CoKnowledge, Inc.
Related Services Company, Inc. Forrester Research, Inc.
Discover Financial Services, Inc. IMR Research, Inc.
MasterCard J.D. Power and Associates
Sprint Communications Research Perspectives, Inc.
Company, L.P.
Turner Broadcasting System
International, Inc.
US West, Inc.
</TABLE>
COMPETITION
The marketing research industry is highly competitive and, while the
industry has existed for many years, the Internet-based marketing research
industry is new and rapidly evolving. We currently compete against other
marketing research companies and technology companies that have developed tools
for conducting marketing research. The primary competitive factors in our
industry include the quality and timeliness of research, the prices of products
and services and position in the marketplace. We are a leader in marketing
research using the Internet and believe we distinguish ourselves from our
competitors through a combination of our technology, superior online panels and
experienced marketing researchers.
We expect competition to intensify as existing offline marketing research
firms recognize the significance of the Internet and as other companies already
engaged in Internet-based services recognize the potential revenue to be derived
from online marketing research. The marketing research industry is highly
competitive and is characterized by a large number of relatively small
organizations and a small number of
45
<PAGE>
companies with sizable resources. The Council of American Survey Research
Organizations lists 177 research organizations as members on their website. We
regularly experience significant competition from numerous market participants,
including offline marketing research firms, other online marketing research
firms and the providers of online research tools. Marketing research firms with
which we regularly compete nationally include:
<TABLE>
<CAPTION>
OFFLINE MARKETING ONLINE MARKETING ONLINE RESEARCH
RESEARCH RESEARCH TOOL PROVIDERS
- ------------------------------------ ------------------------------------------ ------------------------------
<S> <C> <C>
o Market Facts, Inc. o Decision Analysts o InsightExpress L.L.C.
o Millward Brown o Digital Marketing Services, Inc. o MarketTools, Inc.
o NFO Worldwide, Inc. o Harris Interactive Inc.
o The NPD Group, Inc. o Millward Brown Interactive
o NFO Interactive
o The NPD Group Online Division
</TABLE>
OUR INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets, proprietary technology and similar intellectual property as critical to
our success and rely on patent, trademark and copyright law, trade secret
protection, confidentiality and assignment of invention agreements and/or
license agreements with employees, customers, independent contractors, partners
and others to protect our proprietary rights. We strategically pursue the
registration of our trademarks and service marks in the U.S. and have applied
for and obtained registrations in the U.S. for some of our trademarks and
service marks, including Research Revolution, NetReach, NetTap and FieldSource.
Greenfield Consulting Group, owns the names Greenfield and Greenfield Online,
holds a U.S. registration for the Greenfield mark and has applied for
registration of the Greenfield Online mark. We maintain an exclusive,
royalty-free license to the name Greenfield Online for Internet-based marketing
research and a license to use the Greenfield name as part of one of our
corporate domain names, www.greenfield.com. Greenfield Consulting Group does not
have effective trademark registration of the name outside the U.S. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our products and services are made available
online.
In August 1999, we were sued by Harris Interactive seeking, among other
things, to cancel our registration of the mark, Research Revolution. If this
claim were to be successful, or if we are otherwise prevented from using any of
our trademarks, our brand recognition and business may suffer. As a result, we
would have to make substantial expenditures to promote and rebuild our brand
identity and loyalty with our clients and members of our Internet panels.
EMPLOYEES
As of April 15, 2000, we employed a total of 135 people. None of our
employees is represented by a collective bargaining agreement. We have not
experienced any work stoppages and consider our relationship with our employees
to be good.
46
<PAGE>
FACILITIES
The following table describes our facilities:
<TABLE>
<CAPTION>
ANNUAL
APPROXIMATE RENTAL
LOCATION SQUARE FOOTAGE USE TERM OF LEASE AMOUNT
- --------------- -------------------- ----------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C>
15 River Road 20,085 square feet General office October 20, 1999- $421,218
Wilton, CT November 14, 2000
15 River Road 30,203 square feet General office November 15, 2000, as $823,500 (years 1-3)
Wilton, CT in a building yet to adjusted - nine years from $884,500 (years 4-6)
be constructed the commencement date $945,500 (years 7-9)
15 River Road 3,083 square feet Data center November 15, 2000- $ 49,328 (years 1-4)
Wilton, CT November 15, 2009, as $ 55,494 (years 5-9)
adjusted nine years from the
commencement date of the
30,500 square foot general
office lease
116 New 3,583 square feet General office January 9, 1998- $103,115 (12/1/99 - 9/30/00)
Montgomery December 1, 2004 $267,584 (10/1/00 - 9/30/02)
Street $293,793 (10/1/02 - 12/1/04)
San Francisco,
CA
</TABLE>
We lease approximately 23,168 square feet for our corporate headquarters
and data center in Wilton, Connecticut. We will occupy this space while our
future corporate headquarters and principal operational facilites are under
construction. The landlord of our future headquarters has projected that the
building improvements for the general office space will be delivered to us on or
before August 15, 2000. We intend to complete our tenant improvements and occupy
the new facility before November 15, 2000, when the nine-year lease is scheduled
to begin.
Effective December 1, 1999, we amended our lease for office space at 116
New Montgomery Street, San Francisco, California. The amendment increased our
space from 803 to 3,583 rentable square feet. The lease provides that the
landlord will make another 1,811 rentable square feet available to us so that we
may relocate to contiguous space on or before October 31, 2000. If the landlord
fails to make this space available, we have the option to terminate the lease.
We lease all of our facilities and believe our current facilities are
adequate to meet our needs for the foreseeable future. We believe additional or
alternative facilities can be leased to meet our future needs on commercially
reasonable terms.
LEGAL PROCEEDINGS
From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business. We believe that there are no
claims or actions pending or threatened, the ultimate disposition of which would
have a material adverse effect on us.
On August 6, 1999, Harris Interactive Inc. filed a complaint against us in
the U.S. District Court for the Western District of New York. This complaint,
which was amended on September 23, 1999, seeks to have the registration of our
trademark Research Revolution cancelled and also seeks the following relief:
o A declaratory judgment that Harris Interactive is not infringing our
registered Research Revolution trademark (U.S. registration
no. 2,267,753);
o Unspecified monetary damages for alleged defamation and disparagment in
connection with remarks made by one of our senior officers and
third-party communications by our employees concerning Harris
Interactive's business practices;
o Unspecified monetary damages for our alleged intentional interference
with Harris Interactive's contractual relationships with its customers in
connection with third-party communications by our employees concerning
Harris Interactive's business practices; and
o Unspecified monetary damages for our alleged unfair competition by
stating on our website that we have the world's largest Internet-based
marketing research panel.
47
<PAGE>
In November 1999, we delivered a draft answer to the amended complaint to
Harris Interactive, denying all claims asserted in the amended complaint. No
date has been set for trial. We believe these claims are without merit, and we
intend to vigorously defend this lawsuit.
Although resolution of these claims could cause us to expend significant
financial and managerial resources, which could adversely affect our business
operations, in our opinion, resolution of these matters will not have a material
effect on our financial position, results of operations or cash flows.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of our executive officers and directors as of
April 15, 2000, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Rudy Nadilo(1)................................... 47 Chairman of the Board, President and Chief
Executive Officer
Robert E. Bies................................... 41 Chief Financial Officer and Treasurer
Jonathan A. Flatow............................... 38 Vice President, Secretary and General Counsel
Stephen J. Cook.................................. 53 Senior Vice President, Client Development
Susan Rosovsky................................... 37 Senior Vice President, Research Operations
Leigh-Brindeland Bell............................ 37 Senior Vice President, Business Development
Alastair Bruce................................... 37 Vice President, Client Development
Hugh Davis....................................... 27 Vice President, Cool Technology
Jon G. Rubin..................................... 42 Vice President, Marketing
Jeffrey Horing(2)................................ 35 Director
Peter Sobiloff(3)................................ 43 Director
Joel R. Mesznik(2)(3)............................ 54 Director
Burton J. Manning(2)(3).......................... 68 Director
</TABLE>
- ------------------
(1) Non-voting, ex-officio member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Rudy Nadilo has served as our Chairman since August 1999 and as President
and Chief Executive Officer since September 1997. Mr. Nadilo was with
Information Resources, Inc., a marketing research company, serving as Senior
Vice President of Information Resources' first marketing department between 1993
and September 1997 and as Vice President of Product Management and Business
Development between 1991 and 1993. Mr. Nadilo holds a B.F.A. from Emerson
College and an M.A. from Northwestern University.
Robert E. Bies has served as our Chief Financial Officer since October 1999
and has been Treasurer since December 1999. Mr. Bies was with The Janis Group,
Inc., a solutions integration company, serving as Chief Financial Officer,
Secretary and Treasurer between February 1997 and October 1999 and as an
independent Financial Consultant from July 1996 to February 1997. He served in a
variety of roles while at Bionaire, Inc., an environmental air products company,
between 1990 and June 1996, including Senior Vice President and General Manager
of U.S. Operations. Mr. Bies holds a B.S. summa cum laude from Long Island
University and an M.B.A. with distinction from Hofstra University. Mr. Bies is a
certified public accountant licensed in New York.
Jonathan A. Flatow has served as our Secretary since July 1999 and as Vice
President and General Counsel since March 2000. Between 1992 and March 2000,
Mr. Flatow was a Partner in the law firm of Wake, See, Dimes & Bryniczka, which
he joined in 1986 as an Associate. Mr. Flatow holds a B.A. from Franklin &
Marshall College and J.D. from Pace University School of Law.
Stephen J. Cook has served as our Senior Vice President, Client Development
since January 1998 and served as our Senior Vice President and Director,
Quantitative Research between May 1996 and January 1998. Between 1994 and May
1996, Mr. Cook was the principal of Prescription for Research, Inc., a private
marketing research company. Mr. Cook holds a B.S. from Long Island University.
49
<PAGE>
Susan Rosovsky has served as our Senior Vice President, Research Operations
since January 2000 and served as our Vice President, Client Services between
November 1998 and January 2000 and our Director, Client Services between March
1998 and November 1998. Between June 1997 and March 1998, Ms. Rosovsky was Vice
President and Group Head for Custom Research at Macro International, a marketing
research company. Ms. Rosovsky was Director, Analytical Services for The NPD
Group, a marketing research company, between 1992 and June 1997. Ms. Rosovsky
holds an A.A.S. from The Fashion Institute of Technology in New York City and a
B.S. from St. John's University.
Leigh-Brindeland Bell has served as our Senior Vice President, Business
Development since January 2000 and served as our Vice President, Business
Development between December 1997 and January 2000. Between 1993 and December
1997, Ms. Bell was employed with Information Resources, Inc., serving first as
Account Executive and then as Director of Marketing. Ms. Bell holds an A.S. from
the Art and Fashion Institute and a B.S. from the University of San Francisco.
Alastair Bruce has served as our Vice President, Client Development since
July 1998. Between January 1995 and July 1998, he served as U.S. Marketing
Director-International of NFO Worldwide, a marketing research company. He also
served as Marketing Manager of NFO between 1989 and January 1995. Mr. Bruce
holds a B.A. with honors from Brooks College, Oxford University, England.
Hugh Davis is a founder of Greenfield Online. He joined Greenfield
Consulting Group in September 1992. In October 1994, he became Director of
Online Research for Greenfield Online. In November 1998, he was promoted to Vice
President, Cool Technology, which is his current position. Mr. Davis holds a
B.S. from Fairfield University.
Jon G. Rubin has served as our Vice President, Marketing since January
2000. Between December 1997 and January 2000, Mr. Rubin served as the Senior
Vice President of Strategic Planning of News America Marketing, a division of
News Corporation, an international media company. He was employed by Actmedia,
Inc., an in-store retail advertising and promotion company, serving as Vice
President of New Ventures between July 1996 and December 1997 and Vice President
of Marketing between 1992 and July 1996. Mr. Rubin holds his B.S. from the
University of Tulsa and an M.B.A. from The Darden School, University of
Virginia.
Jeffrey Horing has served as a member of our board of directors since May
1999. From its founding in June 1995 to the present, Mr. Horing has served as a
Partner of InSight Capital Partners, a venture capital firm. From 1990 to 1994,
Mr. Horing served as a Technology Analyst at E.M. Warburg, Pincus, an investment
banking firm. Mr. Horing is also a director of Exchange Applications, Inc. He
holds a B.S.E. and B.S. from the University of Pennsylvania's Moore School of
Engineering and The Wharton School of Business and an M.B.A. from the M.I.T.
Sloan School of Management.
Peter Sobiloff has served as a member of our board of directors since May
1999. Mr. Sobiloff has been a General Partner of InSight Capital Partners, a
venture capital company, since May 1998. Mr. Sobiloff served as Senior Executive
at i2 Technologies, a software company, from June 1997 to May 1998. From January
1997 to June 1997, Mr. Sobiloff served as President of Think Systems, Inc., a
software company that was acquired by i2 Technologies. He was President and Vice
President of DataLogix, Inc., an enterprise application software vendor, from
1992 to December 1996. He holds a B.A. from Baruch College.
Joel R. Mesznik has served as a member of our board of directors since May
1999. He has been President of Mesco Ltd., a consulting company, since 1990. He
is also a director of TRM Corporation and Resource Asset Investment Trust.
Mr. Mesznik holds a B.S. from the City University of New York and an M.B.A. from
Columbia University Graduate School of Business.
Burton J. Manning has served as a member of our board of directors since
May 1999. From March 1998 to the present, he has also served as President of
Brookbound, Inc., a consulting company. Mr. Manning was with J. Walter Thompson
Co. Worldwide, an advertising firm, serving as Chairman of the board of
directors from January 1997 to December 1997 and as Chairman and Chief Executive
Officer between 1987 and December 1996. Mr. Manning also serves on the board of
directors of International Specialty Products, Inc.
50
<PAGE>
CLASSIFIED BOARD
Our restated certificate of incorporation provides for a classified board
of directors of six members consisting of three classes of directors, each
serving staggered three-year terms. As a result, a portion of our board of
directors will be elected each year. To implement the classified structure,
prior to the completion of this offering, two of the nominees to the board will
be elected to one-year terms, two will be elected to two-year terms and two will
be elected to three-year terms. Peter Sobiloff and Burton J. Manning have been
designated Class I directors whose terms expire at the 2001 annual meeting of
stockholders. Joel R. Mesznik and have been designated Class
II directors whose terms expire at the 2002 annual meeting of stockholders. Rudy
Nadilo and Jeffrey Horing have been designated Class III directors whose terms
expire at the 2003 annual meeting of stockholders. See "Description of Capital
Stock--Delaware Antitakeover Law and Certain Charter and Bylaw Provisions."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors.
BOARD COMMITTEES
Our board of directors has established an audit committee and a
compensation committee.
According to its formal charter, adopted in accordance with the rules of
the National Association of Securities Dealers, our audit committee reviews our
internal accounting procedures, engages our independent accountants and consults
and reviews the services provided by our independent accountants. The audit
committee currently consists of Messrs. Horing, Manning and Mesznik.
The compensation committee reviews and recommends to the board compensation
and benefits for all of our executive officers and establishes and reviews
general policies relating to compensation and benefits of our employees. The
compensation committee currently consists of Messrs. Mesznik, Sobiloff and
Manning, with Mr. Nadilo serving as a non-voting ex-officio member. Mr. Nadilo
participates in all decisions regarding salaries and incentive compensation for
all employees and consultants, except that he is excluded from discussions
regarding his own salary and incentive compensation.
None of Messrs. Horing, Manning or Sobiloff has been an officer or employee
of our company. Mr. Mesznik has been engaged as an independent consultant by us
to provide financial and managerial consulting services since May 1999.
BOARD COMPENSATION
Our employee directors receive no compensation for service on our board of
directors. Prior to February 2000, each nonemployee director, other than
Mr. Manning, was granted options to purchase 750 shares of our common stock, at
the option price established by our board at the time of issuance, for each
board meeting attended. The exercise price per share for these options equaled
the fair market value of the common stock on the date of grant as determined in
good faith by our board of directors. On May 17, 1999, Mr. Manning was granted
options to purchase 92,000 shares of our common stock at an exercise price of
$0.305 per share for his service on our board. In March 2000, we replaced our
prior nonemployee director stock option program by adopting our 2000 Directors
Stock Option Plan. This plan provides for a nondiscretionary initial grant of
20,000 stock options and a nondiscretionary grant of 4,000 stock options to each
member of our board at each annual board meeting if the member is a member of
the board on the date of the meeting and has served continuously as a member of
the board since the date of the member's initial grant. If the member was
ineligible to receive an initial grant, then the member must serve continuously
as a member of the board since the effective date of this offering. The stock
options granted as director compensation under the 2000 Directors Stock Option
Plan are granted at fair market value and vest 50% immediately upon issuance of
the grant and 25% on each anniversary of the grant if the director is still
serving on our board.
Each nonemployee director is entitled to be reimbursed the reasonable costs
and expenses incurred in attending board meetings. We do not currently provide
additional cash compensation for committee participation or special assignments
of the board of directors.
51
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our compensation committee are Messrs. Mesznik, Sobiloff and
Manning. Prior to establishing the compensation committee, the board of
directors as a whole performed the functions delegated to the compensation
committee. No member of the board of directors or the compensation committee
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation we paid to our Chief
Executive Officer and our next most highly compensated executive officers, whose
total compensation exceeded $100,000 for 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------------- COMPENSATION
BONUS AWARDS
AND OTHER SECURITIES
ANNUAL UNDERLYING
FISCAL COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (#)
- ---------------------------------------------------------- ------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Rudy Nadilo
Chairman, President and Chief Executive Officer......... 1999 $248,882 $ 2,400,000(1) 887,150
Robert E. Bies
Chief Financial Officer and Treasurer................... 1999(2) 30,288 15,000 206,000
Stephen J. Cook
Senior Vice President, Client Development............... 1999 123,077 268,944(1) 194,950
Susan Rosovsky
Senior Vice President, Research Operations.............. 1999 90,712 74,650 204,950
Leigh-Brindeland Bell
Senior Vice President, Business Development............. 1999 102,154 78,000 204,950
Alastair Bruce
Vice President, Client Development...................... 1999 94,315 74,465 190,950
</TABLE>
- ------------------
(1) Amounts include $2.25 million and $125,000 received by Mr. Nadilo and
Mr. Cook, respectively, related to bonuses paid for successful consummation
of our management buyout on May 17, 1999.
(2) Mr. Bies began his employment with us in October 1999 at an annual salary of
$175,000.
52
<PAGE>
OPTION GRANTS DURING FISCAL YEAR 1999
The following table sets forth information concerning grants of stock
options to each of the named executive officers above during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
STOCK APPRECIATION RATE
NUMBER OF PERCENT FOR INDIVIDUAL GRANTS
SECURITIES OF TOTAL EXERCISE OPTION TERM($)
UNDERLYING OPTIONS PRICE PER EXPIRATION ------------------------
NAME OPTIONS(#) GRANTED(%) SHARE($) DATE 5% 10%
- ------------------------------------ ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rudy Nadilo......................... 687,150 18.06% $0.31 08/06/09 $2,075,942 $3,431,767
200,000 5.26 0.87 12/06/09 3,253,194 5,283,234
Robert E. Bies...................... 206,000 5.42 0.51 11/06/09 1,884,765 3,063,404
Stephen J. Cook..................... 184,950 4.86 0.31 08/06/09 558,751 923,678
10,000 .26 0.87 12/06/09 162,660 264,162
Susan Rosovsky...................... 184,950 4.86 0.31 08/06/09 558,751 923,678
20,000 .53 0.87 12/06/09 325,319 528,323
Leigh-Brindeland Bell............... 184,950 4.86 0.31 08/06/09 558,751 923,678
20,000 .53 0.87 12/06/09 325,319 528,323
Alastair Bruce...................... 184,950 4.86 0.31 08/06/09 558,751 923,678
6,000 .16 0.87 12/06/09 97,596 158,497
</TABLE>
All options granted to these executive officers in the last fiscal year
were granted under the 1999 Stock Option Plan. Grants issued to these executive
officers prior to March 2000 were issued under the original form of
Non-Qualified Stock Option Agreement. Our board of directors approved an
amendment to our 1999 Stock Option Plan on March 3, 2000, which was approved by
a majority of our shareholders on March 6, 2000. Options issued subsequent to
this amendment were and will be issued under the revised option form. For
options issued to officers and employees, one-quarter of the shares vest and
becomes exercisable on the first anniversary of the date of grant, and an
additional one-eighth of the shares vest each six months after the first
anniversary. All individuals granted options under the 1999 Stock Option Plan
are required to agree to the terms of our shareholders' agreement originally
dated May 17, 1999. That agreement provides that if an employee or officer of
Greenfield Online is terminated, we may, but are not required to, repurchase his
or her shares. All options were granted at fair market value as determined in
good faith by our board of directors on date of grant. We have never granted
stock appreciation rights.
The potential realizable value shown in the table above represents
hypothetical gains that could be achieved for the options if exercised at the
end of the option term and assuming that the fair market value of the common
stock on the date of grant appreciates at 5% and 10% over the ten-year option
term and that the option is exercised and sold on the last day of its option
term for the appreciated stock price. The assumed 5% and 10% rates of stock
price appreciation are provided in accordance with rules of the Securities and
Exchange Commission and do not represent our estimate or projection of our
future common stock price. Actual gains, if any, on stock option exercises will
depend on the future performance of our common stock. As of March 13, 2000, we
granted options to acquire up to an aggregate of 4,207,350 shares of our common
stock to our employees and directors, all under the 1999 Stock Option Plan and
all at an exercise price equal to the fair market value of our common stock on
the date of the grant as determined in good faith by our board of directors.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR END OPTION VALUES
The following table sets forth the number of shares acquired and the value
realized upon the exercise of stock options during fiscal 1999 and the number of
shares of common stock subject to exercisable stock options held as of
December 31, 1999, by the named executive officers. There was no public trading
market for our common stock as of December 31, 1999. Accordingly, these values
of exercisable and unexercisable in-the-money options have been calculated on
the basis of the fair market value of the common stock at
53
<PAGE>
December 31, 1999, which was $ per share, as determined by management, less
the applicable exercise price per share, multiplied by the number of shares
underlying such options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
ACQUIRED ON DECEMBER 31, 1999 DECEMBER 31, 1999
EXERCISE VALUE ------------------------------------ ------------------------------------
NAME (#) REALIZED ($) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- ------------------- ----------- ------------ --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Rudy Nadilo........ -- -- -- 887,150 -- $
Robert E. Bies..... -- -- -- 206,000 --
Stephen J. Cook.... -- -- -- 194,950 --
Leigh-Brindeland
Bell............. -- -- -- 204,950 --
Susan Rosovsky..... -- -- -- 204,950 --
Alastair Bruce..... -- -- -- 190,950 --
</TABLE>
The table below sets forth what the value of exercisable and unexercisable
in-the-money options would have been for each named executive officer assuming
that the fair market value of our common stock was $ , which was the
initial public offering price of the shares offered hereby, on the date of the
exercise.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999
------------------------------------
NAME EXERCISABLE ($) UNEXERCISABLE ($)
- --------------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Rudy Nadilo...................................................................... -- $
Robert E. Bies................................................................... --
Stephen J. Cook.................................................................. --
Leigh-Brindeland Bell............................................................ --
Susan Rosovsky................................................................... --
Alastair Bruce................................................................... --
</TABLE>
STOCK PLANS
1999 Stock Option Plan
Our 1999 Stock Option Plan was adopted by our board of directors and
shareholders on May 12, 1999, and amended by our board of directors on March 3,
2000 and subsequently approved by our shareholders on March 6, 2000. The plan
allows our employee directors, officers, employees and consultants to acquire
our common stock. The options granted under the plan may be designated as either
"incentive stock options," intending them to be subject to the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended, or "nonqualified
stock options," in the discretion of our board of directors. The number of
options available under the plan, as amended, shall not exceed 6,238,550 shares
of common stock.
Under the plan, as of April 21, 2000:
o options to purchase 4,288,850 shares of common stock have been issued,
net of forfeitures, all of which are nonqualified;
o options to purchase a total of 1,335,500 shares have been exercised;
o options to purchase a total of 2,953,350 shares at a weighted average
exercise price of $1.36 per share remain outstanding; and
o 1,949,700 shares remain available for future option grants.
Nonemployee directors are not eligible for option grants under this plan.
To the extent an optionee has the right in any calendar year to exercise for the
first time one or more incentive stock options for shares having an aggregate
fair market value in excess of $100,000, these excess options shall be treated
as nonstatutory stock options.
54
<PAGE>
On March 3, 2000, our board of directors also approved the First Amendment
to Non-Qualified Stock Option Agreement between us and each of the following
senior managers: Messrs. Nadilo, Cook, Bies, Bruce, Rubin and Flatow and
Mesdames Rosovsky and Bell with respect to change in control provisions.
The plan is administered either by our board of directors or a committee
appointed by our board of directors. The administrator determines the terms of
options granted under the plan, including the number of shares subject to the
option, the exercise price, terms and exercisability. The exercise price of all
incentive stock options granted under our plan must be at least equal to the
fair market value of our common stock on the date of grant. The exercise price
of any stock option granted to an optionee who owns stock representing more than
10% of the voting power of our outstanding capital stock must equal at least
110% of the fair market value of the common stock on the date of grant. Payment
of the exercise price may be made in cash, delivery of shares of our common
stock or other consideration determined by the administrator. The administrator
determines the terms of options granted under the plan, which generally are
those contained in the standard form of option adopted by the board of
directors, but which may include additional terms such as reload rights. The
term of a stock option granted under our plan may not exceed ten years, but the
term of incentive stock options may not exceed five years for 10% stockholders.
No option may be transferred by the optionee other than by will or the laws of
descent or distribution. Each option may be exercised during the lifetime of the
optionee, but only by that optionee.
In the event of any change in control of our company, the plan requires
that each outstanding option be assumed or an equivalent option substituted by
the successor corporation. Further, under the First Amendment to Non-Qualified
Stock Option Agreement, our board granted the senior managers accelerated
vesting benefits in the event of a corporate transaction, as that term is
defined in the First Amendment. A corporate transaction generally includes the
sale, reorganization or merger of our company. All of the options held by a
senior manager will vest and be exercisable for 60 days if, within one year of a
corporate transaction, either of the following occur:
o the senior manager's employment is terminated by the successor
corporation without cause, or
o the senior manager resigns from the successor corporation for good
reason, as that term is defined in the First Amendment.
The administrator has the authority to amend or terminate the plan as long
as this action does not adversely affect any outstanding option. Majority
stockholder approval is required for an amendment to increase the number of
shares subject to the plan.
If not terminated earlier, the plan will terminate in 2009.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
and shareholders on March 3, 2000. A total of 200,000 shares of common stock has
been reserved for issuance under the plan. The plan, which is intended to
qualify under Section 423 of the Internal Revenue Code, generally will be
implemented in a series of offering periods of six-month duration with new
offering periods (other than the first offering period) commencing on each
subsequent January 1 and July 1, with the last day of each period being
designated as a purchase date. The first offering period will commence on the
date that is 90 days after the effective date of this offering and continuing
through December 31, 2000. The plan will be administered by our board of
directors or a committee appointed by our board of directors. Our employees
(including officers and employee directors) or employees of any subsidiary are
eligible to participate if they are employed by us or any subsidiary for at
least 20 hours per week and more than 5 months per year. The plan permits
eligible employees to purchase common stock through payroll deductions, which
may not exceed 10% of an employee's compensation, at a price equal to the lower
of 85% of the fair market value of our common stock at the beginning of the
offering period or the purchase date. Employees may end their participation in
the offering at any time prior to the last business day of the offering period,
and participation ends automatically on termination of employment with us. In
addition, participants may decrease their level of payroll deductions once
during an offering period.
55
<PAGE>
Our board of directors may amend or terminate the plan as long as any
outstanding rights to purchase stock thereunder are not adversely affected. If
not terminated earlier, the plan will terminate on June 30, 2006.
2000 Directors Stock Option Plan
Our 2000 Directors Stock Option Plan was adopted by our board of directors
and shareholders in March 2000. A total of 150,000 shares of common stock has
been reserved for issuance under the plan, which provides for the grant of
nonstatutory stock options to our nonemployee directors. The plan is designed to
work automatically without administration. The plan becomes effective on the
effectiveness of the registration statement relating to this offering.
The plan provides that each person who is or becomes a nonemployee director
will be granted a nonstatutory stock option to purchase 20,000 shares of common
stock on the later of the date on which the optionee first becomes a nonemployee
director and the effective date of the plan (the trigger date). On the date of
each annual meeting of our stockholders after the nonemployee director begins to
serve on our board, he or she will be granted an option to purchase 4,000 shares
of common stock if, on that date, he or she has continuously served on our board
of directors since his or her trigger date.
The plan sets neither a maximum nor a minimum number of shares for which
options may be granted to a nonemployee director but does specify the number of
shares that may be included in any grant and the method of making a grant.
Optionees may not transfer options granted under the plan except by will or the
laws of descent or distribution or under a qualified domestic relations order.
Each option is exercisable, during the lifetime of the optionee, but only by
that optionee or his or her guardian or legal representative, unless otherwise
permitted. All options granted under this plan are exercisable 50% on the first
anniversary of the grant and 25% on each subsequent anniversary of the grant as
long as the nonemployee director continues to serve on our board of directors.
The exercise price of all stock options granted under the plan will be equal to
the fair market value of a share of our common stock on the date of the grant of
the option. Options granted under the plan have a term of ten years.
In the event of the dissolution or liquidation of our company, a sale of
all or substantially all of our assets, the merger of us with or into another
corporation in which we are not the surviving corporation or any other capital
reorganization in which more than 50% of our voting shares are exchanged, all
options granted under the plan accelerate and become fully exercisable. These
options must be exercised within seven months of the closing of the transaction.
Our board of directors may amend or terminate the plan as long as any
outstanding rights to purchase stock thereunder are not adversely affected,
absent optionee consent. If not terminated earlier, the plan will terminate in
2010.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of our named executive
officers. Our agreement with Mr. Nadilo, which we amended and restated in
March 2000, is for a term of four years from the effective date of May 17, 1999,
during which we may only terminate Mr. Nadilo's employment for cause. The
agreement provides for an annual base salary of $250,000 and provides that if we
terminate him without cause, he will receive his base salary, paid in monthly
installments, payable for one year or until he finds other employment during
this one-year period. The employment agreements with our other named executive
officers provide for no fixed term of employment, may be terminated at any time
and provide for base salaries as follows: Mr. Bies ($175,000); Mr. Cook
($125,000); Ms. Rosovsky ($110,000); Ms. Bell ($110,000); and Mr. Bruce
($90,000).
In addition, each of our agreements with our named executive officers:
o provides for participation in any performance-based bonus programs that
we make available to senior management;
56
<PAGE>
o prohibits the named executive officer, during his or her employment with
us and for a period of five years thereafter, from disclosing
confidential information;
o requires the named executive officer to transfer to us any inventions he
or she develops during his or her employment;
o prohibits the named executive officer from competing with us, disparaging
us or hiring our employees for one year after termination; and
o provides for payment of 30 days of base salary if we terminate the named
executive officer without cause.
In addition, our agreement with each of Mr. Cook and Mr. Bies contains a
severance provision. If we terminate either Mr. Cook or Mr. Bies without cause,
we will pay their base salary for up to six months from the date of termination
or until they find other employment during this six-month period.
LIMITATION ON LIABILITY AND INDEMNIFICATION
Our restated certificate of incorporation limits the liability of our
directors to the maximum extent permitted by the Delaware General Corporation
Law. The Delaware General Corporation Law generally provides that the personal
liability of a director for monetary damages for breach of his or her fiduciary
duties as a director may be eliminated, except for:
o any breach of the director's duty of loyalty to a corporation or its
stockholders;
o acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
o any transaction from which the director derived an improper personal
benefit.
Our restated bylaws provide that we may indemnify our directors and
officers and may indemnify our other employees and agents to the fullest extent
permitted by Delaware law. We believe that indemnification under our restated
bylaws covers at least negligence and gross negligence on the part of
indemnified parties.
We have obtained directors' and officers' insurance providing
indemnification for our directors, officers and some of our employees for
specified liabilities. We believe that this insurance is necessary to attract
and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
57
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT BUYOUT AND LEVERAGED RECAPITALIZATION TRANSACTION
On May 17, 1999, our management team and a group of new investors executed
a management buyout of our company in which approximately 97% of our outstanding
common stock was acquired by Greenfield Holdings, a company formed specifically
to execute the management buyout, and other investors. The transaction involved
a series of agreements:
o Stock Purchase, Sale and Redemption Agreement. Under this agreement,
Greenfield Holdings purchased securities for a purchase price of
$8,863,548, which, adjusted for stock splits and reflecting the
conversion to common stock, gave them 21,855,150 shares of our common
stock.
o Promissory Note. Under this note, Greenfield Holdings loaned us
$14,136,452 that we used in part to redeem 94.5% of outstanding stock
then owned by one of our founders, Andrew Greenfield. At that time,
Mr. Greenfield served as our president. This note must be paid in full
upon completion of this offering.
o Stock Purchase, Consent and Waiver Agreement. We used a portion of the
proceeds of the loan granted to us by Greenfield Holdings to loan
Mr. Nadilo, our Chairman, President and Chief Executive Officer, and
Mr. Davis, our Vice President, Cool Technology, $425,075 and $75,013,
respectively, to allow them to purchase Mr. Greenfield's remaining shares
of common stock. Adjusted for stock splits and reflecting the conversion
to common stock, the purchase gave them 1,048,050 and 184,950 shares,
respectively, of our common stock as of March 3, 2000. We have the right
to repurchase this stock for its original purchase price from either one
of Mr. Nadilo or Mr. Davis if his employment terminates for any reason.
The restrictions on the stock lapse and the stock becomes 25% vested one
year after the management buyout and 12.5% vested each six-month period
thereafter until four years have expired. For Mr. Nadilo, the expiration
of these restrictions will accelerate on 75% of his stock if we sell the
stock or all or substantially all of the assets of our company. For
Mr. Davis, the expiration of these restrictions will accelerate on 50% of
his stock if we sell the stock or all or substantially all of the assets
of our company. The stock purchased by Messrs. Nadilo and Davis is
pledged to us to secure the repayment of their loans.
AGREEMENTS WITH ANDREW GREENFIELD AND AFFILIATED ENTITIES
We are party to a number of agreements with Andrew Greenfield, a founder of
our company, and with Greenfield Consulting Group, Digital Idea, Inc. and
Strategic Focus, Inc., all entities controlled by Mr. Greenfield. The agreements
are:
o Forfeiture Agreement. Under this agreement, made as part of our Stock
Purchase, Sale and Redemption Agreement with Greenfield Holdings when we
redeemed 94.5% of Mr. Greenfield's stock, he agreed that if Greenfield
Consulting Group did not refer a minimum of $2,500,000 of online research
business to us by May 17, 2001, he would be subject to forfeiting up to
493,200 shares of common stock determined on a sliding scale based on the
actual business referred.
o Non-competition Agreement. Under this agreement, made as part of our
Stock Purchase, Sale and Redemption Agreement with Greenfield Holdings,
Mr. Greenfield agreed that, until March 17, 2002, he will not be employed
by, own an interest in, or finance any company that provides quantitative
or qualitative research over the Internet. Mr. Greenfield was granted the
individual right to conduct qualitative marketing research over the
Internet as long as he used our services exclusively, provided our
services were available on fair and reasonable terms as measured by
industry custom.
o Greenfield Consulting Group Agreement. In December 1999, we entered into
a two-year agreement in which Digital Idea agreed to purchase, at reduced
rates that are 15-30% less than our regular rates, qualitative and
quantitative market research data from us. Under this agreement, we
agreed not to enter into any exclusive provider arrangement with any
other Internet-focused strategic consulting services company in the
marketing services category. We expect to devote less than 1% of our
capacity to Digital Idea's purchases in 2000.
58
<PAGE>
Further, Mr. Greenfield forgave a loan payable to him from our predecessor
prior to the management buyout in the amount of $2,788,665. Greenfield
Consulting also forgave the amount of $1,787,916 of intercompany advances to our
predecessor.
CERTAIN MANAGEMENT INTEREST IN GREENFIELD HOLDINGS
Two of the members of our management team have investments in Greenfield
Holdings. Mr. Nadilo owns 1.087% and Mr. Davis owns 0.652% of Greenfield
Holdings, which, as of March 14, 2000, held 83.1% of our common stock.
STOCK OPTION GRANT TO DIRECTOR
On September 17, 1999, as compensation for a speaking engagement, we
granted to Mr. Manning, one of our directors, an option to purchase 10,500
shares of our common stock at $0.51 per share. These options were exercised by
Mr. Manning in November 1999.
NOTE AND WARRANT PURCHASE AGREEMENT WITH GREENFIELD HOLDINGS
On March 3, 2000, we entered into a Note and Warrant Purchase Agreement
with Greenfield Holdings, our largest shareholder. Greenfield Holdings agreed to
loan us up to $5 million for working capital purposes. Interest, which is
payable upon maturity, accrues at a rate of 10% per year. This loan matures on
the earlier of June 30, 2000 or the closing of this offering. As partial
consideration for this loan, we issued a warrant to purchase 139,860 shares of
common stock at an exercise price of $3.575 per share, exercisable for
five years. Effective March 10, 2000, we entered into an amendment to the Note
and Warrant Purchase Agreement, which extended the loan's maturity date to the
earlier of June 30, 2001 or the closing of this offering. As consideration for
the extension of the maturity date, we agreed to issue Greenfield Holdings
additional warrants to purchase our common stock. Should any portion of this
loan remain outstanding as of September 30, 2000, we have agreed to issue
warrants to purchase 34,965 shares of our common stock at an exercise price
equal to its fair market value on that day. If any portion of this loan remains
outstanding on December 31, 2000, March 31, 2000 or June 30, 2001, we have
agreed to issue the same amount of warrants on the same terms on each of these
dates.
AGREEMENT WITH IGAIN
On November 2, 1998, we entered into a Services Agreement with iGain, LLC
whereby iGain administers the delivery of cash incentives awarded to our online
panelists on a random-drawing basis. We pay iGain $.50 per transaction. Hugh
Davis, our Vice President, Cool Technology, holds a 10% ownership interest in
iGain. In 1999, we paid iGain a total of $19,589 in fees under this agreement.
CONSULTING AGREEMENT WITH MESCO, LTD.
We entered into a consulting agreement with Mesco, Ltd. effective as of
May 17, 1999 in which Mesco provides business and financial consulting services
to us for a fee of $5,000 per month plus reimbursement for reasonable and
necessary expenses. This agreement may be terminated at any time by either
party. Joel R. Mesnick, one of our directors and stockholders, is a principal
with Mesco. In 1999, we paid Mesco a total of $32,500 plus $3,377 for
reimbursement of expenses under this agreement.
59
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information about the beneficial ownership
of our common stock as of March 14, 2000, and as adjusted for:
o each person who we know beneficially owns 5% or more of the common stock;
o each of our directors;
o each executive officer named in the summary compensation table; and
o all of our directors and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below have sole voting power and investment power with
respect to their shares. Beneficial ownership is determined 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, shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60 days
after May 30, 2000, are deemed outstanding, while these shares are not deemed
outstanding for purposes of computing percent ownership of any other person.
Percent of beneficial ownership is based upon 26,301,988 shares of our common
stock outstanding prior to this offering and shares of common stock
outstanding after this offering. The shares outstanding prior to this offering
consist of 4,446,838 shares of class A common stock and 21,855,150 shares of
class B common stock. Upon the completion of this offering, both the class A and
class B common stock will be converted into a single class of common stock on a
1-for-1 basis. The address for those individuals for which an address is not
otherwise indicated is Greenfield Online, Inc., 15 River Road, Suite 310,
Wilton, CT 06897.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PRIOR
TO
AND AFTER OFFERING PERCENTAGE OWNED
------------------------ --------------------
NAME AND ADDRESS PRIOR TO AFTER PRIOR TO AFTER
OF BENEFICIAL OWNERS OFFERING OFFERING OFFERING OFFERING
- ----------------------------------------------------------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Greenfield Holdings, LLC ........................................ 21,995,010 21,995,010 83.18% %
c/o InSight Capital Partners III, L.P.
527 Madison Avenue, 10th Floor
New York, NY 10022
InSight Capital Partners III, L.P. .............................. 7,900,606 7,900,606 29.98
527 Madison Avenue, 10th Floor
New York, NY 10022(1)
InSight Capital Partners (Cayman) III, LLC ...................... 2,401,854 2,401,854 9.13
c/o InSight Capital Partners III L.P.
527 Madison Avenue, 10th Floor
New York, NY 10022(2)
InSight Capital Partners III--Coinvestors, L.P. ................. 1,313,101 1,313,101 4.99
c/o InSight Venture Associates III, LLC
527 Madison Avenue, 10th Floor
New York, NY 10022(3)
DBV Investments, L.P. ........................................... 2,868,148 2,868,148 10.90
c/o MSD Capital, L.P.
780 Third Avenue, 43rd Floor
New York, NY 10017(4)
UBS Capital II LLC .............................................. 2,394,117 2,394,117 9.10
299 Park Avenue
New York, NY 10171(5)
Imprimis SB, L.P. ............................................... 2,394,117 2,394,117 9.10
c/o Wexford Management, LLC
411 West Putnam Avenue Suite 125
Greenwich, CT 06830(6)
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PRIOR
TO
AND AFTER OFFERING PERCENTAGE OWNED
------------------------ --------------------
NAME AND ADDRESS PRIOR TO AFTER PRIOR TO AFTER
OF BENEFICIAL OWNERS OFFERING OFFERING OFFERING OFFERING
- ----------------------------------------------------------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Rudy Nadilo(7) .................................................. 1,287,134 1,287,134 4.89% %
Joel R. Mesznik(8) .............................................. 2,192,783 2,192,783 8.33
Burton J. Manning(9) ............................................ 198,178 198,178 *
Jeffrey Horing(10) .............................................. 11,618,561 11,618,561 44.05
Peter Sobiloff(11) .............................................. 11,618,561 11,618,561 44.05
All Directors and Officers as a Group (13 persons)(12)........... 15,628,014 15,628,014 59.23
</TABLE>
- ------------------
* Represents less than one percent.
(1) Represents InSight Capital Partners III, L.P.'s ownership of 35.92% of
Greenfield Holdings, LLC, membership units.
(2) Represents InSight Capital Partners (Cayman) III, LLC's ownership of 10.92%
of Greenfield Holdings, LLC membership units.
(3) Represents InSight Capital Partners III, Coinvestors, L.P.'s ownership of
5.97% of Greenfield Holdings, LLC membership units.
(4) Represents DBV Investments, L.P. c/o MSD Capital, L.P.'s ownership of
13.04% of Greenfield Holdings, LLC membership units.
(5) Represents UBS Capital II LLC's ownership of 10.87% of Greenfield Holdings,
LLC membership units.
(6) Represents Imprimis SB, L.P.'s ownership of 10.87% of Greenfield Holdings,
LLC membership units.
(7) Includes stock and warrants currently exercisable represented by
Mr. Nadilo's ownership of 1.087% of Greenfield Holdings, LLC. Includes
262,012 shares, with respect to which Mr. Nadilo disclaims beneficial
ownership, held by the Irrevocable Trust for Descendants of Rudy Nadilo u/a
dated January 26, 2000.
(8) Includes stock and warrants currently exercisable represented by
Mr. Mesznik's ownership of 4.348% of Greenfield Holdings, LLC membership
units held by GOL, L.L.C., an entity managed by Mr. Mesznik. Includes
118,000 shares, with respect to which Mr. Mesznik disclaims beneficial
ownership, held by the Joel R. Mesznik 1999 Descendants' Trust.
(9) Includes stock and warrants currently exercisable represented by
Mr. Manning's ownership of 0.435% of Greenfield Holdings, LLC.
(10) 11,615,561 of these shares represent ownership of stock and warrants
currently exercisable attributable to entities associated with InSight
Capital Partners III, L.P., InSight Capital Partners (Cayman) III, LLC and
InSight Capital Partners III, Coinvestors, L.P. through their respective
ownership of Greenfield Holdings LLC. Mr. Horing disclaims beneficial
ownership of the shares held by these entities, except to the extent of his
ownership arising from his principal interest in InSight Venture Associates
III, LLC, the general partner of each of InSight Capital Partners III,
L.P., InSight Capital Partners (Cayman) III, LLC, and InSight Capital
Partners III, Coinvestors, L.P. and his limited partnership interest in
InSight Capital Partners III, L.P.
(11) 11,615,561 of these shares represent ownership of stock and warrants
currently exercisable attributable to entities associated with InSight
Capital Partners III, L.P., InSight Capital Partners (Cayman) III, LLC and
InSight Capital Partners III, Coinvestors, L.P. through ownership of
Greenfield Holdings, LLC. Mr. Sobiloff disclaims beneficial ownership of
the shares held by these entities, except to the extent of his ownership
arising from his principal interest in InSight Venture Associates III, LLC,
the general partner of each of InSight Capital Partners III, L.P., InSight
Capital Partners (Cayman) III, LLC and InSight Capital Partners III,
Coinvestors, L.P. and his limited partnership interest in InSight Capital
Partners III, L.P.
(12) Includes the information contained in footnotes 1 through 10 above.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
After this offering, we will be authorized to issue 100,000,000 shares of
common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred
stock, $0.001 par value. Immediately after this offering, we estimate that there
will be shares of common stock outstanding, 2,953,350 shares of
common stock will be issuable upon exercise of outstanding options and no shares
of preferred stock will be issued and outstanding based on shares and options
outstanding as of April 21, 2000. The figure for outstanding common shares upon
the completion of this offering reflects the issuance of 307,668 shares of
common stock in connection with the presumed exercise of warrants issued to our
lenders.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by our shareholders. There are no cumulative voting
rights. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of our common stock are entitled to receive
dividends, if any, as may be declared by our board of directors out of funds
legally available for dividends. In the event of liquidation, dissolution or
winding up of our company, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of our common stock are fully paid and nonasssessable.
PREFERRED STOCK
Pursuant to our restated certificate of incorporation, our board of
directors has the authority, without further action by our shareholders, to
issue up to 5,000,000 shares of preferred stock. The board of directors may
issue this stock in one of more series and may fix the rights, preferences,
privileges and restrictions of this preferred stock. Some of the rights and
preferences that our board of directors may designate include dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and sinking fund terms. The board of directors may determine the number of
shares constituting any series or the designation of such series. Any or all of
the rights and preferences selected by our board of directors may be greater
than the rights of the common stock. The issuance of preferred stock could
adversely affect the voting power of holders of common stock and the likelihood
that stockholders will receive dividend payments and payments upon liquidation.
The issuance of preferred stock could also have the effect of delaying,
deferring or preventing a change in control of our company if preferred stock
terms designated by the board of directors include change in control terms. We
have no present plan to issue shares of preferred stock.
REGISTRATION RIGHTS
On May 17, 1999, we entered into a Registration Rights Agreement with some
of our shareholders. Under this agreement, we granted these shareholders certain
rights to register the shares of common stock owned by them under the Securities
Act of 1933, as amended. Under this agreement, we granted to Greenfield
Holdings, or persons to whom Greenfield Holdings transfers a majority of its
shares, the right to demand that we effect a registration of the 21,855,150
shares of common stock, or 21,995,010 shares issuable on exercise of warrants,
or a designated portion of the common stock, held by them. There are no limits
on the number of times that these shareholders may demand registration. In
addition, all shareholders who have become parties to this agreement have
unlimited "piggyback" registration rights to have their shares registered under
the Securities Act. The shareholders who have become parties to this agreement,
other than Greenfield Holdings, hold a total of 4,344,338 shares of our common
stock. The agreement provides that whenever we propose to register shares of our
common stock under the Securities Act, then the shareholders, with certain
exceptions, will have the right to request that we register their shares of
common stock with this registration. The inclusion of Greenfield Holdings'
shares in any registration effected by us will be subject to the right of the
managing underwriters, if any, to reduce or exclude those shares. The agreement
requires us to pay for all costs and expenses incurred in connection with the
registration of securities under the agreement.
62
<PAGE>
On December 3, 1999, we granted to Greyrock Capital piggyback registration
rights covering 167,808 shares that will be issued upon the exercise of warrants
issued in connection with their loan to us. The inclusion of Greyrock Capital's
shares in any registration effected by us will be subject to the right of the
managing underwriters, if any, to reduce or exclude those shares. The agreement
requires us to pay for all costs and expenses incurred with the registration of
securities under the rights granted under the agreement, however, we shall not
be required to pay underwriters' fees, discounts or commissions relating to
Greyrock Capital's registered shares. All expenses of any registered offering
not otherwise borne by us shall be borne pro rata among the holders of the
Greyrock Capital shares participating in the offering and us.
WARRANTS AND OTHER RIGHTS
We have issued the following warrants, all of which are fully exercisable
on the date of grant and have a five-year term:
o A warrant for 167,808 shares of common stock with an exercise price of
$3.575 per share issued to Greyrock Capital in connection with a
$6,000,000 loan to us on December 3, 1999; and
o A warrant for 139,860 shares of common stock with an exercise price of
$3.575 per share issued to Greenfield Holdings, in connection with the
issuance of a subordinated credit line of up to $5,000,000 on March 3,
2000.
DELAWARE ANTITAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Section 203 of Delaware General Corporate Law
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved by our board of directors and/or our stockholders in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock.
Classified Board of Directors
Our certificate of incorporation and bylaws provide for the division of our
board of directors into three classes with staggered three-year terms. Directors
may only be removed for cause by the holders of at least 60% of the voting power
of our outstanding capital stock. Any vacancy on our board of directors,
including a vacancy resulting from an enlargement of our board of directors, may
only be filled by vote of a majority of our directors then in office. The
classification of our board of directors and the limitation on filling vacancies
could make it more difficult for a third party to acquire, or discourage a third
party from attempting to acquire, control of us. In addition, our classified
board of directors could delay attempts by stockholders who do not approve of
our policies or procedures to elect a majority of our board of directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
NASDAQ NATIONAL MARKET LISTING
We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the trading symbol "GFOL."
63
<PAGE>
CERTAIN U.S. FEDERAL TAX CONSEQUENCES FOR NON-U.S. INVESTORS
INTRODUCTION
The following is a summary of certain U.S. federal income and estate tax
consequences to non-U.S. investors of owning and disposing of our common stock.
In this summary, a "non-U.S. investor" is a beneficial owner of our common stock
who is, for U.S. federal income tax purposes:
o a nonresident alien individual;
o a foreign corporation;
o a nonresident alien fiduciary of a foreign estate or trust; or
o a foreign partnership.
This summary does not address all of the U.S. federal income and estate tax
consequences that may be relevant to you in light of your particular
circumstances and also does not discuss any state, local or foreign tax
consequences to you of owning and disposing of our common stock. This summary is
based on current provisions of the Internal Revenue Code of 1986, as amended,
existing and proposed Treasury regulations thereunder and judicial and
administrative interpretations thereof, all as in effect on the date hereof and
all of which are subject to change, possibly with retroactive effect. If you are
considering buying our common stock, you should consult your tax advisor with
respect to the tax consequences of owning and disposing of our common stock.
DISTRIBUTIONS
For U.S. federal income tax purposes, dividends are distributions paid out
of our current or accumulated earnings and profits. Dividends paid to a non-U.S.
investor generally will be subject to withholding of U.S. federal income tax at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty. To receive a reduced treaty rate, you must furnish to us or our paying
agent a completed Form 1001 or W-8BEN (or substitute form) certifying that you
qualify for a reduced rate. Dividends that are effectively connected with the
conduct of a trade or business within the U.S. of a non-U.S. investor and, if a
treaty applies, attributable to a U.S. permanent establishment of a non-U.S.
investor within the U.S., will be exempt from withholding if you provide us with
a Form 4224 or Form W-8ECI (or substitute form). Dividends exempt from
withholding because they are effectively connected or attributable to a
permanent establishment of a non-U.S. investor will instead be taxed at ordinary
U.S. federal income tax rates on a net income basis. Further, if the non-U.S.
investor is a corporation, this effectively connected dividend income may also
be subject to an additional branch profits tax equal to 30% of effectively
connected earnings and profits for the taxable year, as adjusted for certain
items, unless an applicable treaty provides otherwise. Under current 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 for
purposes of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate.
For dividends paid after December 31, 2000, a non-U.S. investor generally
will be subject to U.S. backup withholding tax at a 31% rate under the backup
withholding rules described below, rather than at a 30% rate or a reduced rate
under an income tax treaty, as described above, unless the non-U.S. investor
complies with certain Internal Revenue Service certification procedures or, in
the case of payments made outside the U.S. with respect to an offshore account,
certain IRS documentary evidence procedures. Further, to claim the benefit of a
reduced rate of withholding under an income tax treaty for dividends paid after
December 31, 2000, a non-U.S. investor must comply with certain modified IRS
certification requirements. Special rules also apply to dividend payments made
after December 31, 2000, to foreign intermediaries, U.S. or foreign wholly owned
entities that are disregarded for federal tax purposes and entities that are
treated as fiscally transparent in the U.S., the applicable income tax treaty
jurisdiction, or both. 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 our common stock.
If a distribution is made that is not a dividend for U.S. federal income
tax purposes, it will first constitute a return of capital that is applied
against the non-U.S. investor's basis in the common stock and
64
<PAGE>
any remaining amount will be treated as gain from the sale or exchange of stock.
Currently, withholding of U.S. federal income tax is generally imposed on the
gross amount of a distribution, regardless of whether we have sufficient current
and accumulated 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 by us of our
accumulated and current earnings and profits.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A non-U.S. investor generally will not be subject to U.S. federal income
tax on any gain recognized on the sale or other disposition of our common stock,
except in the following circumstances:
o The gain is effectively connected with a trade or business of the
non-U.S. investor within the U.S. and, if a treaty applies, is
attributable to a U.S. permanent establishment of the non-U.S. investor.
Unless an applicable treaty provides otherwise, the non-U.S. investor
will be taxed on its net effectively connected gains derived from the
sale under the regular graduated U.S. federal income tax rates. If the
non-U.S. investor is a foreign corporation, an additional branch profits
tax may be applicable equal to 30% of its effectively connected earnings
and profits for the taxable year, as adjusted for items, unless an
applicable treaty provides otherwise;
o The non-U.S. investor is an individual who holds the common stock as a
capital asset, is present in the U.S. for 183 days or more in the taxable
year of the sale or other disposition and other conditions are met. In
this case, the non-U.S. investor will need to pay a flat 30% tax on the
gain derived from the sale, which may be offset by any applicable U.S.
capital losses;
o U.S. federal income tax laws applicable to expatriates apply to the
non-U.S. investor; or
o We are or have been a "U.S. real property holding corporation" at any
time during the five-year period ending on the date of disposition (or,
if shorter, the non-U.S. investor's holding period), unless both (i) the
non-U.S. investor held, actually or constructively, no more than 5% of
our outstanding common stock and (ii) our stock is "regularly traded on
an established securities market," for purposes of these rules. We
believe that we will not constitute a U.S. real property holding
corporation immediately after the offering and do not expect to become a
U.S. real property holding corporation; however, we can give no assurance
in this regard.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. U.S. backup withholding tax generally will not apply to
dividends paid before January 1, 2001, to a non-U.S. investor at an address
outside the U.S. or to dividends paid after December 31, 2000, if the non-U.S.
investor certifies that it is a non-U.S. investor on a Form W-8BEN or otherwise
establishes an exemption. We must report annually to the IRS and to each
non-U.S. investor the amount of dividends paid to such investor and the amount,
if any, of tax withheld with respect to such dividends. This information may
also be made available to the tax authorities in the non-U.S. investor's country
of residence.
Sale through a U.S. office of a broker. Upon the sale or other disposition
of our common stock by a non-U.S. investor to or through a U.S. office of a
broker, the broker must backup withhold at a rate of 31% and report the sale to
the IRS, unless the non-U.S. investor certifies its foreign status under
penalties of perjury or otherwise establishes an exemption from backup
withholding.
Sale through a foreign office of a broker. The proceeds of a sale or other
disposition of our common stock by a non-U.S. investor to or through a foreign
office of a U.S. or foreign broker will not be subject to backup withholding.
However, if the broker is a U.S. person or a foreign person with relationships
with the U.S. it must report the sale or other disposition to the IRS unless the
broker has documentary evidence in its files that the seller is a non-U.S.
investor and other applicable conditions are met, or the holder otherwise
establishes an exemption.
65
<PAGE>
Backup withholding is not an additional tax. Amount withheld under the
backup withholding rules are generally allowable as a refund or credit against
the non-U.S. investor's U.S. federal income tax liability, if any, provided that
the required information is furnished to the IRS in a timely manner.
FEDERAL ESTATE TAXES
Our common stock owned or treated as owned by an individual who is not a
citizen or resident of the U.S. as defined for U.S. federal estate tax purposes,
at the time of death, will be included in such individual's gross estate for
U.S. estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
The foregoing discussion is a summary of some U.S. federal income and
estate tax consequences of the ownership, sale or other disposition of our
common stock by non-U.S. investors. You are urged to consult your own tax
advisor with respect to the particular tax consequences to you of the ownership
and disposition of our common stock, including the effect of any state, local,
foreign or other tax laws.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options and warrants. Of the shares of
common stock sold in this offering, all shares will be freely tradable on the
date of this prospectus unless purchased by "affiliates" as that term is defined
in Rule 144 of the Securities Act. The following table illustrates the shares
eligible for sale in the public market:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------- ------------------------------------------------------------------------------
<S> <C>
0 After the date of this prospectus, freely tradable shares other than those
sold in this offering and shares salable under Rule 144(k) that are not
subject to the 180-day lock-up.
111,000 After 90 days from the date of this prospectus, shares salable under Rule 144
or Rule 701 that are not subject to the 180-day lock-up.
After 180 days from the date of this prospectus, the 180-day lock-up is
released and these shares are salable under Rule 144 (subject, in some cases,
to volume limitations), Rule 144(k) or Rule 701.
After 180 days from the date of this prospectus, restricted securities that
are held for less than one year are not yet salable under Rule 144.
</TABLE>
LOCK-UP AGREEMENTS
We, and each of our directors, executive officers and existing shareholders
have agreed not to offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of our common stock or any securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or enter into a transaction which 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 the shares of common stock, or
exercise any right to request or demand registration pursuant to the Securities
Act, or publicly disclose the intention to make any offer, sale, pledge or
disposition, or to enter into any transaction, swap, hedge or other arrangement,
without the prior written consent of Credit Suisse First Boston Corporation, for
a period of 180 days after the public offering date set forth on the cover of
this prospectus. The restrictions set forth in the previous sentence do not
apply to the exercise of employee stock options outstanding on the date of this
prospectus.
RULE 144
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year, including persons who may be deemed our "affiliates," would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the number of shares of common stock then
outstanding or the average weekly trading volume of the common stock as reported
through The Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to manner of sale provisions and notice requirements and to the
availability of current public information about us. In addition, a person who
is not deemed to have been our affiliate at any time during the 90 days
preceding a sale and who has beneficially owned for at least two years the
shares proposed to be sold, would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above.
67
<PAGE>
RULE 701
In general, Rule 701 permits resales of shares issued under compensatory
benefit plans and contracts commencing 90 days after the issuer becomes subject
to the reporting requirements of the Securities Exchange Act in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirements contained in Rule 144. We will file registration statements
on Form S-8 under the Securities Act to register common stock issuable under our
stock option plans and stock purchase plan. Such registration will permit the
resale of shares so registered by nonaffiliates in the public market without
restriction under the Securities Act.
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of our
common stock in the public market after the lapse of the restrictions described
below could adversely affect the prevailing market price and our ability to
raise equity capital in the future at a time and price that it deems
appropriate.
REGISTRATION RIGHTS
After this offering, the holders of 26,507,156 shares of common stock and
shares of common stock issuable upon the exercise of outstanding warrants will
be entitled to rights in connection with the registration of those shares under
the Securities Act. For more information, see "Description of Capital Stock--
Registration Rights." After such registration, these shares of our common stock
become freely tradable without restriction under the Securities Act. These sales
could have a material adverse effect on the trading price of our common stock.
STOCK PLANS
We intend to file a registration statement under the Securities Act
covering 6,588,850 shares of common stock reserved for issuance under our 1999
Stock Option Plan, our 2000 Directors Stock Option Plan and our 2000 Employee
Stock Purchase Plan and the shares reserved for issuance upon exercise of
outstanding non-plan options. We expect this registration statement to be filed
and to become effective as soon as practicable after the effective date of this
offering.
As of April 21, 2000, options to purchase 2,953,350 shares of common stock
were issued and outstanding. All of these shares will be eligible for sale in
the public market from time to time, subject to vesting provisions, Rule 144
volume limitations applicable to our affiliates and, in the case of some
options, the expiration of lock-up agreements.
68
<PAGE>
UNDERWRITING
Under the terms and subject to the terms set forth in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................................................
Bear, Stearns & Co. Inc.....................................................................
Donaldson, Lufkin & Jenrette Securities Corporation.........................................
-------
Total.....................................................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if any underwriter defaults, the
purchase commitments of nondefaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted the underwriters a 30-day option to purchase on a pro-rata
basis up to additional shares at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------ ------------------------------
WITHOUT OVER- WITH OVER- WITHOUT OVER- WITH OVER-
ALLOTMENT ALLOTMENT ALLOTMENT ALLOTMENT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions
Paid by Us....................................... $ $ $ $
Expenses Payable by Us............................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
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 and
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 share 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.
Our directors, executive officers and stockholders 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 shares of our common stock, enter into a
transaction which 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 to 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 period of 180 days after
the date of this prospectus.
69
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to shares of our common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the 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 of 1933, as amended, or contribute to payments that the
underwriters may be required to make in that respect.
We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "GFOL."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors considered in
determining the public offering price will include:
o the information set forth in this prospectus and otherwise available to
the representatives;
o the history of and the prospects for us and the industry in which we
compete;
o the prospects for and the timing of our estimated future earnings;
o the present state of our development and our current financial condition;
o the general condition of the securities markets at the time of this
offering;
o the recent market prices of and the demand for publicly-traded common
stock of generally comparable companies; and
o market conditions for initial public offerings.
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.
o Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the underlying security
as long as the stabilizing bids do not exceed a specified maximum.
o Syndicate covering transactions involve purchases of shares of the common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions.
o Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a stabilizing transaction or in a
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 these transactions. These transactions may be effected on The
Nasdaq Stock Market or otherwise and, if commenced, may be discontinued at any
time.
A prospectus in electronic format may be made available on the websites
maintained by one or more of our 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 to the underwriters that will make Internet distributions on the same
basis as other allocations.
Other than the prospectus in electronic format, the information contained
on any website maintained by our underwriters is not part of this prospectus or
the registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any underwriter in its capacity as an underwriter
and should not be relied upon by investors.
70
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of our 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 our 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 our common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase our common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as agent
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer, and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our 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 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.
71
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Preston Gates & Ellis LLP, Seattle, Washington. Shearman & Sterling, New
York, New York, will pass upon selected legal matters in connection with this
offering for the underwriters. Partners of Preston Gates & Ellis LLP hold an
aggregate of 47,790 shares of our common stock.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for the
periods from May 17, 1999 through December 31, 1999 and from January 1, 1999
through May 16, 1999, and for the years ended December 31, 1998 and 1997
included in this prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to Greenfield Online and the common stock offered in this offering,
we refer you to the registration statement and to the attached exhibits and
schedules. Statements made in this prospectus concerning the contents of any
document referred to in this prospectus are not necessarily complete. With
respect to each such 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
Securities and Exchange Commission at 450 Fifth Street, NW, Washington, DC 20549
and at the regional offices of the SEC located at Seven World Trade Center, 13th
Floor, New York, NY 10048 and the Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661. You may obtain copies of all or any part of our
registration statement from the SEC upon payment of prescribed fees.
You may copy all or part of our SEC filings from these offices upon payment
of the fees charged by the SEC. You may obtain information on the operation of
the public reference room in Washington, D.C. by calling the Securities and
Exchange Commission at 1-800-SEC-0330.
Our SEC filings, including the registration statement and the exhibits
filed with the registration statement, are available from the SEC's website at
www.sec.gov, which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants--Successor............................................................... F-2
Report of Independent Accountants--Predecessor............................................................. F-3
Balance Sheets at December 31, 1998 and 1999 and March 31, 2000 (unaudited)................................ F-4
Statements of Operations for the years ended December 31, 1997 and 1998, and the periods from January 1,
1999 through May 16, 1999 and from May 17, 1999 through December 31, 1999 and the quarters ending
March 31, 1999 (unaudited) and 2000 (unaudited).......................................................... F-5
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1997 and 1998, and the
periods from January 1, 1999 through May 16, 1999 and from May 17, 1999 through December 31, 1999........ F-6
Statements of Cash Flows for the years ended December 31, 1997 and 1998, and the periods from January 1,
1999 through May 16, 1999 and from May 17, 1999 through December 31, 1999 and the quarters ending
March 31, 1999 (unaudited) and 2000 (unaudited).......................................................... F-7
Notes to Financial Statements.............................................................................. F-9
Unaudited Pro Forma Condensed Statement of Operations...................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(SUCCESSOR)
To the Board of Directors and Stockholders
of Greenfield Online, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity (deficit) and cash flows present fairly in all
material respects, the financial position of Greenfield Online, Inc.,
"Successor", at December 31, 1999 and the results of its operations and its cash
flows for the period from May 17, 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 of these statements 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.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
March 3, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(PREDECESSOR)
To the Board of Directors and Stockholders
of Greenfield Online, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity (deficit) and cash flows present fairly, in all
material respects, the financial position of Greenfield Online, Inc.,
"Predecessor", at December 31, 1998 and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1998 and the period from
January 1, 1999 through May 16, 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 audits. We conducted our
audits of these statements 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
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Stamford, Connecticut
March 3, 2000
F-3
<PAGE>
GREENFIELD ONLINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ----------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 114,325 $ 1,708,738 $ 4,835,492
Accounts receivable, net (Note 2)................................ 707,534 1,854,614 3,129,377
Deferred project costs........................................... 63,537 159,327 317,168
Other current assets (Note 4).................................... 7,951 747,728 869,830
------------ ------------ ------------
Total current assets.......................................... 893,347 4,470,407 9,151,867
Property and equipment, net (Note 5)............................... 464,456 1,277,630 2,016,862
Internal use software, net (Note 6)................................ 334,344 976,154 2,031,245
Goodwill, net (Notes 2 and 3)...................................... -- 14,852,535 13,367,282
Intangible assets, net (Notes 2 and 3)............................. -- 1,776,262 1,586,444
------------ ------------ ------------
Total assets.................................................. $ 1,692,147 $ 23,352,988 $ 28,153,700
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 543,320 $ 1,471,689 $ 3,056,103
Accrued expenses (Note 7)........................................ 287,485 2,169,469 2,648,717
Other current liabilities........................................ 83,791 361,703 338,120
Deferred project revenues........................................ 537,438 1,665,347 2,535,279
Due to affiliates (Note 8)....................................... 3,892,831 2,005 8,683
------------ ------------ ------------
Total current liabilities..................................... 5,344,865 5,670,213 8,586,902
Term loan, net (Note 9)............................................ -- 3,119,325 3,199,387
Revolving credit facility (Note 9)................................. -- -- 477,771
Subordinated credit facility (Note 15)............................. -- -- 1,708,763
Note payable to stockholder (Notes 3 and 8)........................ -- 13,879,794 13,886,638
Other long-term liabilities........................................ 89,795 360,941 806,334
------------ ------------ ------------
Total liabilities............................................. 5,434,660 23,030,273 28,665,795
------------ ------------ ------------
Commitments and contingencies (Note 10)............................ -- -- --
Stockholders' equity (deficit) (Note 12):
Common stock--Class A--$.01 par value--45,000,000 shares
authorized and issued......................................... 450,000 450,000 450,000
Common stock--Class B--$.01 par value--45,000,000 shares
authorized and 21,855,150 shares issued....................... -- 218,552 218,552
Additional paid-in capital....................................... -- 37,880,231 56,373,937
Class A treasury stock, at cost--41,198,500 shares............... -- (16,708,292) (16,446,572)
Notes receivable from stockholders............................... -- (500,088) (500,088)
Unearned stock-based compensation................................ -- (7,229,767) (17,194,715)
Accumulated deficit.............................................. (4,192,513) (13,787,921) (23,413,209)
------------ ------------ ------------
Total stockholders' equity (deficit).......................... (3,742,513) 322,715 (512,095)
------------ ------------ ------------
Total liabilties and stockholders' equity (deficit)......... $ 1,692,147 $ 23,352,988 $ 28,153,700
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GREENFIELD ONLINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------------------- ----------------------------
QUARTER QUARTER
YEAR ENDED DECEMBER 31, JAN. 1 THROUGH ENDED MAY 17 THROUGH ENDED
------------------------ MAY 16, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
---------- ----------- -------------- ----------- -------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $1,203,052 $ 2,791,364 $ 1,733,720 $ 1,068,443 $ 5,557,465 $ 3,682,969
Cost of revenues (excluding
stock-based compensation of
$20,209 and $14,238,
respectively).................. 521,258 1,250,897 702,189 443,851 2,516,758 1,575,343
---------- ----------- ------------ ----------- ------------ -----------
Gross profit................... 681,794 1,540,467 1,031,531 624,592 3,040,707 2,107,626
Operating expenses:
Selling, general and
administrative expenses
(excluding stock-based
compensation of $4,513,140 and
$2,073,296, respectively)...... 1,292,796 3,262,399 5,243,811 804,591 6,821,699 5,526,667
Depreciation and amortization
(Notes 3, 5 and 6)............. 84,964 321,876 155,683 112,658 3,843,628 1,975,227
Research and development
(excluding stock-based
compensation of $649,366 and
$457,479, respectively)........ 143,479 223,233 186,282 134,834 792,268 600,363
Panel acquisition expenses
(Note 2)....................... 61,135 62,682 27,349 19,516 112,531 262,474
Stock-based compensation expense
(Note 12)...................... -- -- -- -- 5,182,715 2,545,013
---------- ----------- ------------ ----------- ------------ -----------
Operating expenses............. 1,582,374 3,870,190 5,613,125 1,071,599 16,752,841 10,909,744
---------- ----------- ------------ ----------- ------------ -----------
Operating loss................. (900,580) (2,329,723) (4,581,594) (447,007) (13,712,134) (8,802,118)
---------- ----------- ------------ ----------- ------------ -----------
Interest income (expense):
Interest income................ -- -- -- -- 42,120 27,433
Interest expense............... -- (11,510) (7,001) (4,843) (202,855) (256,748)
Related party interest expense,
net.......................... (15,945) (103,270) (42,902) -- (855,504) (593,855)
---------- ----------- ------------ ----------- ------------ -----------
Interest expense, net.......... (15,945) (114,780) (49,903) (4,843) (1,016,239) (823,170)
---------- ----------- ------------ ----------- ------------ -----------
Loss before income taxes..... (916,525) (2,444,503) (4,631,497) (451,850) (14,728,373) (9,625,288)
Income tax benefit (Note 11)..... -- -- -- -- 940,452 --
---------- ----------- ------------ ----------- ------------ -----------
Net loss......................... $ (916,525) $(2,444,503) $ (4,631,497) $ (451,850) $(13,787,921) $(9,625,288)
========== =========== ============ =========== ============ ===========
Basic and diluted net loss per
share.......................... $ (0.02) $ (0.05) $ (0.10) $ (0.01) $ (0.56) $ (0.37)
========== =========== ============ =========== ============ ===========
Weighted average shares
outstanding--basic and
diluted........................ 45,000,000 45,000,000 45,000,000 45,000,000 24,707,186 25,791,391
========== =========== ============ =========== ============ ===========
Pro forma basic and diluted net
loss per share (unaudited)..... $ $
============ ===========
Pro forma weighted average shares
outstanding--basic and diluted
(unaudited)....................
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GREENFIELD ONLINE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK CLASS A
ISSUED ISSUED ADDITIONAL TREASURY STOCK
--------------------- --------------------- PAID-IN --------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT
---------- -------- ---------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE AT JANUARY 1, 1997..... 45,000,000 $450,000 -- $ -- $ -- -- $ --
Net loss............................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1997............. 45,000,000 450,000 -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1998............. 45,000,000 450,000 -- -- -- -- --
Capital contribution................... -- -- -- -- 1,100,000 -- --
Forgiveness of debt from affiliates
(Note 8)............................. -- -- -- -- 4,576,581 -- --
Net loss............................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ------------
BALANCE AT MAY 16, 1999.................. 45,000,000 450,000 -- -- 5,676,581 -- --
SUCCESSOR
Issuance of common stock (Note 3)...... -- -- 21,855,150 218,552 8,644,996 -- --
Common stock issuance costs
(Note 3)............................. -- -- -- -- (170,111) -- --
Treasury stock repurchases (Notes 3 and
12).................................. -- -- -- -- -- (42,534,000) (17,249,912)
Notes receivable from stockholders
(Notes 3 and 12)..................... -- -- -- -- -- -- --
Issuance of stock options (Note 3)..... -- -- -- -- 443,880 -- --
Push-down of parent company basis
(Note 3)............................. -- -- -- -- 10,413,247 -- --
---------- -------- ---------- -------- ----------- ----------- ------------
BALANCE AT MAY 17, 1999.................. 45,000,000 450,000 21,855,150 218,552 25,008,593 (42,534,000) (17,249,912)
Issuance of stock options (Note 12).... -- -- -- -- 8,106,047 -- --
Amortization of unearned stock-based
compensation (Note 12)............... -- -- -- -- -- -- --
Issuance of warrants (Note 12)......... -- -- -- -- 960,736 -- --
Exercise of stock options.............. -- -- -- -- (501,580) 1,335,500 541,620
Variable plan compensation charge
(Note 12)............................ -- -- -- -- 4,306,435 -- --
Net loss............................... -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1999............. 45,000,000 $450,000 21,855,150 $218,552 $37,880,231 (41,198,500) $(16,708,292)
========== ======== ========== ======== =========== =========== ============
<CAPTION>
NOTES UNEARNED TOTAL
RECEIVABLE STOCK- STOCKHOLDERS'
FROM BASED ACCUMULATED EQUITY
STOCKHOLDERS COMPENSATION DEFICIT (DEFICIT)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
BEGINNING BALANCE AT JANUARY 1, 1997..... $ -- $ -- $ (831,485) $ (381,485)
Net loss............................... -- -- (916,525) (916,525)
---------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1997............. -- -- (1,748,010) (1,298,010)
Net loss............................... -- -- (2,444,503) (2,444,503)
---------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1998............. -- -- (4,192,513) (3,742,513)
Capital contribution................... -- -- -- 1,100,000
Forgiveness of debt from affiliates
(Note 8)............................. -- -- -- 4,576,581
Net loss............................... -- -- (4,631,497) (4,631,497)
---------- ------------ ------------ -------------
BALANCE AT MAY 16, 1999.................. -- -- (8,824,010) (2,697,429)
SUCCESSOR
Issuance of common stock (Note 3)...... -- -- -- 8,863,548
Common stock issuance costs
(Note 3)............................. -- -- -- (170,111)
Treasury stock repurchases (Notes 3 and
12).................................. -- -- -- (17,249,912)
Notes receivable from stockholders
(Notes 3 and 12)..................... (500,088) -- -- (500,088)
Issuance of stock options (Note 3)..... -- -- -- 443,880
Push-down of parent company basis
(Note 3)............................. -- -- 8,824,010 19,237,257
---------- ------------ ------------ -------------
BALANCE AT MAY 17, 1999.................. (500,088) -- -- 7,927,145
Issuance of stock options (Note 12).... -- (7,665,421) -- 440,626
Amortization of unearned stock-based
compensation (Note 12)............... -- 435,654 -- 435,654
Issuance of warrants (Note 12)......... -- -- -- 960,736
Exercise of stock options.............. -- -- -- 40,040
Variable plan compensation charge
(Note 12)............................ -- -- -- 4,306,435
Net loss............................... -- -- (13,787,921) (13,787,921)
---------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1999............. $ (500,088) $(7,229,767) $(13,787,921) $ 322,715
========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GREENFIELD ONLINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------------------------- --------------------------
YEAR ENDED QUARTER QUARTER
DECEMBER 31, JAN. 1 TO ENDED MAY 17 TO ENDED
------------------------ MAY 16, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
---------- ----------- ---------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(916,525) $(2,444,503) $(4,631,497) $(451,850) $(13,787,921) $(9,625,288)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization... 84,964 321,876 155,683 112,658 3,843,628 1,975,227
Stock-based compensation
expense....................... -- -- -- -- 5,182,715 2,545,013
Amortization of debt discount... -- -- -- -- 97,172 139,655
Income tax benefit.............. -- -- -- -- (940,452) --
(Increase) decrease in:
Accounts receivable........... (107,566) (437,593) (83,495) (241,379) (1,063,584) (1,274,763)
Deferred project costs........ (36,534) (27,003) (57,364) 14,826 (38,426) (157,841)
Other current assets.......... (1,251) 5,439 (121,006) (29,392) (618,771) (122,102)
Increase (decrease) in:
Accounts payable.............. 208,750 291,746 260,944 (154,306) 667,425 1,584,414
Accrued expenses.............. 76,394 188,260 3,272,654 177,055 (1,390,720) 479,248
Other liabilities............. -- 55,489 (12,663) (83,791) (270) (23,583)
Deferred project revenues..... 284,540 252,898 (189,799) (9,298) 1,317,708 869,932
Due to affiliates............. 455,821 541,660 410,201 -- (11,287) 6,678
--------- ----------- ----------- --------- ------------ -----------
Net cash provided by (used in)
operating activities................. 48,593 (1,251,731) (996,342) (665,477) (6,742,783) (3,603,410)
--------- ----------- ----------- --------- ------------ -----------
Cash flows from investing activities:
Capital expenditures................. (420,908) (645,025) (228,992) (126,610) (1,007,944) (1,567,275)
--------- ----------- ----------- --------- ------------ -----------
Net cash used in investing activities.. (420,908) (645,025) (228,992) (126,610) (1,007,944) (1,567,275)
--------- ----------- ----------- --------- ------------ -----------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------------------------- --------------------------
YEAR ENDED QUARTER QUARTER
DECEMBER 31, JAN. 1 TO ENDED MAY 17 TO ENDED
------------------------ MAY 16, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1999 1999 2000
---------- ----------- ---------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from term loan.............. -- -- -- -- 4,000,000 --
Proceeds from revolving credit
facility........................... -- -- -- -- -- 1,500,000
Payments on revolving credit
facility........................... -- -- -- -- -- (1,022,229)
Advances from affiliate.............. 489,945 1,880,000 -- -- -- --
Principle payments under capital
lease obligations.................. -- (16,828) (15,877) (13,107) (91,507) (81,811)
Proceeds from issuance of note
payable to stockholder............. -- -- -- -- 14,136,452 --
Proceeds from subordinated credit
facility with stockholder.......... 2,500,000
Treasury stock repurchase............ -- -- -- -- (17,249,912) --
Loans to management to acquire
capital stock...................... -- -- -- -- (500,088) --
Proceeds from the issuance of capital
stock.............................. -- -- -- -- 8,863,548 5,401,479
Capital contribution from
predecessor........................ -- -- 1,387,818 705,089 -- --
Proceeds of options exercised........ -- -- -- -- 40,040 --
--------- ----------- ----------- --------- ------------ -----------
Net cash provided by financing
activities........................... 489,945 1,863,172 1,371,941 691,981 9,198,533 8,297,439
--------- ----------- ----------- --------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents..................... 117,630 (33,584) 146,607 (100,106) 1,447,806 3,126,754
Cash and cash equivalents at the
beginning of the period.............. 30,279 147,909 114,325 114,325 260,932 1,708,738
--------- ----------- ----------- --------- ------------ -----------
Cash and cash equivalents at the end of
the period........................... $ 147,909 $ 114,325 $ 260,932 $ 14,219 $ 1,708,738 $ 4,835,492
========= =========== =========== ========= ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION*
Cash paid for interest............... $ -- $ 114,779 $ 7,001 $ 4,843 $ 122,793 $ 45,849
========= =========== =========== ========= ============ ===========
</TABLE>
* See Note 14 for supplemental disclosure of noncash investing and financing
transactions.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
ORGANIZATION AND BASIS OF PRESENTATION
Greenfield Online, Inc., the "Company," was incorporated in the State of
Connecticut on September 28, 1995. Until May 17, 1999, one person owned the
capital stock of the Company. On May 17, 1999, management and a group of new
investors executed a management buyout in which approximately 97% of the
outstanding common stock of the Company was acquired by a group of new investors
led by Greenfield Holdings, LLC., "Greenfield Holdings". Greenfield Holdings was
formed for the sole purpose of acquiring the Company in the management buyout.
As a result of the management buyout effective May 17, 1999, a change in
control occurred, and a new reporting entity exists. For purposes of
presentation and disclosure, we refer to the Company as the Predecessor as of
and for all periods up to the point of the management buyout and as the
Successor as of and for all periods thereafter. Because the financial statements
of the Successor are not directly comparable to those of the Predecessor, a dark
bar has been inserted in the accompanying financial statements to clearly
separate the financial position, results of operations and cash flows of the
Company before and after the change in control. These financial statements
present the operations of the Successor and the Predecessor. The financial
statements also reflect "push-down" accounting in accordance with SEC Staff
Accounting Bulletin No. 54, "SAB 54", with respect to the management buyout. See
Note 3. In February of 2000, the Company changed its state of incorporation from
Connecticut to Delaware.
BUSINESS
The Company conducts business-to-business marketing research services
through the use of the Internet. The Company has developed proprietary automated
methodologies in which surveys are created and delivered to the Company's
community of online survey respondents or "Panelists". The surveys are then
tabulated and are used as a basis for custom research projects conducted by the
Company. In addition, the Company has developed other products that provide
"do-it-yourself" capabilities for market researchers, in which surveys may be
created and delivered by the market researcher with minimal Company
intervention. Further, the Company has developed a service which provides the
client access to online focus groups and the Company has developed syndicated,
multi-client products which are sold on a subscription basis.
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to further develop and extend the Company's online
research products, the rejection of Internet-based marketing research by
companies in favor of more traditional methods, the inability of the Company to
maintain and increase its online survey panel, failure to compete effectively
for new customers, as well as other risks and uncertainties. In the event the
Company does not successfully implement its business plan, certain assets may
not be recoverable.
The Company has consistently sustained net losses and negative cash flows
from operations and maintains a working capital deficiency. As a result of the
management buyout, the Company became highly-leveraged. The Company's ability to
meet its obligations in the ordinary course of business is dependent upon its
ability to attract capital from new and existing investors. To date, the Company
has been able to attract sufficient capital to support its operating needs and
meet its obligations as they come due. During 1999, the Company received
approximately $27 million of debt and equity financing from various sources,
including investors participating in the management buyout, as well as financial
institutions. In 2000, the Company closed on additional debt financing in the
amount of approximately $5 million, and an additional $5.4 million in equity.
See Note 15. These funds are being used to expand its operations, including
hiring additional employees and continuing to invest in proprietary Internet
survey products and technologies. Management believes that these funds, together
with available cash are sufficient to support the Company's operations at least
through March 2001.
In addition, to further expand its operations the Company plans to seek
additional capital, including sale of a portion of its common stock in an
initial public offering, or additional private debt and equity financing.
F-9
<PAGE>
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION--(CONTINUED)
However, there can be no assurance that the Company will successfully complete
an initial public offering or that it will be able to attract further capital to
support this expansion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent liabilities, if any, at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The unaudited financial statements as of and for the quarter ended
March 31, 1999 and 2000 have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. The unaudited
financial statements include, in the opinion of management, all adjustments,
consisting of only normal recurring adjustments, that are considered necessary
for the fair presentation of the information in the financial statements. All
footnote disclosures included in these financial statements related to the
quarter ended March 31, 1999 and 2000 are unaudited.
REVENUE RECOGNITION
The Company recognizes revenue for customized (nonrecurring) research
services in the period in which the product is delivered. Custom research
products are delivered within a short period generally ranging from a few days
to eight weeks. An appropriate deferral is made for costs related to contracts
in process. Syndicated (recurring) research services are sold on a subscription
basis for periods of up to one year. Subscription revenues are recognized
ratably over the term of the related contract as services are provided. Billings
rendered in advance of performance of services, as well as customer deposits
received in advance, are recorded as deferred revenue. Provision for estimated
contract losses, if any, is made in the period such losses are determined.
PANEL ACQUISITION EXPENSES
Costs associated with establishing and maintaining panels of potential
survey respondents are expensed as incurred. The costs to acquire these
web-based panelists approximated $61,135, $62,682, $27,349 and $112,531 in the
years ended December 31, 1997 and 1998, and the periods from January 1, 1999
through May 16, 1999 and from May 17, 1999 through December 31, 1999,
respectively.
SOFTWARE COSTS
The Company has adopted Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", SOP 98-1.
SOP 98-1 requires companies to capitalize costs of computer software developed
or obtained for internal use, provided that such costs are not research and
development. The Company develops new proprietary products and technology
through its internal research and development group and through use of outside
technology developers.
All costs associated with development of code, and purchase or license of
software from external vendors which is used to run the Company's web operations
are capitalized and amortized over the estimated useful life, two years.
The Company expenses as incurred all costs associated with new product
development whether performed by employees or outside consultants, including
reengineering, process mapping, feasibility studies, data conversion, and
training and maintenance. In addition, the Company expenses as incurred the
costs
F-10
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
associated with maintenance and upgrades of current technologies. Such costs are
included in research and development in the statement of operations.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of
three months or less at the date of purchase.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued expenses are valued
at their carrying amounts, which approximate their fair value. The face value of
the term loan and note payable to stockholder approximate their fair value. The
term loan and note payable to stockholder are included in the balance sheet at
their face amount net of an applicable discount. The fair value of such debt is
estimated based on quoted market prices for the same or similar issues offered
to the Company for debt with the same or similar remaining maturities and terms.
Discounts are based upon the estimated relative fair value of common stock
purchase warrants issued with the debt.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company controls this risk through credit approvals and ongoing credit
evaluations of its customers' financial condition. The Company periodically
reviews accounts receivable for collectibility and provides for an allowance for
doubtful accounts to the extent that amounts are not expected to be collected.
The allowance for doubtful accounts was $0 and $67,058 at December 31, 1998 and
1999, respectively. Based upon the existing client portfolio and limited
historical write-offs, management believes that the reserve for doubtful
accounts is adequate.
For the year ended December 31, 1997, 18% and 15% of total revenue was from
two customers and 13% were from one customer for the year ended December 31,
1998. For the periods from January 1, 1999 through May 16, 1999 and from
May 17, 1999 through December 31, 1999 no single customer represented greater
than 10% of the Company's revenues.
For the year ended December 31, 1997, 16% and 13% of the Company's accounts
receivable balance were from two customers. The Company had no single customer
that represented greater than 10% of its accounts receivable balance at December
31, 1998 or 1999.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation of fixed assets is calculated
on the straight-line basis over the estimated useful lives of the assets, which
are generally 2 to 7 years. Leasehold improvements are amortized on the
straight-line method over the estimated useful life of the assets, or lease
term, whichever is shorter. Maintenance and repairs for fixed assets are
expensed as incurred. Retirements or dispositions of fixed assets are included
in income on a net basis. Assets to be disposed of are reported at the lower of
the carrying value or fair value less estimated costs of disposal.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and certain intangible assets were recorded through the
application of "push-down" accounting in accordance with SEC Staff Accounting
Bulletin No. 54 in connection with the management buyout transaction described
in Note 3. Goodwill and identifiable intangible assets are amortized on a
straight-line basis over the estimated period of benefit, which ranges from 2 to
4 years. For the period from May 17, 1999 through December 31, 1999,
amortization of goodwill and intangibles was $3,277,221.
The Company periodically evaluates the carrying value of its long-lived
assets. Impairment charges are recorded when indicators of impairment are
present and the undiscounted future cash flows estimated to be
F-11
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
generated by the underlying assets are less than the assets' carrying amounts.
If such assets are determined to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
estimated fair value of the assets. To date, no such impairment charges have
been required.
INCOME TAXES
For the years ended December 31, 1997 and 1998 and the period from January
1, 1999 through May 16, 1999, the Company elected to be taxed and operated as an
S-Corporation and, therefore, was exempt from taxation under the provisions of
the Internal Revenue Code, the "Code," and applicable state tax regulations.
Under the provisions of the Code, the stockholders include their pro rata share
of the Company's income or loss on their personal income tax returns. Subsequent
to May 16, 1999, the Company converted to a C-Corporation and became subject to
Federal and state corporate income taxes.
The Company uses the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, SFAS No. 109. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities and net operating loss carryforwards, all calculated using presently
enacted tax rates. The income tax information included on the face of the
statements of operations and in Note 11 is presented in accordance with SFAS
No. 109.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, "APB No. 25", and related interpretations in
accounting for its employee stock option plan and stock awards, and has adopted
the disclosure-only provisions of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, "SFAS No. 123" for such
awards. Under APB No. 25, compensation is determined to the extent that the fair
value of the underlying stock on the date of grant exceeds the exercise price of
the employee stock option or stock award. Compensation so determined is deferred
in stockholders' equity (deficit) and then recognized over the service period
for the stock option or award.
Stock based transactions with non-employees are accounted for under SFAS
123 based on the fair value of the consideration received or the fair value of
the equity instruments issued, which ever is more reliably measurable. The fair
value of such equity instruments is determined using the Black-Scholes pricing
model and accounted for in the same manner as if the Company had paid cash for
goods and services instead of paying with equity instruments.
EARNINGS (LOSS) PER SHARE
The Company computes net loss per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings Per Share, and SEC Staff Accounting
Bulletin No. 98. Basic net loss per share is computed by dividing net loss by
the weighted average number of shares of the Company's common stock outstanding
during the period.
For the years ended December 31, 1997 and 1998 and the period from January
1, 1999 through May 16, 1999 there were no outstanding equity instruments
convertible into common stock. For the period from May 17, 1999 to December 31,
1999 options to purchase 3,804,050 shares of common stock and warrants to
purchase 167,808 shares common stock were excluded from the calculation of
diluted earnings per share because including them would have been antidilutive.
Pro Forma (Unaudited): Pro forma net loss per share adjusts net loss per
share to reflect the assumed issuance of common shares to fund the
cash payment to stockholders of $16,636,452 at the initial public offering date
for the redemption of the note payable to stockholder.
F-12
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
COMPREHENSIVE INCOME
The Company adopted, in 1999, the accounting treatment prescribed by
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. The adoption of this statement had no impact on the Company's financial
statements for the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, "SFAS No. 133". The new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for the Company beginning in fiscal 2001. Management does not
expect SFAS No. 133 to have a material effect on the financial position, results
of operations or cash flows of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition, "SAB 101," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. SAB 101 outlines
the basic criteria that must be met to recognize revenues and provides guidance
for disclosures related to revenue recognition policies. Management believes
that its revenue recognition policies and practices are in conformance with SAB
101.
3. MANAGEMENT BUYOUT AND LEVERAGED RECAPITALIZATION TRANSACTION
As disclosed in Note 1, a change in control occurred via a management
buyout effective May 17, 1999. The transaction was structured as a leveraged
recapitalization, and was executed in three broad steps. First, the existing
common stock of the Company was split into two classes, Class A and Class B,
with substantially the same rights. All shares outstanding at the time were
owned by the sole stockholder of the Predecessor, and were converted into Class
A stock, and Class B stock was reserved for the new investors. Second, new
investors, through Greenfield Holdings, purchased newly issued Class B shares in
exchange for cash. In addition, Greenfield Holdings loaned the Company a
substantial amount in exchange for an unsecured long-term note payable. Third,
using the proceeds from the equity infusion and the borrowings from Greenfield
Holdings, the Company in turn concurrently repurchased substantially all of the
Class A shares outstanding from the sole stockholder of the Predecessor in a
treasury stock transaction. Certain other agreements were executed in connection
with this transaction. The transaction and its effects are described in greater
detail below.
STOCK REPURCHASE AND REDEMPTION AGREEMENT
On May 17, 1999, pursuant to a Stock Repurchase and Redemption Agreement,
(the "Agreement"), the Successor sold to Greenfield Holdings 21,855,150 shares
of Class B common stock for an aggregate purchase price of $8,863,548. In
addition, pursuant to the Agreement, on May 17, 1999, the Successor redeemed
42,534,000 shares of Class A common stock from the sole stockholder of the
Predecessor for an aggregate purchase price of $17,249,912. The repurchase of
the Class A common stock was funded using the proceeds from the sale of Class B
common stock and the proceeds from the Promissory Note to Greenfield Holdings.
PROMISSORY NOTE
On May 17, 1999, the Successor received a loan in the form of a Promissory
Note to Greenfield Holdings, in the amount of $14,136,452. The note is unsecured
and bears interest at an escalating rate as follows: May 17, 1999 to May 16,
2001, 7.5% per annum; May 17, 2001 to May 16, 2003, 9.5% per annum; and,
May 17, 2003 to May 17, 2009, 10.5% per annum. The interest is payable annually
on May 17 in cash, or, at the election of the Company, 70% of the interest due
may be paid-in-kind by increasing the amount then outstanding on the note by 70%
of the interest then due. Interest expense is calculated using the effective
interest method over the term of the note, at an effective rate of 9.64%.
F-13
<PAGE>
3. MANAGEMENT BUYOUT AND LEVERAGED RECAPITALIZATION TRANSACTION--(CONTINUED)
The note has a stated maturity of May 17, 2009. However, it is subject to
mandatory prepayment upon the occurrence of any one of the following events: i)
liquidation of the Company; (ii) merger or consolidation with an aggregate
consideration of greater than $20 million; (iii) disposal of all or
substantially all of the Company's assets, or acquisition of all or
substantially all of the assets of any other entity; (iv) an initial public
offering; (v) a change of control wherein Greenfield Holdings ceases to own at
least 40% of the outstanding capital stock of the Company.
As a result of the management buyout and leveraged recapitalization,
Greenfield Holdings and certain other investors became owners of approximately
97% of all of the outstanding common stock of the Company. The change in
ownership of outstanding common stock was as follows:
<TABLE>
<CAPTION>
OWNERSHIP OF OWNERSHIP OF
PREDECESSOR SUCCESSOR
------------ ------------
<S> <C> <C>
Sole Stockholder of Predecessor.................................. 100.0% 3.3%
Greenfield Holdings and investor group........................... 0.0% 96.7%
------ ------
Total....................................................... 100.0% 100.0%
====== ======
</TABLE>
As part of the management buyout, the sole stockholder of the Predecessor
had an additional 1.7% contingent ownership interest based upon a revenue
referral agreement. The Greenfield Holdings investor group includes two officers
of the Company that have restricted shares of 4.3% and 0.8%, respectively, that
are earned over a period of four years from the date of the management buyout.
None of these contingent interests were treated as outstanding for purposes of
determining whether substantially all of the Predecessor interest was acquired.
Management was represented by an advisor who received stock options as
remuneration for the management buyout. As consideration for his assistance, the
advisor, who became a member of the Board of Directors of the Company after the
management buyout, received stock options to purchase 1,233,000 shares of common
stock at an exercise price of $0.005 per share. These options are treated as
issuance costs. The options were immediately vested and were exercisable through
their expiration date of May 17, 2009. The advisor exercised these options in
October 1999. The fair value of these options at issuance was determined using a
Black-Scholes pricing model assuming a volatility rate of 61%, an expected life
of 10 years, no expected dividends and a risk free rate of 5.3%. The fair value
of these options of $443,880 was allocated to the debt and equity proceeds
received in the management buyout on a pro rata basis based upon the relative
value of the debt and equity proceeds. The allocation to the promissory note,
$273,769, is treated as a discount on the note and is being amortized to the
statement of operations as related party interest expense over the term of the
note in accordance with the effective interest method. The unamortized balance
of the debt discount was $256,658 at December 31, 1999, and is included in note
payable to stockholder on the balance sheet. The allocation to the equity
proceeds, $170,111, is included in additional paid-in capital.
The values assigned by Greenfield Holdings to the Company's net assets are
based upon a valuation study conducted by management with the assistance of an
outside valuation firm. Greenfield Holdings' basis in the net assets of the
Company was then "pushed down" to the Company in accordance with SAB 54.
F-14
<PAGE>
3. MANAGEMENT BUYOUT AND LEVERAGED RECAPITALIZATION TRANSACTION--(CONTINUED)
The following table compares Predecessor and Successor balance sheets as of
the date of the management buyout. The changes reflect the revaluations and
changes in stockholders' equity (deficit) described above.
<TABLE>
<CAPTION>
HISTORICAL ADJUSTED BASIS
PREDECESSOR MANAGEMENT PUSH DOWN SUCCESSOR
MAY 17, 1999 BUYOUT* ADJUSTMENTS MAY 17, 1999
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 260,932 $ 5,250,000 $ -- $ 5,510,932
Accounts receivable, net.......................... 791,029 -- -- 791,029
Deferred project costs............................ 120,901 -- -- 120,901
Other current assets.............................. 128,957 -- -- 128,957
------------ ----------- ------------ ------------
Total current assets........................... 1,301,819 5,250,000 -- 6,551,819
Property and equipment, net......................... 508,529 -- -- 508,529
Internal use software, net.......................... 362,782 -- 271,691 634,473
Goodwill............................................ -- -- 17,823,042 17,823,042
Intangible assets................................... -- -- 2,082,976 2,082,976
------------ ----------- ------------ ------------
Total assets................................... $ 2,173,130 $ 5,250,000 $ 20,177,709 $ 27,600,839
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 804,265 $ -- $ -- $ 804,265
Accrued expenses.................................. 3,560,139 -- -- 3,560,139
Other current liabilities......................... 75,208 -- -- 75,208
Deferred project revenues......................... 347,639 -- -- 347,639
Due to affiliates................................. 13,469 -- -- 13,469
Deferred tax liability............................ -- -- 940,452 940,452
------------ ----------- ------------ ------------
Total current liabilities...................... 4,800,720 -- 940,452 5,741,172
Note payable to stockholder, net.................... -- 13,862,683 -- 13,862,683
Other long-term liabilities......................... 69,839 -- -- 69,839
------------ ----------- ------------ ------------
Total liabilities................................... 4,870,559 13,862,683 940,452 19,673,694
------------ ----------- ------------ ------------
Stockholders' equity (deficit):
Common stock--Class A, 0.01 par value 450,000 -- -- 450,000
Common stock--Class B, 0.01 par value -- 218,552 -- 218,552
Additional paid-in capital........................ 5,676,581 8,918,765 10,413,247 25,008,593
Class A treasury stock--at cost................... -- (17,249,912) -- (17,249,912)
Notes receivable from stockholders................ -- (500,088) -- (500,088)
Accumulated deficit............................... (8,824,010) -- 8,824,010 --
------------ ----------- ------------ ------------
Total stockholders' equity (deficit)................ (2,697,429) (8,612,683) 19,237,257 7,927,145
------------ ----------- ------------ ------------
Total liabilities and stockholders'
equity (deficit).................................. $ 2,173,130 $ 5,250,000 $ 20,177,709 $ 27,600,839
============ =========== ============ ============
</TABLE>
- ------------------
* Entries reflect the infusion of equity and debt of $8,863,548 and $14,136,452,
respectively, the issuance of options to the deal advisor, the purchase of
treasury stock and the issuance of the notes receivable from stockholders, as
described in Note 12.
F-15
<PAGE>
3. MANAGEMENT BUYOUT AND LEVERAGED RECAPITALIZATION TRANSACTION--(CONTINUED)
Goodwill and identifiable intangibles recognized in connection with the
push-down accounting were as follows at December 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED SUCCESSOR
USEFUL DECEMBER 31,
LIVES 1999
--------- ------------
<S> <C> <C>
Goodwill............................................................................... 3.0 $ 17,823,042
Less-accumulated amortization.......................................................... (2,970,507)
------------
$ 14,852,535
============
Intangible assets:
Panel members........................................................................ 4.0 $ 711,752
Customer base........................................................................ 2.5 382,475
Workforce............................................................................ 3.5 988,749
------------
2,082,976
Less-accumulated amortization.......................................................... (306,714)
------------
$ 1,776,262
============
</TABLE>
4. OTHER CURRENT ASSETS
Other current assets consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Prepaid advertising.................................... $ -- $317,960
Security deposits...................................... 7,951 226,720
Other.................................................. -- 203,048
------ --------
$7,951 $747,728
====== ========
</TABLE>
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
ESTIMATED ------------ ------------
USEFUL DECEMBER 31, DECEMBER 31,
LIVES - YEARS 1998 1999
------------- ------------ ------------
<S> <C> <C> <C>
Furniture and fixtures.................. 7 $ 91,832 $ 112,488
Leasehold improvements.................. 2* 88,404 113,824
Office equipment........................ 3 - 5 419,107 1,515,445
Telephone system........................ 5 8,573 46,989
----- ---------- ----------
607,916 1,788,746
Less--accumulated depreciation and
amortization.......................... (143,460) (511,116)
---------- ----------
$ 464,456 $1,277,630
========== ==========
</TABLE>
- ------------------
* Life of underlying lease.
Depreciation and amortization expense for these items amounted to $25,314,
$113,682, $74,433, and $305,223 in the years ended December 31, 1997 and 1998
and the periods from January 1, 1999 through May 16, 1999 and from May 17, 1999
through December 31, 1999, respectively.
F-16
<PAGE>
6. INTERNAL USE SOFTWARE, NET
Internal-use software, net consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
ESTIMATED ------------ ------------
USEFUL DECEMBER 31, DECEMBER 31,
LIFE 1998 1999
--------- ------------ ------------
<S> <C> <C> <C>
Internal use software...................... 2 $ 601,714 $1,585,957
Less--accumulated depreciation............. (267,370) (609,803)
---------- ----------
$ 334,344 $ 976,154
========== ==========
</TABLE>
Depreciation related to internal use software amounted to $59,650,
$208,194, $81,250 and $261,183 in the years ended December 31, 1997 and 1998 and
the periods from January 1, 1999 through May 16, 1999 and from May 17, 1999
through December 31, 1999, respectively.
Software costs expensed as incurred and charged to research and development
expense amounted to $59,650, $88,893, $98,568 and $522,945 in the years ended
December 31, 1997 and 1998 and the periods from January 1, 1999 through May 16,
1999 and from May 17, 1999 through December 31, 1999, respectively.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Employee bonuses....................................... $ 61,425 $ 833,822
Accrued interest related party......................... -- 855,109
Other.................................................. 226,060 480,538
-------- ----------
$287,485 $2,169,469
======== ==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
GREENFIELD HOLDINGS
The Company, as part of the management buyout and leveraged
recapitalization, received a promissory note from Greenfield Holdings. See
Note 3. The carrying amount of this note at December 31, 1999 of $13,879,794 is
included on the balance sheet as Note Payable to Stockholder, and the interest
expense related to this note is included in the statement of operations as
related party interest expense. Interest expense is calculated using the
effective interest method over the term of the note.
Two management team members purchased equity shares in Greenfield Holdings
as a part of the leveraged recapitalization transaction. These investments
represent a 1.087% and 0.652% equity share in Greenfield Holdings.
IGAIN
In 1999, the Company entered into a relationship with iGain, an incentive
and loyalty reward company, in which iGain pays cash awards to panelists on a
random drawing basis on behalf of the Company. iGain receives a fee of $0.50 per
transaction. A member of the Company's management team holds a 10% ownership
interest in iGain. The total cash paid to iGain under the arrangement in the
periods from January 1, 1999 through May 16, 1999 and from May 17, 1999 through
December 31, 1999 were $258,310 and $590,610, respectively. Included in these
cash payments are transaction fees of $10,635 and $8,954, respectively, paid to
iGain. The remainder of the cash payment amounts represent the cash awards
delivered to panelists via iGain. These fees are included in cost of revenues.
F-17
<PAGE>
8. RELATED PARTY TRANSACTIONS--(CONTINUED)
GREENFIELD CONSULTING GROUP, INC.
In December 1999, the Company entered into a two-year agreement with
Greenfield Consulting Group, Inc., "Greenfield Consulting." Greenfield
Consulting is wholly owned by the sole stockholder of the Predecessor. Under the
two-year agreement, Digital Idea, Inc., a subsidiary of Greenfield Consulting
would exclusively purchase qualitative and quantitative market research data
from the Company at reduced rates. In turn, the Company agreed to not enter into
any exclusive provider arrangement with any other internet-focused strategic
consulting services company in the marketing services category. During the
period from May 17, 1999 through December 31, 1999, the Company earned revenues
of $26,200 from Digital Idea, Inc. related to these services.
On May 14, 1999, the Company entered into a three-year agreement with
Greenfield Consulting in which Strategic Focus, Inc., a subsidiary of Greenfield
Consulting, would provide certain support services for the Company's Focus Chat
business, which provides the Company's clients access to online focus groups.
The agreement required the Company to rely exclusively on Strategic Focus, Inc.
for these support services. In January 2000, Strategic Focus, Inc. was dissolved
and the contract became null and void. During the period from May 17, 1999
through December 31, 1999, the Company incurred expenses of $21,563 related to
this agreement.
On May 17, 1999, the Company entered into a Transition Services Agreement
with Greenfield Consulting in which the Company would share services related to
accounting, human resources and office administration through December 31, 1999.
The agreement could be terminated at any time given mutual agreement between the
Company and Greenfield Consulting. This agreement was terminated effective
November 30, 1999. During the period from May 17, 1999 through December 31,
1999, the Company paid fees for shared services of $49,482 to Greenfield
Consulting.
On May 17, 1999, the Company entered into a sublease agreement with
Greenfield Consulting wherein it sublet an aggregate of 9,411 square feet from
Greenfield Consulting in their Westport, Connecticut office. The agreement was
effective through August 31, 1999; however, it could be extended on a
month-to-month basis through December 31, 1999. The sublease was extended
through November 30, 1999. During the period from May 17, 1999 through
December 31, 1999, the Company incurred expenses of $129,687 related to this
agreement.
MESCO, LTD.
In 1999, the Company paid a total of $32,500 in consulting fees to Mesco,
Ltd., a consulting firm in which one of the Company's directors, who is also a
stockholder, is a principal. These consulting fees were paid at a fixed rate of
$5,000 per month. Under the agreement with Mesco, Ltd., Mesco provides business
and financial consulting services to the Company. This agreement can be
terminated at any time by either party.
FORGIVENESS OF PAYABLE TO AFFILIATE
During the period from January 1, 1999 through May 16, 1999, the sole
stockholder of the Predecessor forgave a loan due to him from the Predecessor in
the amount of $2,788,665. Additionally, Greenfield Consulting, wholly owned by
the sole stockholder of the Predecessor, forgave $1,787,916 of intercompany
advances to the Predecessor. The forgiveness of the $4,576,581 of payables
during the period from January 1, 1999 through May 16, 1999 has been accounted
for as an additional contribution of capital to the Predecessor company.
9. TERM LOAN AND REVOLVING CREDIT FACILITY
On December 3, 1999, the Company entered into a Loan and Security Credit
Agreement that provides a credit line of $6.0 million, "the credit facility".
The credit facility is comprised of a one-year term loan in the amount of $4.0
million and a revolving credit line of up to $2.0 million. The revolving credit
line is based upon an 85% advance rate on eligible accounts receivable. The
credit facility bears interest monthly at
F-18
<PAGE>
9. TERM LOAN AND REVOLVING CREDIT FACILITY--(CONTINUED)
a rate equal to the highest LIBOR rate in effect during the month plus 5% per
annum, provided that the interest rate in effect in each month shall not be less
than 8% per annum. The credit facility was originally to mature on November 30,
2000 at which time it automatically would renew, subject to the terms and
conditions as set forth in the credit facility. The credit facility is
collateralized by the general assets of the Company, including security in the
Company's patents, trademarks and copyrighted works. The credit facility carries
a mandatory repayment if the Company completes an initial public offering of its
equity securities.
As of December 31, 1999, the outstanding borrowings on the term loan were
$4.0 million. The Company had not used the revolving credit line and, as such,
had no outstanding balance at December 31, 1999. The interest rate at
December 31, 1999 was 11.5%.
In conjunction with the credit facility, the Company issued a warrant to
purchase 167,808 shares of its Class A common stock to the debt holder. See Note
12. The warrant has an exercise price of $3.58 per share, and is fully
exercisable through its expiration date of December 3, 2003. The fair value of
the warrant was determined using the Black-Scholes pricing model assuming a
volatility rate of 61%, an expected life of 4 years, no expected dividends and a
risk free rate of return of 5.9%. The gross proceeds of the debt financing were
then allocated between the debt and the warrants based on the estimated fair
values of both instruments. The relative fair value assigned to the warrants of
$960,736 was recorded as a discount to the term loan. This discount is being
amortized as interest expense over the term of the loan using the effective
interest method. Amortization of the discount was $80,061 in the period from May
17, 1999 to December 31, 1999. See Note 12 for warrants. The borrowings under
this agreement are reported in the balance sheet as term loan, net and are net
of unamortized discount of $880,675.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS AND OBLIGATIONS
Assets under capital leases are summarized below:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Equipment.............................................. $148,354 $803,358
Less--accumulated depreciation......................... (24,317) (182,118)
-------- --------
Assets under capital leases, net....................... $124,037 $621,240
======== ========
</TABLE>
Future minimum lease payments under capital leases and noncancelable
operating leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- ----------
<S> <C> <C>
Years Ending December 31:
2000..................................................... $ 419,290 $ 758,710
2001..................................................... 266,814 583,123
2002..................................................... 138,856 544,357
2003..................................................... 670 515,219
2004 and beyond.......................................... -- 2,310,005
--------- ----------
Total minimum lease payments........................ 825,630 $4,711,414
==========
Amount representing interest........................ (128,918)
---------
Present value of minimum lease payments............. 696,712
Less current portion................................ (335,771)
---------
Noncurrent portion.................................. $ 360,941
=========
</TABLE>
The current portion of capital lease obligations is included in the balance
sheet in other current liabilities and the noncurrent portion is included in
other long-term liabilities.
F-19
<PAGE>
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Total rental expense for operating leases was $61,447, $262,650, $126,359
and $267,133, in the years ended December 31, 1997 and 1998 and the periods from
January 1, 1999 through May 16, 1999 and from May 17, 1999 through December 31,
1999.
COMMITMENTS
The Company entered into agreements during 1999 committing to pay
$2,271,000 during the year ended December 31, 2000. Of this amount, $1,971,000
pertains to panel acquisition expenses and $300,000 pertains to security
deposits on leased office space.
EMPLOYMENT AGREEMENTS
The Company maintains employment agreements with the key officers of the
Company. The employment agreements contain provisions for minimum compensation
levels. In addition, three of the agreements contain severance provisions and
one contains a provision for key man life insurance.
LITIGATION
The Company, in the ordinary course of business, is subject to various
legal proceedings. While it is impossible to determine the ultimate outcome of
these matters, it is management's opinion that the resolution of these matters
will not have a material adverse effect on the financial position, results of
operations and cash flows of the Company.
11. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. The net deferred tax assets
recorded in 1999 are primarily related to federal and state net operating loss
carryforwards and other temporary differences generated for the period from May
17, 1999 through December 31, 1999.
Income tax benefit for the period from May 17, 1999 through December 31,
1999 included the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Federal................................................ $ -- $(800,589) $(800,589)
State.................................................. -- (139,863) (139,863)
--------- --------- ---------
$ -- $(940,452) $(940,452)
========= ========= =========
</TABLE>
The components of deferred income taxes at December 31, 1999 are presented
below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.............................................. $1,392,250
Deferred revenues............................................................. 526,293
Unearned stock-based compensation............................................. 350,274
Related party interest expense, net........................................... 341,688
Other deferred tax assets..................................................... 339,513
----------
Gross deferred tax asset........................................................ 2,950,018
Deferred tax liabilities:
Purchase accounting temporary differences....................................... (828,622)
Net deferred tax asset.......................................................... 2,121,396
Less--valuation allowance....................................................... (2,121,396)
----------
Net deferred tax asset.......................................................... $ --
==========
</TABLE>
A full valuation allowance was recorded against net deferred tax asset
because their realizability is subject to future events, including generating
sufficient taxable income, the likelihood of which cannot be
F-20
<PAGE>
11. INCOME TAXES--(CONTINUED)
determined at this time. The Company continually reviews the adequacy of the
valuation allowance and will recognize these benefits only as and when
reassessment indicates that it is more likely than not that the benefits will be
realized.
The Connecticut state and federal net operating loss carryforwards (NOLs)
of approximately $3,486,000 each expire at various times through 2004 for
Connecticut and 2019 for Federal purposes.
The differences between the income tax benefit at the U.S. statutory rate
and the effective rate are summarized as follows:
<TABLE>
<S> <C>
Federal statutory rate.............................................................. 34.00%
State statutory rate................................................................ 5.94%
Unearned stock-based compensation................................................... (11.95%)
Goodwill amortization............................................................... (7.20%)
Valuation allowance................................................................. (14.40%)
-------
Effective tax rate............................................................. 6.39%
=======
</TABLE>
12. STOCKHOLDERS' EQUITY
COMMON STOCK
Effective with the management buyout (see Note 3), the Company has two
classes of common stock, Class A and Class B. The Class B common stock has a
preference over the Class A in liquidation. In liquidation the Class B common
stock receives a 7% cumulative return on its original price per share.
STOCK REPURCHASE AND REDEMPTION
On May 17, 1999, pursuant to the Stock Purchase and Redemption Agreement,
the Company sold to Greenfield Holdings 21,855,150 shares of Class B common
stock for an aggregate purchase price of $8,863,548. In addition, pursuant to
the Agreement, on May 17, 1999, the Company redeemed 42,534,000 shares of
Class A common stock from the sole stockholder of the Predecessor for an
aggregate purchase price of $17,249,912. See Note 3.
NOTES RECEIVABLE FROM STOCKHOLDERS
In conjunction with the management buyout on May 17, 1999 (see Note 3), the
Company paid $500,088 to the former sole stockholder of the Predecessor on
behalf of two officers of the Company. In exchange, these employees issued to
the Company two nonrecourse promissory notes in the amounts of $425,075 and
$75,013, respectively. The cash paid to the employees was used to purchase
1,048,050 and 184,950 shares, respectively, of Class A common stock from the
sole stockholder of the Predecessor. The promissory notes are collateralized
with the shares of the Company's Class A common stock and bear interest at a
rate of 5.3% per year. The Company's sole recourse against the employees is
limited to the Class A common stock. Principal and interest may be prepaid in
whole or in part at any time without penalty.
The stock purchased by the employees with the proceeds of these notes is
restricted since the Company has the right to repurchase the stock for its
original purchase price from either one of the officers if their employment
terminates for any reason. The restrictions on the stock lapse and the stock
becomes vested 25% one year after the management buyout and 12.5% each six-month
period thereafter until four years have expired.
Under Emerging Issues Task Force Abstract 95-16, Accounting for Stock
Compensation Arrangements with Employer Loan Features, "EITF 95-16," these
nonrecourse notes receivable, collateralized by stock, are treated as a stock
option award with variable plan accounting treatment. Accordingly, the Company
has recognized a stock based compensation charge, and related increase in
additional paid-in capital, of $4,306,435 for the period from May 17, 1999
through December 31, 1999, related to these notes receivable. This charge is
calculated as the excess of the estimated fair value of the common stock at
December 31,
F-21
<PAGE>
12. STOCKHOLDERS' EQUITY--(CONTINUED)
1999, over the value of the common stock at issuance, multiplied by the number
of shares held by the employees and an applicable vesting percentage.
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option and warrant grants from May 17,
1999 through December 31, 1999, the Company recorded unearned stock-based
compensation totaling $7,665,421, which is being amortized to operations over
the related service periods, generally four years. The Company has amortized
$435,654 of stock-based compensation expense in the statement of operations in
the period from May 17, 1999 through December 31, 1999 related to these option
grants. Stock-based compensation expense for the period from May 17, 1999
through December 31, 1999 totaled $5,182,715, including compensation expense of
$440,626 for certain options with immediate vesting and $4,306,435 related to
the notes receivable from key employees.
TREASURY STOCK
The Company accounts for treasury stock under the cost method. On May 17,
1999, the Company repurchased 42,534,000 shares of its Class A common stock for
$17,249,912 as part of the management buyout and leveraged recapitalization
transaction as described in Note 3.
WARRANTS
On December 3, 1999, in conjunction with the establishment of the credit
facility, see Note 8, the Company issued a warrant to purchase 167,808 shares of
Class A common stock at an exercise price of $3.58 per share to a debt holder.
The warrant is exercisable immediately and expires on December 3, 2003. This
warrant was outstanding at December 31, 1999. See Note 9.
STOCK OPTIONS
In the period ending December 31, 1999, the Board of Directors of the
Company authorized and reserved 4,238,550 shares of Class A common stock for
issuance under its stock option plan. There were 434,500 shares available for
future grant at December 31, 1999.
13. 1999 STOCK OPTION PLAN
On May 12, 1999, the Company adopted a non-qualified stock option plan that
enables key employees, directors and consultants of the Company to purchase
shares of common stock of the Company. The Company grants options to purchase
its common stock, generally at fair value at the date of grant based upon
valuations determined by management and the Board of Directors. Options
generally vest over a period up to 4 years and expire after 10 years from the
date of grant.
Stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES PRICE PER SHARE
---------------- ----------------
<S> <C> <C>
Outstanding at May 17, 1999.................................................. -- --
Granted.................................................................... 3,804,050 $ 0.27
Canceled................................................................... -- --
Exercised.................................................................. 1,335,500 $ 0.03
----------
Outstanding at December 31, 1999............................................. 2,468,550 $ 0.40
==========
</TABLE>
Under the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, the Company has elected to continue to account for its stock
option plan in accordance with the provisions of APB No. 25. Had compensation
cost for the Company's employee stock option plan been determined consistent
with the
F-22
<PAGE>
13. 1999 STOCK OPTION PLAN--(CONTINUED)
provisions of SFAS No. 123, the Company's net loss and net loss per share would
have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
BASIC AND DILUTED
NET LOSS
NET LOSS PER SHARE
---------------------------- ---------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
------------ ------------ -------- ---------
<S> <C> <C> <C> <C>
May 17, 1999 to December 31, 1999......................... $(13,787,921) $(13,810,863) $(0.56) $ (0.56)
</TABLE>
For the periods ended December 31, 1997 and 1998 and for the period from
January 1, 1999 through May 11, 1999, the Company did not have a stock option
plan in effect.
For purposes of this disclosure, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants outstanding in 1999.
<TABLE>
<CAPTION>
1999
----
<S> <C>
Risk-free interest rate............................................ 5.9%
Weighted average expected life (years)............................. 5
Volatility factor.................................................. 61%
Expected dividends................................................. 0
</TABLE>
The following represents additional information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------- OPTIONS EXERCISEABLE
--------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING LIFE EXERCISE EXERCISE
EXERCISE PRICES NUMBER CONTRACTUAL PRICE PER NUMBER PRICE (PER
PER SHARE OUTSTANDING (YEARS) SHARE EXERCISABLE SHARE)
- ---------------- ----------- -------------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.31--$0.49 1,877,450 9.6 $ 0.31 4,500 $ 0.31
$0.50--$0.74 290,600 9.5 $ 0.51 4,500 $ 0.51
$0.75--$0.88 300,500 9.9 $ 0.87 4,500 $ 0.87
</TABLE>
14. SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
JANUARY 1, 1999 THROUGH MAY 16, 1999
Prior to the management buyout transaction disclosed in Note 3, the former
sole shareholder and a related party forgave their respective loan balances in
the amounts of $2,788,665 and $1,787,916, respectively, through a capital
contribution.
MAY 17, 1999 THROUGH DECEMBER 31, 1999
The relative fair value of the warrants issued in conjunction with the term
loan was $960,736 and was recorded as a discount to the term loan. See Note 9.
The relative fair value of the stock options assigned to the note payable
to stockholder was $273,769 and was recorded as a discount to the note payable
to stockholder. See Note 3.
During the year ended December 31, 1998 and the period from May 17, 1999
through December 31, 1999, the Company entered into several capital lease
obligations to purchase fixed assets in the amounts of $148,354 and $655,004,
respectively.
15. EVENTS SUBSEQUENT TO DECEMBER 31, 1999
In February 2000, the Company changed its state of incorporation from
Connecticut to Delaware.
F-23
<PAGE>
15. EVENTS SUBSEQUENT TO DECEMBER 31, 1999--(CONTINUED)
On March 3, 2000, the Board of Directors of the Company voted to amend its
articles of incorporation to increase the number of common shares authorized by
the Company to 100,000,000. In addition, the Company amended its articles of
incorporation and executed a 2-for-1 stock split. All references to common stock
amounts, shares and per share data included in the financial statements and
related footnotes have been adjusted to give retroactive effect to this stock
split.
On March 3, 2000, the Company entered into a subordinated credit facility,
the "Subordinated Credit Line," with the Greenfield Holdings. The Subordinated
Credit Line allows for the Company to borrow up to $5.0 million from Greenfield
Holdings at an interest rate of 10% per year. This Subordinated Credit Line
matures at June 30, 2000. The subordinated credit facility has a mandatory
prepayment if the Company completes an initial public offering. On March 3,
2000, the Company received $2.5 million of cash under this Subordinated Credit
Line. The facility includes a warrant issued to Greenfield Holdings to purchase
139,860 shares of common stock with an exercise price of $3.58 per share which
expires on March 3, 2004. The fair value of the warrant was determined using a
Black-Scholes pricing model assuming a volatility rate of 61%, an expected life
of 4 years, no expected dividends and a risk free rate of return of 6.6%. The
gross proceeds of the debt financing were allocated between the debt and the
warrant based on the estimated fair values of both instruments. The relative
fair value assigned to the warrant of $843,987 was recorded as a discount to the
debt. This discount will be amortized as interest expense over the term of the
debt using the effective interest method. Amortization of the discount was
$52,750 in the quarter ended March 31, 2000. The borrowings under this agreement
are reported in the March 31, 2000 balance sheet and are net of unamortized
discount of $791,237 at March 31, 2000.
On March 3, 2000, the Company amended the nonrecourse notes receivable from
the two employees of the Company described in Note 12. Under the amendment, the
notes were made recourse notes. Variable plan accounting ceases as of the date
of the amendment. The date of the amendment of these notes represents the
measurement date for recording compensation related to the shares purchased by
these notes receivable. At the measurement date the remaining unamortized
compensation is recorded as unearned stock-based compensation and is amortized
to expense over the remaining service term. At March 3, 2000, the Company
recorded $8,039,029 of unearned stock-based compensation related business to
these notes.
UNAUDITED
Effective March 10, 2000, the Company entered into an agreement that
extended the maturity date of the Subordinated Credit Line to the earlier of
June 30, 2001 or the closing of an initial public offering. As consideration for
the extension of the maturity date, the Company agreed to issue Greenfield
Holdings additional warrants to purchase common stock. Should any portion of the
Subordinated Credit Line remain outstanding as of September 30, 2000, the
Company will issue warrants to purchase 34,965 shares of common stock at an
exercise price equal to the fair value on that day. If any portion of the
Subordinated Credit Line remains outstanding on December 31, 2000, March 31,
2000 or June 30, 2001, the Company will issue the same amount of warrants on the
same terms on each of these dates.
In March 2000, the Company issued an aggregate of 645,338 shares of
Class A common stock to private investors for cash consideration of
$5.4 million or $8.37 per share.
In March 2000, the Company extended the initial maturity date on its credit
facility, see Note 9, to March 31, 2001. Based upon this extension the term loan
balance has been included as a long-term liability in the December 31, 1999
balance sheet.
F-24
<PAGE>
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
The following unaudited pro forma condensed statement of operations for the
year ended December 31, 1999 gives effect to the management buyout completed on
May 17, 1999 as if it had occurred on January 1, 1999. The management buyout is
described in further detail in Note 3 to the Company's financial statements on
page F-12.
The unaudited pro forma statements of operations include certain
adjustments to reflect a full year's amortization consisting of capitalized
software, goodwill and intangible assets, as well as incremental related party
interest expense and vesting of stock-based compensation. The adjustments are
more fully explained in the notes to the pro forma financial statements. The
unaudited pro forma condensed statement of operations should be read in
conjunction with the respective audited financial statements of the Company
appearing elsewhere in this prospectus. The pro forma results are not
necessarily indicative of results that actually would have occurred if the
management buyout had taken place on January 1, 1999.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PRO FORMA
JANUARY 1, 1999 MAY 17, 1999 YEAR ENDED
THROUGH THROUGH PRO FORMA DECEMBER 31,
MAY 16, 1999 DECEMBER 31, 1999 ADJUSTMENTS 1999
--------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... $ 1,733,720 $ 5,557,465 $ -- $ 7,291,185
Cost of revenues............................. 702,189 2,516,758 -- 3,218,947
----------- ------------- ----------- ------------
Gross profit............................ 1,031,531 3,040,707 -- 4,072,238
----------- ------------- ----------- ------------
Operating expenses:
Selling, general and administrative
expenses................................ 5,243,811 6,821,699 -- 12,065,510
Depreciation and amortization.............. 155,683 3,843,628 3,345,144(1) 7,344,455
Research and development................... 186,282 792,268 -- 978,550
Panel acquisition expenses................. 27,349 112,531 -- 139,880
Stock-based compensation expense........... 5,182,715 2,583,861(3) 7,766,576
----------- ------------- ----------- ------------
Operating expenses...................... 5,613,125 16,752,841 5,929,005 28,294,971
----------- ------------- ----------- ------------
Operating loss.......................... (4,581,594) (13,712,134) (5,929,005) (24,222,733)
----------- ------------- ----------- ------------
Interest income (expense):
Interest income............................ -- 42,120 -- 42,120
Interest expense........................... (7,001) (202,855) -- (209,856)
Related party interest expense............. (42,902) (855,504) (470,187)(2) (1,368,593)
----------- ------------- ----------- ------------
Interest expense, net...................... (49,903) (1,016,239) (470,187) (1,536,329)
----------- ------------- ----------- ------------
Loss before income taxes................ (4,631,497) (14,728,373) (6,399,192) (25,759,062)
Income tax benefit........................... -- 940,452 -- 940,452
----------- ------------- ----------- ------------
Net loss................................ $(4,631,497) $ (13,787,921) $(6,399,192) $(24,818,610)
=========== ============= =========== ============
Basic and diluted net loss per share......... $ (0.10) $ (0.56) $ (1.01)
=========== ============= ============
Weighted average shares outstanding--basic
and diluted................................ 45,000,000 24,707,186 24,563,348
=========== ============= ============
</TABLE>
(1) Goodwill and certain intangible assets were recorded through the application
of "push-down" accounting in accordance with SEC Staff Accounting Bulletin
No. 54 in connection with the management buyout transaction described in Note 3
to the audited financial statements. Goodwill, internal use software and
identifiable intangible assets are amortized on a straight-line basis over the
estimated period of benefit, which ranges from 2 to 4 years. The pro forma
adjustments for the year ended December 31, 1999 assume an additional four and
half months of amortization of internal use software, goodwill and intangible
assets. This resulted in additional amortization of $3,345,144.
F-25
<PAGE>
(2) As a result of the management buyout, the Successor received a loan in the
form of a Promissory Note to Greenfield Holdings, in the amount of $14,136,452.
The note is unsecured and bears interest at an escalating rate as follows: May
17, 1999 to May 16, 2001, 7.5% per annum; May 17, 2001 to May 16, 2003, 9.5% per
annum; and, May 17, 2003 to May 17, 2009, 10.5% per annum. The pro forma
adjustment for the year ended December 31, 1999 assumes an additional four and
half months of interest expense relating to this Promissory Note, which amounted
to $523,567.
During the period from January 1, 1999 through May 16, 1999, the sole
stockholder of the Predecessor forgave a loan due to him from the Predecessor in
the amount of $2,788,665. The pro forma statement of operations for the year
ended December 31, 1999 gives effect to the forgiveness of such debt as if it
had occurred on January 1, 1999 and, as such, interest expense associated with
this loan of $42,902 was eliminated in the pro forma adjustments.
In conjunction with the management buyout on May 17, 1999, the Company paid
$500,088 to two officers of the Company. In exchange, these employees issued to
the Company two Nonrecourse Promissory Notes in the amounts of $425,075 and
$75,013, respectively. The cash paid to the employees was used to purchase
1,048,050 and 184,950 shares, respectively, of Class A common stock from the
sole Stockholder of the Predecessor. The promissory notes are secured with the
shares of the Company's Class A common stock and bear interest at a rate of 5.3%
per annum. The Company's sole recourse against the employees is limited to the
Class A common stock. Principal and interest may be prepaid in whole or in part
at any time without penalty. The pro forma adjustments for the year ended
December 31, 1999 assume an additional four and a half months of related party
interest income relating to these two Nonrecourse Promissory Notes, which
amounted to $10,478.
(3) The Class A common stock purchased by employees with the proceeds of their
Nonrecourse Promissory Notes is restricted as the Company has the right to
repurchase the stock for its original purchase price if their employment
terminates for any reason. The restrictions on the stock lapse and the stock
becomes vested 25% after one year from the management buyout and 12.5% each
six-month period thereafter until four years have expired. The stock purchased
by the employees is accounted for using variable plan accounting as required by
EITF 95-16. The Company recognizes stock-based compensation based on increases
in the fair value of the stock held by the employees, multiplied by the
applicable vesting period. The pro forma adjustments for the year ended
December 31, 1999 assume an additional four and a half months of vesting for
this stock, which amounted to $2,583,861.
F-26
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE 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 Company in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee. The Registrant will pay all
these expenses.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee.................................................... $
NASD Filing Fee.........................................................
Nasdaq National Market Listing Fee......................................
Printing Fees and Expenses..............................................
Legal Fees and Expenses.................................................
Accounting Fees and Expenses............................................
Blue Sky Fees and Expenses..............................................
Transfer Agent and Registrar Fees.......................................
Miscellaneous...........................................................
--------
Total.............................................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Our restated certificate of incorporation limits the liability of directors
to the maximum extent permitted by the Delaware General Corporation Law. The
Delaware General Corporation Law provides that the personal liability of a
director for monetary damages for breach of his or her fiduciary duties as a
director may be eliminated, except for:
o any breach of the director's duty of loyalty to a corporation or its
stockholders;
o acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; and
o any transaction from which the director derived an improper personal
benefit.
Our restated bylaws provide that we may indemnify our directors and
officers and may indemnify our other employees and agents to the fullest extent
permitted by Delaware law. We believe that indemnification under our restated
bylaws covers at least negligence and gross negligence on the part of
indemnified parties.
We have obtained directors' and officers' insurance providing
indemnification for our directors, officers and some of our employees for
certain liabilities. We believe that this insurance is necessary to attract and
retain qualified directors and officers.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a)(1) On May 17, 1999, our management team and a group of new investors
executed a management buyout in which approximately 97% of our outstanding
common stock was acquired by Greenfield Holdings, LLC., a company formed
specifically to execute the buyout, and certain other investors. The transaction
involved a series of agreements:
o Stock Purchase, Sale and Redemption Agreement. Under this agreement,
Greenfield Holdings purchased securities for a purchase price of
$8,863,548, which, adjusted for stock splits and reflecting the
conversion to common, gave them 21,855,150 shares of our common stock.
o Promissory Note. Under this note, Greenfield Holdings loaned us
$14,136,452 that we used in part to redeem 94.5% of outstanding stock
then owned by one of our founders, Andrew Greenfield. The loan from
Greenfield Holdings to us must be paid in full upon completion of this
offering.
o Stock Purchase, Consent and Waiver Agreement. We used a portion of the
proceeds of the loan made under the Promissory Note to loan Mr. Nadilo
and Mr. Davis $425,075 and $75,013, respectively, to allow them to
purchase stock from Mr. Greenfield. Adjusted for stock splits and
reflecting the conversion to common, the purchase gave them 1,048,050 and
184,950 shares, respectively, of our common stock as of March 3, 2000. We
have the right to repurchase the stock for its original purchase price
from either one of them if his employment terminates for any reason. The
restrictions on the stock lapse and the stock becomes vested 25% one year
after the management buyout and 12.5% each six-month period thereafter
until four years have expired. For Mr. Nadilo, the expiration of these
restrictions will accelerate on 75% of his stock if we sell the stock or
assets of our company. For Mr. Davis, the expiration of these
restrictions will accelerate on 50% of his stock if we sell the stock or
assets of our company. The stock purchased by Messrs. Nadilo and Davis is
pledged to us to secure the repayment of their loans
(a)(2) On March 14, 2000, we completed a private placement of 645,338
shares of our Class A common stock at a price of $8.37 per share for an
aggregate offering price of $5.4 million. The purchasers, all of which were
accredited investors within the definition of Regulation D, were TechVantage
Partners, L.P., TechVantage Qualified Partners, L.P. and TechVantage Overseas
Fund, Inc. (all of whom are controlled by Westway Capital, LLC), 701 Venture
Investments, LLC and GDCP Investment Partners.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1) and (2) were deemed to be exempt
from registration under the Securities Act in reliance upon
Section 4(2) thereof as transactions by an issuer not involving any public
offering. The issuances described in Item 15(a)(2) were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 506 of
Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Registrant, to be effective upon completion of
the offering+
3.2 -- Form of Restated Bylaws of the Registrant, to be effective upon completion of the offering+
4.1 -- Form of the Registrant's Common Stock Certificate+
5.1 -- Form of Opinion of Preston Gates & Ellis LLP
10.1 -- Stock Purchase & Redemption Agreement among the Registrant, Andrew Greenfield and Greenfield
Holdings, LLC, dated May 12, 1999+
10.2 -- Escrow Agreement among the Registrant, Andrew Greenfield, Greenfield Holdings, LLC and
SunTrust Bank, Atlanta, dated May 17, 1999+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.3 -- License Agreement between the Registrant and Greenfield Consulting Group, Inc., dated
December 22, 1999+
10.4 -- Supplement to License Agreement between the Registrant and Greenfield Consulting Group, Inc.,
dated January 27, 2000+
10.5 -- Agreement between the Registrant and Greenfield Consulting Group, Inc., dated April 20, 1999+
10.6 -- Agreement between the Registrant and Digital Idea, LLC, dated as of December 1, 1999+
10.7 -- Shareholders' Agreement among the Registrant, Andrew Greenfield and Greenfield Holdings, LLC,
dated May 17, 1999, as amended+
10.8 -- Registration Rights Agreement among the Registrant, Andrew Greenfield and Greenfield
Holdings, LLC, dated May 17, 1999+
10.9 -- Promissory Note made by the Registrant in favor of Greenfield Holdings, LLC, dated May 17,
1999+
10.10 -- Note and Warrant Purchase Agreement between the Registrant and Greenfield Holdings, LLC,
dated March 3, 2000+
10.11 -- Promissory Note made by the Registrant in favor of Greenfield Holdings, LLC, dated March 3,
2000+
10.12 -- Class A Common Stock Warrant issued by the Registrant to Greenfield Holdings, LLC, dated
March 3, 2000+
10.13 -- Stock Purchase, Consent & Waiver Agreement among the Registrant, Rudy Nadilo, Hugh Davis, and
Andrew Greenfield, dated May 17, 1999+
10.14 -- Retained Shareholder Joinder among the Registrant, Rudy Nadilo and Hugh Davis, dated May 17,
1999+
10.15 -- Nonrecourse Promissory Note made by Rudy Nadilo in favor of the Registrant, dated May 17,
1999+
10.16 -- Pledge Agreement between the Registrant and Rudy Nadilo, dated May 17, 1999+
10.17 -- Amended and Restated Employment Agreement between the Registrant and Rudy Nadilo, dated
March 13, 2000+
10.18 -- Non-recourse Promissory Note made by Hugh Davis in favor of the Registrant, dated May 17,
1999+
10.19 -- Pledge Agreement between the Registrant and Hugh Davis, dated May 17, 1999+
10.20 -- Loan and Security Agreement between the Registrant and Greyrock Capital, a division of Banc
of America Commercial Finance Corporation, dated December 3, 1999+
10.20(a) -- Amendment to Loan Documents between the Registrant and Greyrock Capital, a division of Banc
of America Commercial Finance Corporation, dated April 13, 2000
10.21 -- Secured Promissory Note made by the Registrant in favor of Greyrock Capital, a division of
Banc of America Commercial Finance Corporation, dated December 3, 1999+
10.22 -- Patent and Trademark Security Agreement between the Registrant and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3, 1999+
10.23 -- Security Agreement in Copyrighted Works between the Registrant and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3, 1999+
10.24 -- Registration Rights Agreement between the Registrant and Greyrock Capital, a division of Banc
of America Commercial Finance Corporation, dated December 3, 1999+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.25 -- Antidilution Agreement between the Registrant and Greyrock Capital, a division of Banc of
America Commercial Finance Corporation, dated December 3, 1999+
10.26 -- Warrant to Purchase Stock issued by the Registrant to Greyrock Capital, a division of Banc of
America Commercial Finance Corporation, dated December 3, 1999+
10.27 -- Agreement between the Registrant and CommonPlaces LLC, dated January 28, 2000+
10.28 -- Lease between the Registrant and Wilton Executive Campus Associates, dated October 20, 1999+
10.29 -- Lease between the Registrant and Wilton Campus Properties, LLC, dated October 20, 1999+
10.30 -- Lease between the Registrant and Wilton Executive Campus Associates, dated October 20, 1999
(Data Center)+
10.31 -- Lease between the Registrant and New Montgomery Associates, LLC, dated January 9, 1998, as
amended+
10.32 -- Amended and Restated 1999 Stock Option Plan of the Registrant+
10.33 -- Form of Stock Option Agreement of the Registrant+
10.34 -- 2000 Directors Stock Option Plan of the Registrant, to be effective upon completion of the
offering+
10.35 -- 2000 Employee Stock Purchase Plan of the Registrant, to be effective upon completion of the
offering+
10.36 -- Employment Agreement between the Registrant and Susan Rosovsky, dated July 1, 1999+
10.37 -- Employment Agreement between the Registrant and Leigh-Brindeland Bell, dated July 1, 1999+
10.38 -- Employment Agreement between the Registrant and Stephen J. Cook, dated July 1, 1999+
10.39 -- Amended and Restated Employment Agreement between the Registrant and Robert E. Bies, dated
March 3, 2000+
10.40 -- Form of Non-Qualified Stock Option Agreement of the Registrant, as amended (used for
management options before amendment and restatement of 1999 Stock Option Plan)+
10.41 -- Agreement between the Registrant and Forrester Research, Inc., dated May 13, 1999+
10.42 -- Agreement between the Registrant and Flackett Stevens and Associates, dated June 11, 1999+
10.43 -- Co-Location Services Agreement between the Registrant and UUNet Technologies, Inc., dated
May 29, 1998+
10.44 -- Employment Agreement between the Registrant and Alastair Bruce dated July 1, 1999+
10.45 -- Amended Promissory Note made by Hugh Davis in favor of the Registrant dated March 3, 2000+
10.46 -- Amended Promissory Note made by Rudy Nadilo in favor of the Registrant dated March 3, 2000+
10.47 -- Amendment No. 1 to Note and Warrant Purchase Agreement between the Registrant and Greenfield
Holdings, LLC, dated March 10, 2000+
10.48 -- Form of First Amendment to Non-Qualified Stock Option Agreement of the Registrant+
23.1 -- Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 -- Consent of Counsel (included in Exhibit 5.1)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
+ Previously filed
(b) Financial Statement Schedules
II-4
<PAGE>
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1),
or (4), or 497(h) under the Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, state of New York, on the 21 day of April,
2000.
GREENFIELD ONLINE, INC.
By: /s/ ROBERT E. BIES
--------------------------------
Robert E. Bies
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities indicated on April 21, 2000.
<TABLE>
<CAPTION>
DATE
--------------
<S> <C> <C>
*
- -------------------------------------- President and Chief Executive Officer, April 21, 2000
Rudy Nadilo Director (Principal Executive Officer)
/s/ ROBERT E. BIES
- -------------------------------------- Chief Financial Officer and Treasurer April 21, 2000
Robert E. Bies (Principal Financial and Accounting Officer)
*
- -------------------------------------- Director April 21, 2000
Jeffrey Horing
*
- -------------------------------------- Director April 21, 2000
Peter Sobiloff
*
- -------------------------------------- Director April 21, 2000
Joel R. Mesznik
*
- -------------------------------------- Director April 21, 2000
Burton J. Manning
*By /s/ ROBERT E. BIES
- --------------------------------------
Robert E. Bies
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Registrant, to be effective upon
completion of the offering+
3.2 -- Form of Restated Bylaws of the Registrant, to be effective upon completion of the
offering+
4.1 -- Form of the Registrant's Common Stock Certificate+
5.1 -- Form of Opinion of Preston Gates & Ellis LLP
10.1 -- Stock Purchase & Redemption Agreement among the Registrant, Andrew Greenfield and
Greenfield Holdings, LLC, dated May 12, 1999+
10.2 -- Escrow Agreement among the Registrant, Andrew Greenfield, Greenfield Holdings,
LLC and SunTrust Bank, Atlanta, dated May 17, 1999+
10.3 -- License Agreement between the Registrant and Greenfield Consulting Group, Inc.,
dated December 22, 1999+
10.4 -- Supplement to License Agreement between the Registrant and Greenfield Consulting
Group, Inc., dated January 27, 2000+
10.5 -- Agreement between the Registrant and Greenfield Consulting Group, Inc., dated
April 20, 1999+
10.6 -- Agreement between the Registrant and Digital Idea, LLC, dated as of December 1,
1999+
10.7 -- Shareholders' Agreement among the Registrant, Andrew Greenfield and Greenfield
Holdings, LLC, dated May 17, 1999, as amended+
10.8 -- Registration Rights Agreement among the Registrant, Andrew Greenfield and
Greenfield Holdings, LLC, dated May 17, 1999+
10.9 -- Promissory Note made by the Registrant in favor of Greenfield Holdings, LLC,
dated May 17, 1999+
10.10 -- Note and Warrant Purchase Agreement between the Registrant and Greenfield
Holdings, LLC, dated March 3, 2000+
10.11 -- Promissory Note made by the Registrant in favor of Greenfield Holdings, LLC,
dated March 3, 2000+
10.12 -- Class A Common Stock Warrant issued by the Registrant to Greenfield Holdings,
LLC, dated March 3, 2000+
10.13 -- Stock Purchase, Consent & Waiver Agreement among the Registrant, Rudy Nadilo,
Hugh Davis, and Andrew Greenfield, dated May 17, 1999+
10.14 -- Retained Shareholder Joinder among the Registrant, Rudy Nadilo and Hugh Davis,
dated May 17, 1999+
10.15 -- Nonrecourse Promissory Note made by Rudy Nadilo in favor of the Registrant, dated
May 17, 1999+
10.16 -- Pledge Agreement between the Registrant and Rudy Nadilo, dated May 17, 1999+
10.17 -- Amended and Restated Employment Agreement between the Registrant and Rudy Nadilo,
dated March 13, 2000+
10.18 -- Non-recourse Promissory Note made by Hugh Davis in favor of the Registrant, dated
May 17, 1999+
10.19 -- Pledge Agreement between the Registrant and Hugh Davis, dated May 17, 1999+
10.20 -- Loan and Security Agreement between the Registrant and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3,
1999+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
10.20(a) -- Amendment to Loan Documents between the Registrant and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3,
1999
10.21 -- Secured Promissory Note made by the Registrant in favor of Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3,
1999+
10.22 -- Patent and Trademark Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Commercial Finance Corporation, dated
December 3, 1999+
10.23 -- Security Agreement in Copyrighted Works between the Registrant and Greyrock
Capital, a division of Banc of America Commercial Finance Corporation, dated
December 3, 1999+
10.24 -- Registration Rights Agreement between the Registrant and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3,
1999+
10.25 -- Antidilution Agreement between the Registrant and Greyrock Capital, a division of
Banc of America Commercial Finance Corporation, dated December 3, 1999+
10.26 -- Warrant to Purchase Stock issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation, dated December 3,
1999+
10.27 -- Agreement between the Registrant and CommonPlaces LLC, dated January 28, 2000+
10.28 -- Lease between the Registrant and Wilton Executive Campus Associates, dated
October 20, 1999+
10.29 -- Lease between the Registrant and Wilton Campus Properties, LLC, dated
October 20, 1999+
10.30 -- Lease between the Registrant and Wilton Executive Campus Associates, dated
October 20, 1999 (Data Center)+
10.31 -- Lease between the Registrant and New Montgomery Associates, LLC, dated
January 9, 1998, as amended+
10.32 -- Amended and Restated 1999 Stock Option Plan of the Registrant+
10.33 -- Form of Stock Option Agreement of the Registrant+
10.34 -- 2000 Directors Stock Option Plan of the Registrant, to be effective upon
completion of the offering+
10.35 -- 2000 Employee Stock Purchase Plan of the Registrant, to be effective upon
completion of the offering+
10.36 -- Employment Agreement between the Registrant and Susan Rosovsky, dated July 1,
1999+
10.37 -- Employment Agreement between the Registrant and Leigh-Brindeland Bell, dated
July 1, 1999+
10.38 -- Employment Agreement between the Registrant and Stephen J. Cook, dated July 1,
1999+
10.39 -- Amended and Restated Employment Agreement between the Registrant and Robert E.
Bies, dated March 3, 2000+
10.40 -- Form of Non-Qualified Stock Option Agreement of the Registrant, as amended (used
for management options before amendment and restatement of 1999 Stock Option
Plan)+
10.41 -- Agreement between the Registrant and Forrester Research, Inc., dated May 13,
1999+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
10.42 -- Agreement between the Registrant and Flackett Stevens and Associates, dated
June 11, 1999+
10.43 -- Co-Location Services Agreement between the Registrant and UUNet Technologies,
Inc., dated May 29, 1998+
10.44 -- Employment Agreement between the Registrant and Alastair Bruce dated July 1,
1999+
10.45 -- Amended Promissory Note made by Hugh Davis in favor of the Registrant dated
March 3, 2000+
10.46 -- Amended Promissory Note made by Rudy Nadilo in favor of the Registrant dated
March 3, 2000+
10.47 -- Amendment No. 1 to Note and Warrant Purchase Agreement between the Registrant and
Greenfield Holdings, LLC, dated March 10, 2000+
10.48 -- Form of First Amendment to Non-Qualified Stock Option Agreement of the
Registrant+
23.1 -- Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 -- Consent of Counsel (included in Exhibit 5.1)
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
+ Previously filed
<PAGE>
o SHARES
GREENFIELD ONLINE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
o , 2000
Credit Suisse First Boston Corporation
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, NY 10010-3629
Dear Sirs:
1. Introductory. Greenfield Online, Inc., a Delaware corporation
("Company"), proposes to issue and sell o shares ("Firm Securities") of its]
Common Stock, $.001 par value per share ("Securities") and also proposes to
issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than o additional shares ("Optional Securities") of its
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the "Offered Securities". As part of the offering
contemplated by this Agreement, Credit Suisse First Boston Corporation (the
"Designated Underwriter") has agreed to reserve out of the Firm Securities
purchased by it under this Agreement, up to o shares, for sale to the Company's
directors, officers, employees and other parties associated with the Company
(collectively, "Participants"), as set forth in the Prospectus (as defined
herein) under the heading "Underwriting" (the "Directed Share Program"). The
Firm Securities to be sold by the Designated Underwriter pursuant to the
Directed Share Program (the "Directed Shares") will be sold by the Designated
Underwriter pursuant to this Agreement at the public offering price. Any
Directed Shares not orally confirmed for purchase by a Participant by the end of
the business day on which this Agreement is executed will be offered to the
public by the Underwriters as set forth in the Prospectus.] The Company hereby
agrees with the several Underwriters named in Schedule A hereto ("Underwriters")
as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333- o) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933 ("Act") and is
not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If such registration statement
("initial registration statement") has been declared effective, either
(i) an additional registration statement ("additional registration
statement") relating to the Offered Securities may have been filed with
the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act
and, if so filed, has become effective upon filing pursuant to such
Rule and the Offered Securities all have been
<PAGE>
duly registered under the Act pursuant to the initial registration
statement and, if applicable, the additional registration statement or
(ii) such an additional registration statement is proposed to be filed
with the Commission pursuant to Rule 462(b) and will become effective
upon filing pursuant to such Rule and upon such filing the Offered
Securities will all have been duly registered under the Act pursuant to
the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement has
been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the
Act or, in the case of the additional registration statement, Rule
462(b). For purposes of this Agreement, "Effective Time" with respect
to the initial registration statement or, if filed prior to the
execution and delivery of this Agreement, the additional registration
statement means (i) if the Company has advised the Representatives that
it does not propose to amend such registration statement, the date and
time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution
and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c),
or (ii) if the Company has advised the Representatives that it proposes
to file an amendment or post-effective amendment to such registration
statement, the date and time as of which such registration statement,
as amended by such amendment or post-effective amendment, as the case
may be, is declared effective by the Commission. If an additional
registration statement has not been filed prior to the execution and
delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with
respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect to the
initial registration statement or the additional registration statement
(if any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any)
and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements of
the Act and the rules and regulations of the Commission ("Rules and
Regulations") and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to
the requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading and (iii) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of
2
<PAGE>
this Agreement, the Additional Registration Statement each conforms,
and at the time of filing of the Prospectus pursuant to Rule 424(b) or
(if no such filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects
to the requirements of the Act and the Rules and Regulations, and
neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will
conform in all respects to the requirements of the Act and the Rules
and Regulations, neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no Additional Registration Statement has
been or will be filed. The two preceding sentences do not apply to
statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by
any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification.
(d) Each subsidiary of the Company has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification; all of the issued
and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the
Prospectus; the stockholders of the Company have no preemptive rights
with respect to the Securities; [and the authorized issued and
outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption
"Capitalization".]
(f ) There are no contracts, agreements or understandings between
the Company and any person that would give rise to a valid claim
against the Company or any Underwriter for a brokerage commission,
finder's fee or other like payment in connection with this offering.
(g) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
3
<PAGE>
(h) The Offered Securities have been approved for listing on The
Nasdaq Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or by-laws of
the Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) The Company and its subsidiaries have good and marketable
title to all real properties and all other properties and assets owned
by them, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with
the use made or to be made thereof by them; and except as disclosed in
the Prospectus, the Company and its subsidiaries hold any leased real
or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be
made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them and have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as a whole ("Material Adverse Effect").
(n) No labor dispute with the employees of the Company or any
subsidiary or any of their respective principal suppliers,
manufactures, customers or contractors exists or, to the knowledge of
the Company, is imminent that might have a Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property
rights") necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with respect
to any intellectual property rights that, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect.
(p) Neither the Company, nor any of its directors or officers are
a party to any agreement the terms of which restrict the ability of the
Company to conduct its business as described in the Prospectus or any
of its directors or officers to act in such capacity on behalf of the
Company.
4
<PAGE>
(q) Neither the Company nor any of its subsidiaries is in
violation of any statute, any rule, regulation, decision or order of
any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware
of any pending investigation which might lead to such a claim.
(r) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
(s) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States applied
on a consistent basis; the schedules included in each Registration
Statement present fairly the information required to be stated therein
[and the assumptions used in preparing the pro forma financial
statements included in each Registration Statement and the Prospectus
provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein,
the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.]
(t) Since the date of the latest audited financial statements
included in the Prospectus there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a
whole, and, except as disclosed in or contemplated by the Prospectus,
there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(u) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) The Company and each of its subsidiaries has timely filed all
necessary federal and state income and franchise tax returns and has
paid all taxes shown thereon as due, and there is no tax deficiency
that has been or, to the Company's knowledge, might be asserted against
the Company or any of its subsidiaries other than in each instance such
as would not have a Material Adverse Effect. All tax liabilities are
adequately provided for on the books of the Company and its
subsidiaries.
[ (w) The Company represents and warrants to the Underwriters that (i)
the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection
with the Directed Share Program, and that (ii) no authorization,
approval, consent, license, order, registration or qualification of or
with any government, governmental instrumentality or court, other than
such as have
5
<PAGE>
been obtained, is necessary under the securities law and regulations of
foreign jurisdictions in which the Directed Shares are offered outside
the United States.
(x) The Company has not offered, or caused the Underwriters to
offer, any offered Securities to any person pursuant to the Directed
Share Program with the specific intent to unlawfully influence (i) a
customer or supplier of the Company to alter the customer's or
supplier's level or type of business with the Company or (ii) a trade
journalist or publication to write or publish favorable information
about the Company or its products.]
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $o per share, the respective numbers of
shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order o of at the office of Shearman & Sterling, at 9:00 A.M., New
York time, on o, 2000 , or at such other time not later than seven full business
days thereafter as CSFBC and the Company determine, such time being herein
referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold pursuant
to the offering. The certificates for the Firm Securities so to be delivered
will be in definitive form, in such denominations and registered in such names
as CSFBC requests and will be made available for checking and packaging at the
office of Shearman & Sterling at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of o , at the office of o. The certificates for the Optional
Securities being purchased on each Optional Closing Date will be in definitive
form, in such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the office of Shearman & Sterling at a reasonable
time in advance of such Optional Closing Date.
6
<PAGE>
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CSFBC),
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a portion
of the Offered Securities under the Act but the Effective Time thereof
has not occurred as of such execution and delivery, the Company will
file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time
the Prospectus is printed and distributed to any Underwriter, or will
make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or supplementation
without CSFBC's consent; and the Company will also advise CSFBC
promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of
any stop order proceedings in respect of a Registration Statement and
will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement covering a period of at least
12 months beginning after the Effective Date of the Initial
Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (five (5) of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so
long as a prospectus relating to the Offered Securities is required to
be delivered under the Act in connection with
7
<PAGE>
sales by any Underwriter or dealer, the Prospectus and all amendments
and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to
3:00 P.M., New York time, on the business day following the later of
the execution and delivery of this Agreement or the Effective Time of
the Initial Registration Statement. All other documents shall be so
furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of 10 years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance
of its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company
in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters. In addition to
the foregoing, the Company will pay to the Representatives on behalf of
the Underwriters on the First Closing Date the sum of $ o as a
nonaccountable reimbursement of the Underwriters' other expenses. Such
amount may be deducted from the purchase price for the Offered
Securities set forth in Section 3.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities or enter into a transaction which would have
the same effect, or enter into any swap, hedge or other management that
transfers, in whole or in part, any of the economic consequences of
ownership of the Securities , or publicly disclose the intention to
make any such offer, sale, pledge, disposition or filing, or to enter
into any such transaction, swap, hedge or other arrangement, without
the prior written consent of CSFBC, except issuance of Securities
pursuant to, the conversion or exchange of convertible or exchangeable
securities or the exercise of warrants or options, in each case
outstanding on the date hereof, grants of employee stock options
pursuant to the terms of a plan in effect on the date hereof.
[ (j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
8
<PAGE>
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares
Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the underwriters in connection with the Directed Share
Program.
Furthermore, the company covenants with the Underwriters that the
company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share
Program.]
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of
PricewaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules, and
summary of earnings examined by them and included in the
Registration Statements comply as to form in all material respects
with the applicable accounting requirements of the Act and the
related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above,
a reading of the latest available interim financial statements of
the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused
them to believe that:
(A) the unaudited financial statements and summary of
earnings included in the Registration Statements do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations or any material modifications should be
made to such unaudited financial statements [, and summary of
earnings] for them to be in conformity with generally accepted
accounting principles;]
(B) the unaudited consolidated net sales, net
operating income, net income and net income per share amounts
for the o month periods ended o included in the Prospectus do
not agree with the amounts set forth in the unaudited
consolidated financial statements for those same periods or
were not determined on a basis substantially consistent with
that of the corresponding amounts in the audited statements of
income;
(C) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance
9
<PAGE>
sheet read by such accountants, there was any decrease in
consolidated net current assets or net assets, as compared
with amounts shown on the latest balance sheet included in the
Prospectus; or
(D) for the period from the closing date of the
latest income statement included in the Prospectus to the
closing date of the latest available income statement read by
such accountants there were any decreases, as compared with
the corresponding period of the previous year and with the
period of corresponding length ended the date of the latest
income statement included in the Prospectus, in consolidated
net sales, net operating income or in the total or per share
amounts of consolidated income before extraordinary items or
net income,
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the
extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its subsidiaries subject to the internal controls of
the Company's accounting system or are derived directly from such
records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to such
execution and delivery, "Registration Statements" shall mean the
Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective
Time, and (iii) "Prospectus" shall mean the prospectus included in the
Registration Statements.
The Company shall have received from PricewaterhouseCoopers LLP
(and furnished to the Representatives) an examination report with
respect to Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company for the o fiscal years ending
[December 31, 1999], and review report with respect to Management's
Discussion and Analysis of Financial Condition and Results of
Operations of the Company for the [3] month period ending [March 31,]
2000, and the corresponding period for the prior fiscal year, each in
accordance with Statement on Standards for Attestation Engagement No. 8
issued by the Auditing Standards Board of the American Institute of
Certified Public Accountants, and such examination report shall be
included in the Registration Statement.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or such later date as shall have
been consented to by CSFBC. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have
been consented to by CSFBC. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, the Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated
by the Commission.
10
<PAGE>
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company
and its subsidiaries taken as one enterprise which, in the judgment of
a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the
sale of and payment for the Offered Securities; (ii) any downgrading in
the rating of any debt securities of the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any material suspension or material
limitation of trading in securities generally on the New York Stock
Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company
on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and
payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Preston, Gates & Ellis, counsel for the Company, to
the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of
Delaware , with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its
business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in
the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities;
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel
between the Company and any person granting such person the right
to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company
under the Act;
(iv) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of
the proceeds thereof as described in the Prospectus, will not be
an "investment company" as defined in the Investment Company Act
of 1940.
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for
the consummation of the transactions contemplated by this
Agreement in connection with the issuance or sale of the Offered
Securities by the Company, except such as have been obtained and
made under the Act and such as may be required under state
securities laws;
(vi) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the
Company or any of its subsidiaries or any of their respective
properties that if
11
<PAGE>
determined adversely to the Company or any of its subsidiaries
would individually or in the aggregate have a Material Adverse
Effect, or would materially and adversely affect the ability of
the Company to perform its obligations under this Agreement, or
which are otherwise material in the context of the sale of the
Offered Securities; and no such actions, suits or proceedings are
threatened or, to the Company's knowledge, contemplated.
(vii) Neither the Company nor any of its directors or officers
are a party to any agreement the terms of which restrict the
ability of the Company to conduct its business as described in the
Prospectus or any of its directors or officers to act in such
capacity on behalf of the Company.
(viii) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities will
not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or
any court having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such subsidiary
is subject, or the charter or by-laws of the Company or any such
subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated
by this Agreement;
(ix) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion,
the Additional Registration Statement (if any) was filed and
became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule
424(b) specified in such opinion on the date specified therein or
was included in the Initial Registration Statement or the
Additional Registration Statement (as the case may be), and, to
the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act,
and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective
or issue dates, complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or as
of such Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading
or that the Prospectus or any amendment or supplement thereto, as
of its issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of
statutes, legal and governmental proceedings and contracts and
other documents are accurate and fairly present the information
required to be shown; and such counsel do not know of any legal or
governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described
as required or of any contracts or documents of a character
required to be described in a Registration Statement or the
Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being understood
that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration
Statements or the Prospectus; and
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) The Representatives shall have received from Shearman &
Sterling, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company,
the validity of the Offered Securities delivered on such Closing Date,
the Registration Statements, the Prospectus and other related matters
as the Representatives may require, and the Company shall have
12
<PAGE>
furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111 (a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and,
subsequent to the dates of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as
described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three days prior to such Closing Date for the purposes of this
subsection.
(h) On or prior to the date of this Agreement, the Representatives
shall have received executed lockup letters, substantially in the form
of Exhibit A hereto, from each of the executive officers, directors and
shareholders of the Company.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information fumished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below.
[ The Company agrees to indemnify and hold harmless the Designated Underwriter
and each person, if any, who controls the Designated Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act (the "Designated Entities"), from and against any and all losses, claims,
damages and
13
<PAGE>
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue statement
of a material fact contained in any material prepared by or with the consent of
the Company for distribution to Participants in connection with the Directed
Share Program or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) caused by the failure of any Participant to pay for
and accept delivery of Directed Shares that the Participant agreed to purchase;
or (iii) related to, arising out of, or in connection with the Directed Share
Program, other than losses, claims, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of the Designated Entities.]
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the o paragraph
under the caption "Underwriting" and the information contained in the o
paragraphs under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. [Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7(a) hereof in respect of such action or proceeding, then in addition to
such separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act of Section 20 of
the Exchange Act.] No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement (i) includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action and (ii) does not include a statement as to, or an admission of,
fault, culpability or a failure to act by or on behalf of an indemnified party.
14
<PAGE>
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
15
<PAGE>
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Greenfield Online Inc.,
15 River Road, Wilton Connecticut 06897, Attention: Jonathan A. Flatow;
provided, however, that any notice to an Underwriter pursuant to Section 7 will
be mailed, delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
16
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
Greenfield Online, Inc.
By
----------------------------------------
Name: Rudy Nadillo
Title: President and Chief Executive Officer
Theforegoing Underwriting Agreement is hereby
confirmed and accepted as of the
date first above written.
Credit Suisse First Boston Corporation
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By: Credit Suisse First Boston Corporation
By
----------------------------------
Name:
Title:
17
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
------------
Total
============
</TABLE>
18
<PAGE>
EXHIBIT A
[FORM OF LOCK UP LETTER]
19
<PAGE>
20
<PAGE>
EXHIBIT 5.1
[FORM OF] OPINION OF PRESTON GATES & ELLIS LLP
[Date]
Greenfield Online, Inc.
15 River Road, Suite 310
Wilton, CT 06897
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
In connection with the registration of __________ shares of common
stock, par value $0.001 per share (the "Common Shares") of Greenfield Online,
Inc. ("the Company") with the Securities and Exchange Commission on a
Registration Statement on Form S-1 (the "Registration Statement"), relating to
the sales, if any, of the Common Shares by the Company, we have examined such
documents, records and matters of law as we have considered relevant. Based upon
such examination and upon our familiarity as counsel for the Company with its
general affairs, it is our opinion that: The Common Shares being registered are
legally issued, fully paid and nonassessable. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
Preston Gates & Ellis LLP
By
G. Scott Greenburg
<PAGE>
Greyrock
Capital
A Bank of America Company
April 13, 2000
Jonathan A. Flatow, General Counsel
Greenfield Online, Inc.
15 River Road, Suite 310
Wilton, CT 06897
Re: Extension of Copyright Covenant
Dear Jonathan:
This will confirm that Greyrock Capital agrees to extend the date by which
Greenfield Online, Inc. is required, under the Loan Documents, to effect the
registration of its copyrightable intellectual property. The current date of
April 1, 2000 is hereby extended to July 1, 2000.
Sincerely,
Greyrock Capital, a division of Banc of America
Commercial Finance Corporation
By /s/ Stephanie Weil
- ---------------------------
Its VP
- ---------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated March 3, 2000 relating to the financial statements of Greenfield
Online, Inc., which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
April 20, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,708,738
<SECURITIES> 0
<RECEIVABLES> 1,854,614
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,470,407
<PP&E> 1,277,630
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,352,988
<CURRENT-LIABILITIES> 5,670,213
<BONDS> 0
0
0
<COMMON> 38,548,783
<OTHER-SE> (38,226,068)
<TOTAL-LIABILITY-AND-EQUITY> 23,352,988
<SALES> 5,557,465
<TOTAL-REVENUES> 5,557,465
<CGS> 2,516,758
<TOTAL-COSTS> 19,269,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,016,239)
<INCOME-PRETAX> (14,728,373)
<INCOME-TAX> 940,452
<INCOME-CONTINUING> (13,787,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (0.56)
<EPS-DILUTED> 0
</TABLE>
