<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2000.
REGISTRATION NO. 333-32974
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
WEBHELP.COM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 13-4095614
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
175 BLOOR STREET EAST
NORTH TOWER, SUITE 400
TORONTO, ONTARIO MRW 3R8
CANADA
(416) 932-2345
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
KERRY E. ADLER
175 BLOOR STREET EAST
NORTH TOWER, SUITE 400
TORONTO, ONTARIO MRW 3R8
CANADA
(416) 932-2345
(Name, address, including zip code and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ANDREW J. BECK, ESQ. JOHN R. UTZSCHNEIDER, ESQ.
Torys Bingham Dana LLP
237 Park Avenue 150 Federal Street
New York, New York 10017 Boston, MA 02110
(212) 880-6000 (617) 951-8000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, 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 this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value............... 6,325,000 $12.00 $75,900,000 $20,038
</TABLE>
(1) Includes 825,000 shares of common stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $22,770 was previously paid.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 31, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD 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.
5,500,000 SHARES
[WEBHELP LOGO]
COMMON STOCK
$ PER SHARE
--------------------------------------------------------------------------------
This is an initial public offering of common stock of Webhelp.com Inc.
We expect that the price to the public in the offering will be between $10.00
and $12.00 per share.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "WHLP" and will apply to list the common stock on The Toronto Stock
Exchange under the symbol "WHP".
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------ ---------------
<S> <C> <C>
Price to the public......................... $ $
Underwriting discount and commissions.......
Proceeds to Webhelp.com Inc.................
</TABLE>
We have granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of 825,000 additional shares
from us, within 30 days following the date of this prospectus to cover
over-allotments.
Our existing stockholders will, in the aggregate, beneficially own approximately
80% of our outstanding shares of common stock after the offering. As a result,
these stockholders, acting together, would be able to control many matters
requiring approval of our stockholders.
--------------------------------------------------------------------------------
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.
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
RBC DOMINION SECURITIES
The date of this Prospectus is , 2000.
<PAGE>
FIRST PAGE--INSIDE COVER (WEBHELP.COM)
(One frame with an image. The frame depicts the Webhelp logo.)
<PAGE>
Second Page (Left)--Inside Cover (Real Questions, Real People, Real Answers,
Real Time):
(Three frames with text. The first frame depicts the Webhelp Plug-in with the
words "Real Questions" underneath and accompanying text states ``In plain
English. Misspellings and typographical errors are no problem". The second frame
accompanies text labeled "Real People" and contains a picture of a woman sitting
with a laptop on a large globe with a cloudy sky above; accompanying text states
"Skilled Web Wizard-TM- professionals answer your questions 24 hours a day,
365 days a year". The third frame accompanies text labeled "Real Answers" and
contains a picture of our Web site while a question is being answered;
accompanying text states "Tired of wasting time? Our Web Wizard-TM-
professionals can provide fast, relevant answers to some of the most challenging
questions." At the bottom of the page appears the words "Real Time.")
<PAGE>
THIRD PAGE (RIGHT)--INSIDE COVER (THE WEBHELP PORTAL; WEBHELP DIRECT):
(Two frames with images and text. At the top of the page is a depiction of the
Webhelp Direct-TM- logo with the accompanying text underneath stating ``Business
to Business Services." The first frame is a picture of a client's Website with
the accompanying text stating ``Outsourced human-assisted online sales and
customer support." The second frame is a picture of a flow chart depicting
Webhelp's infrastructure with the accompanying text ``Proprietary technology
integration for collaboration and communication with Web-based customers." At
the bottom of the page appear the words "Humanize your Web site.")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 22
Use of Proceeds............................................. 23
Dividend Policy............................................. 23
Capitalization.............................................. 24
Dilution.................................................... 25
Selected Consolidated Financial Data........................ 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 34
Technology.................................................. 47
Management.................................................. 50
Principal Stockholders...................................... 58
Certain Transactions........................................ 61
Description of Capital Stock................................ 63
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 68
Legal Matters............................................... 71
Experts..................................................... 71
Where You Can Find More Information......................... 71
Index to Consolidated Financial Statements.................. F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS THE INFORMATION CONTAINED IN OTHER PARTS OF THIS
PROSPECTUS. BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY.
WEBHELP
We provide live, human-assisted customer, sales and technical support over the
Internet. Our support services are provided 24 hours a day, seven days a week
using our Internet-based technology platform. Our platform routes text-based
chat engagements with customers to one of our more than 500 trained agents,
known as "Web Wizard professionals." These Web Wizard professionals, who are
generally outsourced, help the customers of our clients by answering their
questions on topics such as how to navigate our clients' Web sites, how to
locate products and services and how to complete online purchases.
We sell our support services, marketed to our corporate clients under the name
Webhelp Direct, through our direct sales force of 32 individuals. We target
organizations that sell to or service a large online customer base. We currently
have 14 clients including Microsoft, Norelco, Money.net, Auctionworks, Community
Connect and LessonLink.
We believe that the human assistance provided by our trained Web Wizard
professionals combined with our support services platform provide our clients
with a number of benefits, including:
- the ability to increase e-commerce revenue by using our services to
facilitate the buying process and increase the likelihood of a completed
purchase;
- improved online consumer satisfaction, customer retention and brand
loyalty for our clients; and
- implementation without the need for clients to purchase hardware or
software or train personnel.
In addition to our Webhelp Direct service, we operate a consumer portal located
at WWW.WEBHELP.COM. On our Webhelp portal, our Web Wizard professionals provide
individual users with live, human-assisted search services to locate products,
services and content on the Internet. We use our Webhelp portal primarily as a
training tool for new Web Wizard professionals, as a way to test new technology
applications, as a marketing tool for prospective clients, and as a source of
advertising revenue.
The inability of online businesses to assist consumers in navigating through
complex product offerings and purchase procedures can frustrate consumers and
cause them to abandon purchases. In addition, to remain competitive, many
companies are outsourcing their customer services in order to reduce costs,
increase efficiencies and refocus critical resources. As a result, we believe
that a significant opportunity exists for live, person-to-person support
services over the Internet.
COMPANY
We were incorporated on May 27, 1999 and launched our Webhelp portal on
November 30, 1999. From May 27, 1999 through March 31, 2000, we earned
substantially all of our revenue from advertising on our Webhelp portal. In
March 2000, we launched our Webhelp Direct service and began earning revenue
from corporate clients. In the future, we expect to earn revenue from other
services including e-commerce transaction fees, Internet-based educational
services, license and service fees from international joint ventures to provide
our live, human-assisted customer support and search services in foreign
languages and subscription services. Our principal executive offices are located
at 175 Bloor Street East, North Tower, Suite 400, Toronto, Ontario MRW 3R8,
Canada. Our telephone number is (416) 932-2345. Our Web site is located at
http://www.webhelp.com.
1
<PAGE>
RISK FACTORS
Investment in our common stock involves a high degree of risk. Those risks
include, without limitation, the following:
- we only began offering our services on November 30, 1999;
- we have never operated at a profit and during the period from inception
through June 30, 2000 we have had losses totaling $19.9 million;
- we expect to continue to incur losses in the foreseeable future;
- the Internet is a highly competitive market with relatively low barriers
to entry;
- after the offering, our existing stockholders will, in the aggregate,
continue to control 80% of our common stock and will be able to control
the election of directors and other matters requiring shareholder
approval; and
- after the offering, our officers, directors and their affiliates will,
through their beneficial ownership of approximately 62% of our common
stock, be able to control the election of directors and other matters
requiring shareholder approval.
Other risks relating to our business, our industry and this offering are
included on pages 5 to 21.
The following trademarks of Webhelp.com are used throughout this prospectus:
Webhelp, Webhelp.com, Webhelp Express, Web Wizard, Webhelp Direct and Real
People. Real Answers. Real Time. This prospectus also contains trademarks and
registered trademarks of companies other than Webhelp.com. Any information
included on our Web site is not a part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us............. 5,500,000 shares
Common stock to be outstanding after
the offering......................... 28,203,433 shares
Use of proceeds........................ We intend to use the net proceeds to fund operations and
capital expenditures, including expansion of our marketing
and brand-building efforts, expansion and building of Web
Centers, selected acquisitions of complementary
technologies or businesses, and for general corporate
purposes, including working capital needs.
Proposed Nasdaq National Market
symbol............................... WHLP
Proposed Toronto Stock Exchange
symbol............................... WHP
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of July 31, 2000, excluding up to
3,500,000 shares reserved for issuance under our 1999 Long Term Incentive Plan.
Except as noted otherwise, all information in this prospectus assumes:
- no exercise of the underwriters' over-allotment option;
- the automatic conversion of all our outstanding preferred stock into
8,486,968 shares of common stock upon the closing of this offering; and
- a 1-for-2.2 reverse stock split of our common stock effected prior to the
closing of this offering.
3
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The summary consolidated balance sheet data below as of June 30, 2000 is
presented on:
- an actual basis;
- a pro forma basis to reflect the conversion of all of the outstanding
shares of preferred stock into 8,486,968 shares of common stock upon the
closing of this offering; and
- an as adjusted basis to reflect the pro forma basis described above and to
reflect the sale of 5,500,000 shares of common stock that we are offering
under this prospectus at an assumed initial public offering price of
$11.00 per share after deducting estimated underwriting discounts and
commissions and the estimated offering expenses.
<TABLE>
<CAPTION>
FOR THE PERIOD SIX MONTHS
MAY 27, 1999 TO ENDED
DECEMBER 31, 1999 JUNE 30, 2000
------------------ ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................... $ 29,857 $ 1,100,010
Gross profit (loss)........................................ (815,059) (4,437,831)
Operating loss............................................. (4,875,834) (15,465,956)
Net loss and comprehensive loss for the period............. $ (4,905,987) $(14,946,513)
============ ============
Net loss per share basic and diluted....................... $ (0.45) $ (1.28)
============ ============
Weighted average number of shares outstanding used to
compute basic and diluted net loss per share............. 10,918,257 11,716,465
Pro forma net loss per share basic and diluted............. $ (0.45) $ (0.74)
============ ============
Weighted average number of shares outstanding used to
compute pro forma basic and diluted net loss per share... 11,019,277 20,203,433
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $14,501,461 $14,501,461 $69,516,461
Working capital....................................... 9,324,498 9,324,498 64,339,498
Total assets.......................................... 23,669,841 23,669,841 78,684,841
Total stockholders' equity............................ 14,408,766 14,408,766 69,423,766
</TABLE>
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES.
RISKS RELATED TO OUR BUSINESS
IT IS EXTREMELY DIFFICULT TO EVALUATE OUR PROSPECTS OR FUTURE RESULTS BECAUSE
OUR BUSINESS MODEL IS UNPROVEN, WE ONLY RECENTLY BEGAN TO GENERATE REVENUE, WE
HAVE A LIMITED OPERATING HISTORY AND WE MAY NEVER ACHIEVE PROFITABILITY
We were incorporated on May 27, 1999 and generated no revenue prior to the
launch of our Webhelp portal on November 30, 1999. Therefore, we have a limited
operating history for you to use in evaluating our prospects and our historical
financial information is of limited value in projecting our future operating
results. Due to our limited operating history, you should not take our recent
financial results as indicative of the rate of growth, if any, that you can
expect in the future. As a strategic response to a rapidly changing competitive
environment, we may choose to make pricing, service or marketing decisions or
acquisitions that would adversely impact our operations and profitability. We
cannot be certain that our business strategy will be successful or that we will
ever become profitable.
FROM OUR INCEPTION THROUGH JUNE 30, 2000, WE HAVE INCURRED NET LOSSES TOTALING
$19.9 MILLION AND EXPECT TO CONTINUE TO INCUR NET LOSSES AND NEGATIVE CASH FLOWS
FROM OPERATIONS WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE
We have incurred significant losses since our inception and expect to incur
increasing losses and have negative cash flows for the foreseeable future. For
the period from our inception, May 27, 1999, to June 30, 2000, we have reported
cumulative net losses of $19.9 million. For the six months ended June 30, 2000,
we recorded a net loss of $14.9 million and as of June 30, 2000, we had an
accumulated deficit of $29.9 million. We reported a net loss of $0.45 per share
for the period from our inception to December 31, 1999 and a loss of $1.28 per
share for the six months ended June 30, 2000. We expect that we will continue to
incur losses and generate negative cash flow in the future as we continue to
expend financial and management resources to develop our brand loyalty through
marketing and promotion, enhancement of our existing services and expansion into
other services. Our inability to stem our net losses and generate positive cash
flow could cause our stock price to decline.
IF OUR OPERATING EXPENSES AND COST OF REVENUE CONTINUE TO EXCEED OUR REVENUE
GROWTH WE WILL NEVER BE ABLE TO ACHIEVE PROFITABILITY
The size of our losses will depend to a significant extent on the rate of growth
of our operating costs and cost of revenue as compared with any revenue growth.
We currently expect that our operating expenses, which were $11.0 million for
the six months ended June 30, 2000, will continue to increase as we expand our
infrastructure, sales and marketing operations, fund further development and
enhancements to our Webhelp portal, expand our administrative staff and develop
and acquire complementary technologies. The amount of expenditures in these
areas will depend upon numerous factors including our ability to attract
financing, our rate of growth, the effectiveness of our marketing initiatives
and the competitiveness of our market. We currently expect that the majority of
the proceeds from this offering will be invested in these areas over a
three-year period. We expect that our cost of revenue will increase at a rate
that may exceed our revenue growth due to continued investment in developing our
technology infrastructure and our Webhelp portal content as well as the further
development of our customer service capabilities provided by our outsourced
contractors who employ the Web Wizard professionals. We may also incur costs
connected with the expansion of our Web Centers. Because we currently make our
Webhelp portal services available free of charge, we will incur costs relating
to Web Wizard professionals without corresponding direct revenue sufficient to
cover this
5
<PAGE>
expense. In addition, as we grow, we will add Web Wizard professionals and will
incur the related costs associated with recruiting, training and quality
assurance. These Web Wizard professional costs may grow faster than our ability
to use the added Web Wizard professionals efficiently. This will cause us to
incur more costs than we may be able to recover from the related revenue. We
also may incur costs relating to operating inefficiencies that may exist within
the Web Centers as a result of uneven call traffic flow, training inadequacies,
technology problems or as a result of our decision to increase staff levels in
the Web Centers in advance of business demands, and costs associated with the
development, marketing and implementation of new service offerings. If we are
unable to reduce the increases in our operating costs and/or if our revenue
growth does not begin to exceed those operating costs, we will not achieve
profitability.
OUR OPERATING RESULTS MAY BE VOLATILE AND DIFFICULT TO PREDICT, WHICH MAY CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
We have a limited operating history, and as our business develops, we may be
subject to material fluctuations in our revenue and operating results. We
currently incur a significant level of fixed expenditures for operating expenses
related to the development of our business excluding costs of revenue,
discretionary marketing and depreciation and amortization. The level of these
fixed expenditures is currently approximately $1.1 million per month. We expect
our revenue and operating results to fluctuate due to a number of factors such
as changes in advertising rates and timing and seasonality of marketing
expenditures. Due to our limited operating history and our inability to
accurately predict our revenue, we may not be able to predict our operating
results, or take actions on a timely basis with respect to reducing costs to
mitigate the impact of changes in our revenue. This could result in significant
variations in our operating results from quarter to quarter. As a result, our
quarterly revenue and operating results may fluctuate, adversely affecting the
market price for our stock, our ability to raise future capital as may be
required from time to time and our long-term viability.
IF WE DO NOT ATTRACT AND TRANSITION CLIENTS ON A TIMELY BASIS, WE WILL NOT
GENERATE SUFFICIENT REVENUE OR ACHIEVE PROFITABILITY
Our ability to generate revenue from clients on a timely basis will be affected
by the amount of time it takes us to sell our services to these clients, the
amount of time it takes us to transition these clients' services onto our
service platform, the costs of this transitioning and the length of these client
contracts. We currently do not have a sufficient history of selling our services
to predict accurately what our average sales cycle will be. We believe that the
average sales cycle from the time we deliver an active proposal to a client
until the time we deliver our first services will range from between one and six
months. The time it takes to transition a client onto our services will depend
upon the nature of the services we will be providing. To date, our limited
experience suggests that we can transition a client onto our services in under
one month. We believe that many of our clients will want to run a test period
for our services before they enter into a longer term contract. As such, our
initial contracts will likely be for a period of up to 90 days. We expect that
thereafter, our contracts will generally have a one-year term. The cost of
transitioning clients onto our services, and the initial training and
development costs associated with individual contracts will vary with each
contract. If we are unable to minimize these transition costs, or to recover the
costs of these transitions from our customers, our operating results will be
adversely affected.
IF WE FAIL TO RETAIN CLIENTS IT MAY HAVE AN ADVERSE EFFECT ON OUR REVENUE
In fiscal 2000, we expect that revenue from clients will be derived from a
limited number of clients. We currently have 14 clients. If we do not complete
sales or grow existing accounts to a sufficient number
6
<PAGE>
of clients, our future revenue will not meet our current expectations and this
could impact our profitability, cash flow and the market value of our common
stock.
We expect that our client contracts will generally have a one-year term
following a 60 to 90-day trial period for implementation of our Webhelp Direct
services. As a result, if we are unable to offer valuable services to our
clients during the term of these contracts, if our clients choose a competitor's
service over our service, or if these clients decide to use their own
proprietary technology to develop services similar to ours, these clients may
not renew their contracts. If we do not obtain a sufficient number of contract
renewals or if these renewal contracts are obtained on terms less favorable than
the original contracts, we will not generate sufficient revenue to succeed.
IF TEXT-BASED CHAT IS NOT ADOPTED BROADLY AS A MEANS OF PROVIDING CUSTOMER,
SALES AND TECHNICAL SUPPORT, OUR BUSINESS STRATEGY COULD FAIL
Our business strategy is focused on providing customer, sales and technical
support services on both our clients' Web sites and our Webhelp portal,
primarily using text-based chat. We have invested most of our funds to date in
developing, marketing and operating our text-based chat platform and Web Wizard
services. There are several alternative means of providing services similar to
ours using other technologies, including FAQ databases, e-mail response systems,
telephone call centers and, more recently, voice over IP. If text-based chat
does not become an accepted means of providing customer, sales and technical
support, our business could fail. It is difficult to predict the extent and rate
of user adoption of our services. We cannot assure you that our services will be
broadly accepted.
OUR INABILITY TO MAINTAIN HIGH USER TRAFFIC TO OUR WEBHELP PORTAL COULD
NEGATIVELY AFFECT OUR ARRANGEMENTS WITH ADVERTISERS AND SPONSORS, AND THEREFORE
REDUCE OUR REVENUE
If we do not maintain high user traffic to our Webhelp portal, we may be
required to provide advertisers and our co-branded content providers, known as
sponsors, with free advertising space or reduce the fees they pay, thereby
lowering our revenue. Our agreements with advertisers and sponsors often require
that we display an advertisement a minimum number of times or require a minimum
number of user requests for additional content made by clicking on the
advertisement or promotional hyperlink. If we do not meet these minimum use
targets, we may not be entitled to any revenue under these agreements. We may
receive sponsorship fees as well as a portion of transaction revenue received by
third-party sponsors from Internet users originated through our Webhelp portal.
If we fail to deliver these minimum use targets, the sponsors typically either
decrease the fees payable to us or we maintain the co-branded content on our
Webhelp portal free for a "make good" period.
Sponsors may terminate their relationship with us if we are unable to meet the
minimum use targets described above. Our contracts with sponsors typically have
short terms of one year or less and are terminable on relatively short notice,
usually 30 days. We may not be able to attract additional sponsors or renew
existing sponsorship agreements if they terminate, which would decrease an
important source of our future revenue. A termination would also waste resources
and significant programming and design efforts that we may have dedicated to
integrating sponsors' content with our Webhelp portal.
IF WE DO NOT INCREASE THE CONTENT AVAILABLE ON OUR WEBHELP PORTAL TO ATTRACT NEW
USERS AND INCREASE ADVERTISING REVENUE, WE MAY NOT ACHIEVE PROFITABILITY
In order to increase advertising rates and advertising revenue, we will need to
continue to increase the content available on our Webhelp portal in an effort to
increase the number of users who visit our Webhelp portal, and the length of
time that they spend online at our Webhelp portal. As we invest in new content,
the costs of this content may increase faster than the corresponding revenue.
The size of our losses will also depend, in part, on our ability to attract and
increase revenue from advertisers, individual users and corporate clients.
Consequently, it is possible that we may never achieve
7
<PAGE>
profitability, and if we do achieve profitability, we may not be able to achieve
profitability on a sustainable basis. If we do not achieve profitability on a
sustainable basis in the future, we may be unable to continue our operations.
WE FACE RISKS RELATED TO EXPANDING INTO RELATIVELY NEW SERVICES AND BUSINESS
AREAS, AND IN PARTICULAR E-COMMERCE, IN WHICH WE HAVE LITTLE EXPERIENCE
To increase our revenue, we will need to expand our operations by promoting new
or complementary services and by expanding the breadth and depth of our
services. In particular, we believe that our future success will depend largely
on our ability to substantially increase our revenue from providing customer
service, such as online customer interactive chat for businesses that seek to
facilitate and enhance e-commerce transactions. We only recently entered this
market and have little experience in it. The expansion of our e-commerce
services will require additional development resources. Our expansion into new
service offerings may not be timely or may not generate sufficient revenue to
offset the cost of these offerings. If this occurs, our business, operating
results and financial condition will be materially and adversely affected.
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY FOR ADVERTISING, OUR BUSINESS MAY FAIL
Competition could result in less user traffic to our Webhelp portal, price
reductions for our advertising, limitations on our ability to charge a
subscription fee for our premium Webhelp Express service or decreases in any
future subscriber fees we charge for the Webhelp Express service, reduced
margins or increased losses to maintain market share and loss of market share,
any of which would have a material adverse effect on our business, results of
operations and financial condition. We face intense competition for users and
for advertisers. Many of our competitors and potential competitors have longer
operating histories, larger user bases, longer relationships with consumers,
greater brand or name recognition and significantly greater financial, technical
and marketing resources than we do. As a result of their greater resources, our
competitors may be in a position to respond more quickly to new or emerging
technologies and changes in consumer requirements, to develop and promote their
services more effectively than we do or may try to replicate our live,
human-assisted customer support and search model. It is possible that one or
more of our competitors may dominate one or more market segments.
THERE ARE FEW BARRIERS TO ENTRY IN OUR MARKET AND IF LARGER COMPANIES WITH
GREATER RESOURCES OFFER COMPETING SERVICES, OUR BUSINESS COULD FAIL
We expect competition for the type of services we provide to increase because
there are no substantial barriers to entry in our market. New market entrants
pose a threat to our business. While we have applied for a patent in respect of
our system architecture, this would not preclude or inhibit competitors from
entering our markets. Existing or future competitors may develop or offer
technologies or services that are comparable or superior to ours, which could
harm our business. Competition may also increase as a result of industry
consolidation. We may not be able to compete successfully. There exists today
commercially available technology that allows companies to provide chat-based
services to users. Therefore, technology in itself is not a significant barrier
to entry for potential competitors. There is no reason to believe that
competitors could not develop competing services.
WE MUST COMPETE SUCCESSFULLY OR WE WILL LOSE MARKET SHARE AND OUR BUSINESS WILL
FAIL
The market for our services is intensely competitive, rapidly changing and
significantly affected by the introduction of new products and services. We
compete on the basis of price, customer service and technical capabilities.
Competitive pressures could reduce our market share or require us to reduce the
price of our services which would harm our business and operating results.
Webhelp Direct competes
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against software developers, service providers and other large enterprise
software companies and established technology companies. Competitors in the
software development category include those whose principal business is e-mail
management software, such as Kana and eGain, those who focus on self-service
knowledge base software, such as AskJeeves, Primus and Support.com, and those
who specialize in chat software, such as Liveperson, Facetime and Webline.
Competitors in the service provider category provide outsourced online customer
support, and include PeopleSupport, Brigade Solutions and eAssist as well as
some traditional call centers that now offer online support services. Our
consumer portal faces direct competition from companies that provide
Internet-wide search, expert search and Web directory services such as
AskJeeves, About.com and Yahoo.
Our potential competitors may have longer operating histories, significantly
greater financial, technical or other resources or greater name recognition than
we do. Our competitors also may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. If we are unable to
compete successfully, we may lose, or may not be able to increase, our market
share, or we may be forced to reduce our prices in order to maintain and
increase our market share. As a result, our results of operations and financial
condition could be materially adversely affected.
COMPETITION TO ATTRACT ADVERTISING REVENUE IS INTENSE AND IF WE ARE NOT ABLE TO
ATTRACT INCREASED ADVERTISING REVENUE OUR BUSINESS COULD FAIL
We compete with other Internet portals and Web sites to attract Internet users,
advertisers and sponsors. We also compete with traditional offline media,
including print and television, for a share of advertising budgets. There is
particularly intense pressure from advertisers to offer lower cost advertising
on the Internet which makes it difficult to project future advertising revenue.
We are vulnerable to this pressure since we currently receive almost all of our
revenue from selling advertising space and sponsorships on our Webhelp portal.
IF WE ARE NOT ABLE TO DELIVER OR MEASURE THE DELIVERY OF ADVERTISEMENTS
RELIABLY, OUR ADVERTISING REVENUE COULD DECREASE SIGNIFICANTLY
We currently rely on advertising as our largest source of revenue. We rely on
third-party advertising managers to sell, manage and deliver advertising on our
Webhelp portal. Until April 2000, we relied exclusively on 24/7 Media, Inc. as
our advertising manager and we now rely on a combination of third-party
advertising managers and internal sales efforts. If our third-party advertising
managers fail to sell sufficient advertising, fail to sell advertising at
sufficient rates, fail to deliver the advertisements contracted for due to
reliability or performance problems, or if advertisements cannot be targeted as
promised to advertisers, our revenue will decrease.
The process of reliably delivering and tracking advertising placement within Web
sites is an increasingly important and complex task, and currently available
software programs and other tracking methods are rapidly evolving. To the extent
that we or our third-party advertising managers encounter system failures or
material difficulties in the operation of our advertising management system, we
could be unable to deliver advertisements through our Webhelp portal. Any
extended failure of, or other material difficulties with, our advertising
management system may require us to provide advertising free of charge. In
addition, advertisers may not advertise on our Webhelp portal or may pay less
for advertising if they do not perceive our measurements of impressions and
click-throughs to be accurate and reliable.
THE FAILURE OF OUR SYSTEMS COULD IMPAIR OUR ABILITY TO ATTRACT AND RETAIN
CORPORATE CLIENTS, INTERNET USERS AND ADVERTISERS
The quality of our services is critical to our reputation and to the marketplace
acceptance of our services and, accordingly, to our ability to attract corporate
clients to our Webhelp Direct service
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offerings and Internet users to our Webhelp portal. Any system failure that
causes interruptions in the availability of our services could result in
interruptions in our services to our corporate clients and less traffic to our
Webhelp portal. Because revenue from our Webhelp portal is primarily from
advertising, and attracting advertisers is dependent on attracting Internet
users, a reduction in traffic to our Webhelp portal could significantly reduce
our revenue. To date, we have had six incidents of system downtime totaling
14 hours in the aggregate. Similar interruptions are expected to occur from time
to time in the future. If these interruptions continue or are repeated, they
could reduce the attractiveness of our services to corporate clients and
advertisers, businesses and consumers.
Any substantial increase in the use of our services will require us to expand
and adapt our network infrastructure and to add additional software and
hardware. Our inability to add additional hardware, software and network
infrastructure to accommodate such increased use may cause unanticipated system
disruptions. Any failure to do so on a timely basis or on commercially
reasonable terms could have a negative impact on our revenue and profits.
IF THIRD-PARTY VENDORS FAIL TO PERFORM OR DO NOT RENEW OUR CONTRACTS, OUR
SERVICES WILL BE ADVERSELY AFFECTED
The delivery of our services has been and may in the future be interrupted due
to the failure of third-party providers of hardware, software, Internet access
and services. In addition, our success depends to a significant degree upon
retaining our key relationships with our outsourced contractors, who employ and
manage our trained Web Wizard professionals (who are essential to the services
we provide on our Webhelp portal and on the Web sites of our corporate clients).
We rely on Exodus Communications for server support and management, eGain
Communications Corporation for back-end server processing and Onvoy, Inc. for
system backups. These relationships are governed by short-term agreements. If
these agreements were to be canceled or terminated and we were unable to replace
or renew these agreements on satisfactory terms, our ability to service traffic
to our Webhelp portal would be compromised. In addition to these agreements, we
have arrangements with Indian companies to provide Internet services. We depend
on eGain Communications Corporation for collaboration server technologies.
We are also dependent on hardware suppliers for prompt delivery, installation,
repair and maintenance of servers and other equipment and services used to
provide our services. Substantially all of our hardware operations are located
at our computer facility in the Chicago, Illinois site of Exodus
Communications, Inc. We back up our data daily at the Plymouth, Minnesota site
of Onvoy, Inc. We also outsource a portion of our hardware operations to eGain
Communications, Inc. A system failure at any of our operations locations may
harm the performance of our services. Our systems are vulnerable to damage from
fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events. Our servers are also vulnerable to computer viruses and
similar disruptive problems. Computer viruses or other problems caused by third
parties could lead to interruptions, delays or halts in service. The occurrence
of any of these risks could harm our business and could have a negative effect
on our revenue and profits.
Furthermore, because our back-up telecommunications links in India are not as
reliable and do not have as much bandwidth as our primary link, if one or more
of the telecommunications links between our servers in the United States and one
or more of our Web Centers in India were severed or impaired, our operations
could be severely disrupted.
In addition, our registered users depend on Internet Service Providers, or ISPs,
other online service providers and other Web site operators for access to our
Webhelp portal. Many of these service providers have experienced significant
outages in the past and could experience outages, delays and other operating
difficulties in the future due to system failures. In addition, our users have
experienced difficulties due to browser and provider system failures unrelated
to our systems and services. Users
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who browse the Internet using versions 3.0 or lower of either Netscape or
Internet Explorer may experience some degradation in our services.
WE ARE RELYING ON A COSTLY BRAND DEVELOPMENT STRATEGY TO INCREASE REVENUE, AND
IF THIS STRATEGY IS NOT SUCCESSFUL OUR BUSINESS COULD FAIL
Our future revenue depends on our ability to develop the Webhelp brand.
Promotion and enhancement of the Webhelp brand will depend largely on our
ability to provide consistently high-quality services. We are pursuing an
aggressive brand-enhancement strategy, which includes business-to-business, or
B2B, mass market and multimedia advertising, promotional programs as well as
public relations activities. In pursuing this strategy, we will incur
significant marketing and branding expenditures, including $6.0 to $8.0 million
in fiscal 2000 for advertising and promotional programs and other activities.
These expenditures may exceed any resulting increase in revenue. In addition,
even if brand recognition increases, the number of new individual and corporate
users of our services may not increase. Further, even if the number of new users
increases, the amount of traffic on our Webhelp portal and the number of
corporate clients who use our customer relations services may not increase
sufficiently to justify these expenditures. If our brand enhancement strategy is
unsuccessful, these expenses may never be recovered and we may be unable to
increase future revenue.
THE LOSS OF MEMBERS OF OUR SENIOR MANAGEMENT TEAM COULD HAVE A NEGATIVE EFFECT
ON OUR BUSINESS
Our success depends to a significant degree upon the contributions of members of
our executive management team, particularly Kerry Adler, our President and Chief
Executive Officer. We believe that the management and technological skills they
possess in establishing and maintaining multiple Web Centers and establishing
training programs for hundreds of Web Wizard professionals in customer service
would be difficult to replace. The loss of the services of Mr. Adler or other
members of our executive management team could disrupt our growth or result in
lost revenue. In addition, because we have a limited operating history, our
senior managers are still becoming integrated as a management team and may not
work effectively as a team to successfully manage our business.
IF WE DO NOT HIRE AND RETAIN THE SKILLED PERSONNEL THAT WE NEED TO BE
SUCCESSFUL, WE MAY BE UNABLE TO MANAGE AND GROW OUR BUSINESS
Our success depends upon our continued ability to attract and retain key
personnel, including highly qualified operations and client service managers,
technical personnel, sales personnel and marketing personnel. We seek to hire
personnel who have experience in the Internet industry and the customer support
industry. There is intense competition among Internet companies for this
personnel and locating and hiring personnel with the combination of skills and
attributes we require may be a lengthy process. In addition, it is often more
difficult to attract employees once a company's stock is publicly traded because
the exercise price of equity awards such as stock options is generally based on
the public market price, which is highly volatile in our industry. We may be
unable to attract, integrate or retain other highly qualified employees in the
future. The loss of the services of key personnel or the inability to attract
additional qualified personnel could have a material adverse effect on our
business, financial condition and results of operations.
IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE THE POTENTIAL GROWTH OF OUR BUSINESS WE
MAY NOT BE ABLE TO MEET OUR REVENUE AND PROFITABILITY TARGETS, WHICH COULD CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
The growth of our business has resulted, and is expected in the future to
result, in growth in the number of our employees and in increased responsibility
for both existing and new management personnel. We cannot assure you that our
systems, procedures or controls will be adequate to support our operations or
that we will be able to manage our growth effectively. To the extent we continue
to
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grow and do not manage this expansion successfully, our ability to retain key
personnel and our business, operating results and financial condition could be
materially and adversely affected.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE IN ORDER TO FUND OUR
OPERATIONS AND IMPLEMENT OUR GROWTH STRATEGY AND IF WE DO NOT OUR BUSINESS MAY
FAIL
We may need to raise additional funds through the public or private sale of our
equity or debt securities or from other sources to fund our operations and our
growth. We cannot assure you that additional funds will be available when we
need them, or that if funds are available, they will be available on terms
favorable to us or our stockholders. If we are not able to obtain sufficient
funds or if adequate funds are not available on terms acceptable to us, we may
not be able to develop or enhance our services. A lack of sufficient funds could
also prevent us from taking advantage of market opportunities or being able to
respond to competitive pressures. Any of these results could have a material
adverse effect on our business, financial condition and results of operations.
ANY ADDITIONAL ISSUANCES OF OUR EQUITY OR DEBT SECURITIES TO RAISE ADDITIONAL
FUNDS COULD SERIOUSLY DILUTE YOUR PERCENTAGE OWNERSHIP IN US
If we raise funds in the future by issuing additional stock or debt that is
convertible into additional stock, your percentage ownership in our company may
be significantly reduced. Certain types of equity securities that we may issue
in the future could have rights, preferences or privileges senior to your rights
as a holder of our common stock.
IF WE ARE NOT ABLE TO IDENTIFY SUITABLE ACQUISITION AND INVESTMENT CANDIDATES AT
REASONABLE PRICES OUR BUSINESS STRATEGY WILL BE NEGATIVELY AFFECTED WHICH COULD
CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE
Part of our business strategy is to expand by making acquisitions of and
investments in other businesses and technologies. We are continually evaluating
potential acquisitions of additional technologies and assets, as well as
selected businesses. We may not be able to identify additional suitable
acquisition candidates available for sale at reasonable prices or to complete
any desired acquisitions. If we are unable to find suitable acquisition
candidates or if we are forced to make acquisitions at prices we do not believe
are reasonable, we will not be able to execute one of the elements of our
business strategy and our revenue may be less than we anticipate. In connection
with any future acquisitions, we may have to issue equity securities, which
would dilute the ownership interest of all our stockholders, or incur additional
debt.
WE MAY HAVE TROUBLE INTEGRATING ANY OF THE FUTURE BUSINESSES AND TECHNOLOGIES WE
MAY ACQUIRE WHICH COULD AFFECT THE SUCCESS OF OUR BUSINESS
Any acquisition that we may pursue could involve numerous additional risks,
including difficulties in integrating the operations, services, products and
personnel of the acquired business. We may not be able to successfully integrate
any or all of the businesses we may acquire into our operations. Our systems,
procedures or controls may not be able to support increased operations resulting
from acquisitions. Acquisitions also divert management's attention from other
business objectives. We also encounter risks by entering markets in which we
have little or no experience. We may make investments in companies involved in
the development of technologies or services that are complementary or related to
our operations in the future. We cannot assure you that any investments in these
companies will result in any return, nor can there be any assurance as to the
timing of any return.
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IF WE ARE UNABLE TO FIND SUITABLE CANDIDATES TO ENTER INTO INTERNATIONAL
ARRANGEMENTS WITH, OUR BUSINESS STRATEGY MAY FAIL
To increase revenue, we plan to expand internationally through licensing and
service arrangements to provide our services in languages other than English. On
June 6, 2000, we entered into an agreement with an investment group comprised of
numerous investors led by Europ@Web to establish a new company to provide our
live, human-assisted customer support and search services in the French
language. We are also considering offering our services in other languages
through similar arrangements. We cannot assure you that we will be able to
negotiate any other acceptable partnership or joint venture arrangements in the
future, that these arrangements will be successful or that potential partners
will not pursue alternative means of providing live, human-assisted customer
support and search services. Whether or not the parties with whom we enter into
licensing and service arrangements will devote sufficient resources to the
venture will be beyond our control. Depending on our obligations and rights in
these potential licensing and service arrangements, any termination or
cancellation of these arrangements could also adversely affect our financial
condition and results of operations.
WE HAVE LIMITED EXPERIENCE IN CONDUCTING INTERNATIONAL OPERATIONS AND THEREFORE
ARE NOT ABLE TO QUANTIFY THE COSTS AND RISKS OF ENTERING INTERNATIONAL MARKETS
OR THE REVENUE WE MAY GENERATE
We believe that international expansion is important to our ability to continue
to grow and market our services globally. In marketing our services globally,
however, our operating costs will increase and we will face new competitors. In
addition, our ability to enter international markets will be dependent upon our
ability to create localized versions of our services. We cannot assure you that
we will be successful in creating versions of our services for international
markets, or marketing or distributing our services abroad. In addition, we are
currently unable to quantify the costs of entering an international market or,
once established, maintaining international operations, and there can be no
assurances that our international revenue will be adequate to offset this
expense. To date, we have limited experience in marketing and distributing our
services internationally.
In addition to the uncertainty of profitability from establishing an
international presence, there are difficulties and risks inherent in doing
business on an international level, such as:
- compliance with foreign regulatory requirements and changes in those
requirements;
- trade barriers;
- protection of intellectual property rights in foreign markets which may
not offer the same level of protection as in the United States; and
- difficulties in staffing and managing international operations.
We cannot assure you that one or more of these factors will not have a material
adverse effect on any international operations established by us and,
consequently, on our business, results of operations and financial condition.
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MANY OF OUR WEB WIZARD PROFESSIONALS ARE LOCATED IN INDIA AND ANY ADVERSE
CHANGES IN INDIAN GOVERNMENT POLICIES OR ECONOMIC OR POLITICAL CONDITIONS MAY
NEGATIVELY AFFECT OUR OPERATIONS
Our offering of live, human-assisted customer support and search services over
the Internet is highly dependent on our Web Wizard professionals. Many of our
Web Wizard professionals are currently located in India, in part to reduce our
operating costs. Our ability to service traffic to our Webhelp portal may be
affected by changes in Indian government policy, taxation, social and ethnic
instability and other political, economic or other developments in or affecting
India. Since achieving independence in 1947, India has had a mixed economy with
a large public sector and an extensively regulated private sector. Indian
central and state governments have in the past, among other things:
- imposed controls on prices of a broad range of goods and services;
- restricted the ability of private sector enterprises to expand capacity,
reduce production or employment, or enter new businesses; and
- allocated raw materials and foreign exchange.
The role of the Indian central and state governments in the Indian economy, as
producers, consumers and regulators, remains significant in ways which directly
affect our ability to rely on Web Wizard professionals based in India. We cannot
assure you that the economic liberalization policies pursued by recent
governments during the past decade will be continued or that changes in Indian
government policies or future developments in the Indian economy may not
adversely affect our operations. If they were not continued, our operating
expenses could increase or we could be unable to continue to use Indian
outsourced service providers at all.
OUR OUTSOURCED CONTRACTORS IN INDIA MAY BE UNABLE TO ATTRACT QUALIFIED WEB
WIZARD PROFESSIONALS WHICH COULD AFFECT THE QUALITY OF THE SUPPORT SERVICES WE
OFFER
Our Web Wizard professionals are employees of companies providing outsourced
personnel services to us, and must be educated and fluent in English. Because
the services of Web Wizard professionals are being provided to us through these
outsourced companies, we have less control over these Web Wizard professionals
which could impair the quality of their work. If we are unable to attract a
sufficient number of qualified Web Wizard professionals at current compensation
levels the quality of our support services may suffer or we may have to incur
increased operating costs to obtain qualified professionals.
ECONOMIC SANCTIONS IMPOSED ON INDIA BY THE UNITED STATES COULD RESTRICT OUR
INDIAN WEB CENTERS' ACCESS TO TECHNOLOGY AND LIMIT OUR ABILITY TO RELY ON WEB
WIZARDS PROFESSIONALS IN INDIA
In May 1998, the United States imposed economic sanctions against India in
response to India's testing of nuclear devices. Since then, the United States
has waived some of these sanctions after discussions with the government of
India. These sanctions, or additional sanctions, could restrict our access to
technology that is required to construct and operate the Web Centers providing
us with services. We cannot assure you that any of these sanctions will continue
to be waived, that additional economic sanctions of this nature will not be
imposed, or that these sanctions or any additional sanctions that are imposed
will not have a material adverse effect on our business.
WE COULD INCUR SIGNIFICANT WITHHOLDING TAXES AND EMPLOYEE BENEFIT EXPENSES IF
OUR WEB WIZARD PROFESSIONALS WERE DEEMED TO BE OUR EMPLOYEES RATHER THAN
EMPLOYEES OF OUR INDEPENDENT CONTRACTORS
The outsourced service providers that employ Web Wizard professionals act as our
independent contractors. One or more jurisdictions or taxing authorities,
including the Internal Revenue Service, could seek to treat them as our
employees rather than employees of these independent contractors. As
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a result, they may seek to impose taxes, interest and penalties on us. In
addition, employees are generally entitled to healthcare and other benefits that
are typically unavailable to employees of independent contractors. Our business,
results of operations and financial condition would be materially adversely
affected if these claims are made and we do not prevail in opposing them or if
we are required to treat the Web Wizard professionals as employees for tax or
employee benefit purposes or otherwise.
WE ARE DEPENDENT ON OUR INTELLECTUAL PROPERTY, AND OUR METHODS OF PROTECTING OUR
INTELLECTUAL PROPERTY MAY NOT BE ADEQUATE
Our success depends significantly upon our proprietary technology, particularly
our system architecture and interface which are important components of our
service delivery platform. We currently rely on a combination of copyright,
trademark and patent laws, trade secrets, confidentiality procedures and
contractual provisions to protect our proprietary rights. Other parties may
challenge our trademarks, the patent application we have filed or any patent
that may be issued from the application. If challenges are brought or if the
U.S. Patent and Trademark Office disallows our applications, the patent or
trademark registrations may not be granted or, if granted, may be expunged.
Also, we cannot assure you that we will develop additional proprietary services
or technologies that are patentable, that any issued patent will provide us with
any competitive advantages or will not be challenged by third parties, or that
the patents of others will not have a material adverse effect on our ability to
do business. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our services or to obtain and use
information that we regard as proprietary. The laws of some foreign countries do
not protect proprietary rights to as great an extent as do the laws of the
United States. We do not currently have any patents or patent applications
pending in any country outside of the United States. Our means of protecting our
proprietary rights outside of the United States may not be adequate.
Additionally, our competitors may independently develop similar technology,
duplicate our services or design around our intellectual property rights.
WE MAY BECOME INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WHICH COULD IMPAIR
OUR ABILITY TO CONDUCT OUR BUSINESS
There has been substantial litigation in the software and Internet industries
regarding intellectual property rights. We or our licensors may become involved
in claims and counterclaims with third parties regarding infringement with
respect to current or future products or trademarks or other proprietary rights.
Any infringement or other claims or counterclaims could impair our business
because they could:
- be time-consuming;
- result in costly litigation;
- divert management's attention from the effective operation of our
business;
- cause service delays; or
- require us to redesign our services or enter into royalty or licensing
agreements which may not be available on terms acceptable to us, or at
all.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR PERFORMANCE WILL DEPEND ON THE GROWTH AND COMMERCIAL ACCEPTANCE OF THE
INTERNET
Our future success will depend substantially upon the widespread adoption of the
Internet as a primary medium for commerce and business applications. If the
Internet does not become a viable and substantial commercial medium, our
business, operating results and financial condition will be
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materially adversely affected. The Internet has experienced, and is expected to
continue to experience, significant user and traffic growth, which has, at
times, caused user frustration with slow access and download times. The Internet
infrastructure may not be able to support the demands placed on it by continued
growth. There have been regular failures in the Internet infrastructure, and
there are likely to be more in the future, which may undermine our potential
corporate clients' confidence in the Internet as a viable commercial medium.
Critical issues concerning the commercial use of the Internet, such as security,
reliability, cost, accessibility and quality of service, remain unresolved and
may negatively affect the growth of Internet use or the attractiveness of
commerce and business communication on the Internet. In addition, the Internet
could lose its viability if there are delays in the development or adoption of
new standards and protocols to handle increased activity or if there is
increased government regulation and taxation of Internet commerce.
WE MAY NOT BE ABLE TO MAINTAIN ADVERTISING REVENUE IF THE INTERNET IS NOT
ADOPTED AS AN ADVERTISING MEDIUM
We expect to earn a significant portion of our revenue by selling advertisements
on our Webhelp portal. For the period from our inception, May 27, 1999 to
June 30, 2000, advertising revenue represented approximately 76% of our revenue.
In the next three years, we expect that advertising revenue will account for no
less than 20% of our total revenue. We will not be able to sustain or increase
our advertising revenue if the Internet does not develop into an attractive and
sustainable advertising medium. For example, Internet users may purchase
"filter" software programs that limit or remove advertising from the user's
browser display. The widespread adoption of this software could negatively
impact the use of advertising on the Internet. It is also difficult to predict
which method of pricing will be adopted by the industry or advertisers. For
example, our advertising revenue could decrease if advertising rates are based
on the number of users who access the advertiser's Web site from our Webhelp
portal or seek additional information about a product or service by "clicking"
on the advertisement, rather than rates being based solely on the number of
times an advertisement is displayed. In order to maintain and increase
advertising revenue, we must develop a large base of registered users with
demographic characteristics attractive to advertisers. If we are unable to
attract Internet users to our Webhelp portal, advertising revenue could be
impaired, advertisers and sponsors may terminate their agreements with us,
advertisers may not be willing to pay as much as they currently pay to appear on
our Webhelp portal and we may be required to supply our services to advertisers
for free.
SECURITY CONCERNS COULD HINDER E-COMMERCE TRANSACTIONS CONDUCTED OVER THE
INTERNET
The need to transmit confidential information securely over the Internet has
been a significant barrier to conducting commercial transactions and
communicating over the Internet. Any well-publicized compromise of security
could deter some consumers from using the Internet or from using it to conduct
transactions that involve transmitting confidential information, such as stock
trades or purchases of goods or services. Because much of our business strategy
involves consumers' use of the Internet to purchase goods or services, our
business could be adversely affected by security violations by us or our
commerce partners.
We may also incur significant costs to protect against the threat of security
violations or to alleviate problems caused by these violations. These violations
could expose us to a risk of loss or litigation and possible liability. In
addition, we may suffer losses as a result of orders placed with fraudulent
credit card data, even though the consumer's payment for these orders has been
authorized by the associated financial institution.
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WE ARE SUBJECT TO CONCERNS REGARDING PRIVACY OF PERSONAL INFORMATION ABOUT THE
USERS OF OUR SERVICES
We maintain a privacy policy that is displayed on our Webhelp portal. Our policy
is not to disclose willfully any individually identifiable information about any
user of our services to a third party without the user's consent. This
information may include personal identification information, demographic profile
data, user preferences, Web site behavioral data and chat transcripts. We
collect this data from information provided to us by users, users'
click-patterns while on our Webhelp portal or the Web Sites of our corporate
clients and the transcripts of chats between users and our Web Wizard
professionals. Our policy and user choices regarding the dissemination of
personal information collected on our Webhelp portal are accessible to users of
our personalized services when they initially register. In addition, the Federal
Trade Commission and several states have been investigating some Internet
companies regarding their use of personal information. We could incur additional
expenses and reduced revenue if new regulations regarding the use of personal
information are introduced or if our privacy practices are investigated. In
addition, if third persons were able to penetrate our network security or
otherwise misappropriate users' personal information, we could be subject to
costly liability claims. These could include claims for unauthorized purchases,
impersonation or other similar fraud claims, as well as claims for other misuses
of personal information, such as for unauthorized marketing purposes.
WE DEPEND ON THIRD-PARTY CONTENT OVER WHICH WE HAVE NO CONTROL, AND IF USERS ARE
DISSATISFIED WITH THE QUALITY OF THE CONTENT OR ARE REDIRECTED TO OTHER HOME
PAGES OUR SERVICE MAY BECOME LESS ATTRACTIVE TO USERS
Our Internet search service is designed to directly link our users to a page
within a third-party's Web site that presents the answer to a question asked.
However, when we attempt to direct users to a page within these Web sites, some
companies have automatically redirected our users to their home page. If
companies prevent us from directly linking our users to a particular
page within a third-party Web site, and if there are no comparable alternative
Web sites to which we can direct our users, the utility and attractiveness of
our services to Internet users may be reduced. If this occurs, traffic on our
Webhelp portal could significantly decrease, which would seriously harm our
business. In addition, we have little control over the content contained on
these third-party Web sites. If these third-party Web sites do not contain
high-quality, up-to-date and useful information to the user, the utility of our
service to the user will be reduced, which could seriously harm our business.
RECENT LITIGATION COULD SERIOUSLY IMPAIR OUR ABILITY TO ACCESS THIRD-PARTY
CONTENT
A federal judge in the United States District Court for the Northern District of
California recently issued a preliminary injunction preventing the operator of a
Web site that aggregates information regarding online auction Web sites from
accessing the computer system of a major online auction Web site by use of any
automated querying system without the auction site's written authorization. The
injunction, which is to remain in effect until a full trial is held in March of
next year, upholds the claim of the operator of the online auction Web site that
it holds a protected property right in its database, and that the practice of
using automated technology to search its database to compile information for use
on another Web site amounts to a trespass. As a basis for the injunction, the
judge ruled that this automated search technology could overload the computer
system of the searched Web site. If this ruling is not reversed and if other
courts follow the reasoning of the judge in this ruling, it could inhibit our
ability to access third party content and to provide price comparison services.
We can not be certain that we would be able to obtain the appropriate consent to
search third-party Web sites and accordingly, this ruling could have a
detrimental effect on our business.
WE MAY BE LIABLE FOR CONTENT RETRIEVED FROM THE INTERNET
We could be exposed to liability with respect to the selection of third-party
Web sites that may be accessible through our Webhelp portal. These claims might
include, among others, that by linking to
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<PAGE>
Web sites operated by third parties, we may be liable for copyright or trademark
infringement or other unauthorized actions by these third-party Web sites.
Because material may be downloaded by the online or Internet services operated
or facilitated by us or the Internet access providers with which we have
relationships, and may be subsequently distributed to others, it is also
possible that claims will be made against us on the basis of defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of such materials. These claims could be based on us
providing access to obscene or indecent content. Implementing measures to reduce
our exposure to this liability may require substantial resources and may limit
the attractiveness of our services to Internet users.
Our insurance may not cover potential claims of this type, or may not be
adequate to indemnify us for all types of liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of
insurance coverage could impair our business.
GOVERNMENT REGULATION OF THE INTERNET AND LEGAL UNCERTAINTIES CAUSED BY THIS
REGULATION COULD IMPAIR OUR BUSINESS
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, including as they
apply to access to, or commerce on, the Internet. The adoption of such laws or
regulations could increase our cost of doing business and may decrease the
growth of the Internet and the demand for our services. Due to the increasing
popularity and use of the Internet, it is likely that laws and regulations may
be adopted with respect to issues such as the protection of databases, user
privacy, consumer protection, copyrights, pricing and characteristics and
quality of products and services. It is not possible to fully determine the
impact of this legislation, which could subject us and/or our corporate clients
or their customers to potential liability, which could have a material adverse
effect on our business, results of operations and financial position.
ADDITIONAL JURISDICTIONS MAY ATTEMPT TO REGULATE THE TRANSMISSION OF OUR
SERVICES WHICH COULD RESULT IN FINES AND PENALTIES AND OTHER POSSIBLE LEGAL
SANCTIONS AGAINST US
Due to the global nature of the Internet, it is possible that, although
transmission of our services originates from our operations in North America and
India, the governments of states and foreign countries where we do not have
operations may attempt to regulate our transmissions or to prosecute us for
violations of their laws. Violations of local laws may be alleged or charged by
state or foreign governments. We may violate these laws unintentionally and
these laws may be modified, or new laws enacted. It is also possible that states
or foreign countries may seek to impose sales taxes on out-of-state companies
that engage in commerce over the Internet. In the event that states or foreign
countries succeed in imposing sales or other taxes on commerce conducted over
the Internet, the growth of the use of the Internet for commerce could slow
substantially, thereby causing a negative effect on our business and
profitability.
ATTEMPTS BY SOME STATES TO REGULATE THE COLLECTION AND USE OF USER DATA OVER THE
INTERNET COULD SERIOUSLY IMPACT OUR WEBHELP DIRECT SERVICE FOR OUR CORPORATE
CLIENTS
Several states have proposed legislation that would govern the collection and
use of information gathered from Internet users. As we and some of our corporate
clients aggregate this data, any legislation of this type could restrict these
activities. In addition, consumers who have privacy concerns may avoid Web sites
that collect information from their users.
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<PAGE>
IF THE TAX MORATORIUM IMPOSED BY THE UNITED STATES CONGRESS ON E-COMMERCE
TRANSACTIONS ENDS, OUR ABILITY TO BECOME PROFITABLE WILL BE SERIOUSLY IMPACTED
The Internet Tax Freedom Act enacted by the United States Congress imposed a
three-year moratorium, which commenced October 1, 1998 and ends on October 21,
2001, on state and local taxes on e-commerce and on Internet access, where those
taxes are multiple or discriminatory, unless those taxes were generally imposed
and actually enforced prior to October 1, 1998. It is possible that the tax
moratorium could fail to be renewed prior to October 21, 2001. Failure to renew
this legislation would allow various states to impose taxes on Internet-based
commerce. The imposition of these taxes could adversely affect our ability to
become profitable.
IF THE FEDERAL COMMUNICATIONS COMMISSION IMPOSES ACCESS FEES ON INTERNET SERVICE
PROVIDERS IT COULD SERIOUSLY SLOW THE GROWTH OF THE INTERNET AND IMPACT OUR
ABILITY TO BECOME PROFITABLE
Several telecommunications carriers are advocating that the United States
Federal Communications Commission regulate the Internet in the same manner as it
does other telecommunications services by imposing access fees on Internet
service providers. These regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth in Internet
use and thereby decrease the demand for our services.
THE APPLICATION OF PRE-EXISTING LAWS TO THE INTERNET COULD SERIOUSLY SLOW THE
GROWTH OF THE INTERNET AND OUR BUSINESS
In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. Most of these laws were adopted prior to
the advent of the Internet. As a result, they do not contemplate or address the
unique issues of the Internet and related technologies. Changes in laws intended
to address these issues could create uncertainty in the Internet market. This
uncertainty could reduce demand for our services or increase the cost of doing
business as a result of litigation costs or increased service delivery costs.
RISKS RELATED TO THE OFFERING
IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET INVESTORS, THE MARKET PRICE
OF OUR COMMON STOCK MAY DECLINE SIGNIFICANTLY
Investors have not been able to develop consistent financial models for the
Internet market because of the unpredictable rate of growth of Internet users,
the rapidly changing models of doing business on the Internet and the Internet's
relatively low barriers to entry. As a result, and because of the other risks
discussed in this prospectus, it is unlikely that our actual results will meet
the expectations of investors in future periods. If this occurs, the price of
our common stock will likely fall. In addition, our potential inability to keep
short-term expense levels in line with revenue could adversely affect our
financial results for any given quarter. It is possible that in some future
quarter our operating results may be below the expectations of investors, which
could reduce the price of our common stock.
OUR OPERATING RESULTS CAN BE AFFECTED BY SEASONALITY, WHICH COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE
We expect to experience seasonality in our business. Historically, Internet
users have made a smaller number of visits to the Web sites of our competitors
during the summer and the year-end vacation and holiday periods when Internet
usage typically declines. As a result, our quarterly revenue may fluctuate,
adversely affecting the market price of our common stock.
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<PAGE>
WE SOLD 18,671,329 SHARES OF OUR PREFERRED STOCK WHICH IF RESOLD COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE
In December 1999, we sold 18,671,329 shares of our preferred stock. All
outstanding shares of preferred stock are convertible into 8,486,968 shares of
our common stock at the option of the holder at any time and is subject to
mandatory conversion upon the closing of this offering. These shares are
restricted securities within the meaning of Rule 144 under the Securities Act.
If the holders of preferred stock convert their shares into common stock and
sell a significant amount of their shares pursuant to Rule 144 or pursuant to a
registration statement, these sales could adversely affect the market price of
the common stock and our ability to raise equity capital.
AFTER THE OFFERING, THERE WILL BE A SIGNIFICANT NUMBER OF OUR SHARES OF COMMON
STOCK ELIGIBLE FOR FUTURE SALE, WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE
Sales of substantial amounts of our common stock in the public market after the
offering or the perception that those sales could occur could adversely affect
the market price of the common stock and our ability to raise equity capital in
the future. Upon completion of the offering, we will have 28,203,433 outstanding
shares of common stock, assuming no exercise of outstanding options. Of these
shares, the shares sold in the offering will be tradable without restriction or
limitation under the Securities Act of 1933, except for any shares purchased by
our "affiliates." The remaining shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act. The holders
of substantially all of such shares have agreed, until at least 180 days after
the date of this prospectus, not to sell or otherwise dispose of such shares,
without the prior written consent of the representatives of the underwriters.
After that date, or if the representatives of the underwriters waive these
restrictions prior to that date, 22,703,433 shares may be sold subject to the
limitations of Rule 144. Pursuant to an amended and restated investor rights
agreement dated as of December 31, 1999, eliance, Insight Capital Partners III,
L.P., Insight Capital Partners (Cayman) III, L.P., Insight Capital Partners
(Co-Invest) III, L.P., CIBC WMC Inc., Kerry Adler, Laura Hantho, Hugh Cumming,
Dan Walter and Shukie Halfon have the ability to demand registration under the
Securities Act of all or a portion of our common stock owned by them when we are
eligible to use an S-3 short-form registration, which will not be earlier than
one year after the date of this offering. On April 19, 2000, we entered into a
registration rights agreement with WH Holdings, Ltd., a Cayman Islands company
that acquired 329,381 shares of our common stock from eliance Corporation. The
registration rights agreement granted WH Holdings the right to have its shares
registered by us if we are registering shares on a registration statement on
Form S-3. In addition, 3,500,000 shares of common stock are reserved for
issuance under our 1999 Long Term Incentive Plan. We intend to file a
registration statement covering the issuance of these shares promptly following
the offering. As a result, shares issuable upon the exercise of these options
will be freely tradable unless held by one of our affiliates. When these
"locked-up" and other currently unregistered shares become eligible for sale or
are sold, the market price for our common stock may decline.
CONCENTRATED OWNERSHIP MAY DISCOURAGE BIDS TO PURCHASE OUR COMMON STOCK
Our existing stockholders will, in the aggregate, beneficially own approximately
80% of our outstanding shares of common stock after the offering. As a result,
these stockholders, acting together, would be able to control many matters
requiring approval by our stockholders including the election of directors and
bids to purchase any shares of our common stock you purchase may be delayed or
prevented.
PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
COULD DISCOURAGE OR DELAY OFFERS TO PURCHASE OUR COMMON STOCK
Our certificate of incorporation and by-laws contain certain provisions that
could discourage or delay an acquisition of our common stock, even though you
may want the acquisition to occur. In addition,
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<PAGE>
provisions of Delaware law, our 1999 Long Term Incentive Plan and some of our
executive officer's employment agreements may have the same effect.
PURCHASERS OF OUR COMMON STOCK IN THE OFFERING WILL HAVE THE PRO FORMA NET
TANGIBLE BOOK VALUE PER SHARE OF THEIR COMMON STOCK IMMEDIATELY AND
SUBSTANTIALLY DILUTED
If the shares of our common stock offered are sold at a price of $11.00 per
share, the purchasers will experience immediate dilution in pro forma net
tangible book value per share of our common stock of $8.59 from the initial
public offering price per share.
WE DO NOT PAY, NOR DO WE ANTICIPATE PAYING, ANY DIVIDENDS
We do not currently pay dividends and we do not anticipate paying any dividends
in the foreseeable future. The terms of any future debt financings may restrict
the payment of dividends.
YOU MAY NOT BE ABLE TO OBTAIN ENFORCEMENT OF CIVIL LIABILITIES AGAINST US
OUTSIDE THE UNITED STATES
Our principal office and many of our assets are located in Canada. In addition,
Kerry E. Adler, our Chief Executive Officer and President, and Laura Hantho, our
Chief Operating Officer, who are both members of our board of directors, Hugh
Cumming, our Chief Technology Officer, and Tom Cronin, our Chief Financial
Officer, and certain experts named in this prospectus, are residents of Canada.
As a result, it may be impossible for you to effect service of process within
the United States upon these persons or to enforce against us or these persons
any judgments in civil and commercial matters, including judgments under United
States federal securities laws. Investors should not assume that Canadian courts
would enforce judgments of United States courts obtained in actions against us
or those persons predicated upon the civil liability provisions of the United
States federal securities laws or the securities or "blue sky" laws of any state
within the United States, or would enforce, in original actions, liabilities
against us or those persons predicated upon the United States federal securities
laws or any such state securities or blue sky laws. No treaty exists between the
United States and Canada for the reciprocal enforcement of foreign court
judgments.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this prospectus constitute forward-looking
statements within the meaning of the federal securities laws. These statements
include, among others, the following: use of proceeds; projected increases in
sales and marketing, research and development and capital expenditures;
liquidity; our planned international expansion; our strategy of enhancing our
current products and services and expanding into new products and services; our
efforts to increase brand awareness; our development of strategic acquisitions
and joint ventures; and our strategy to encourage widespread adoption of our
services and to make the Webhelp Direct service a preferred customer
relationship management platform.
We have based these forward-looking statements on our current expectations and
projections about future events. In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," the
negative of these terms or other comparable terminology. The forward-looking
statements contained in this prospectus involve known and unknown risks,
uncertainties and other factors that may cause industry trends or our actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include,
among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
In addition, this prospectus includes data relating to the Internet industry,
e-commerce and the Internet-based search engine market. Some of this data was
obtained from industry publications and reports, such as reports by
International Data Corporation, NFO Interactive, Net Effect Systems and
Forrester Research, Inc. These reports assume certain events, trends and
activities will occur and they project information based on those assumptions.
We cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,500,000 shares of
common stock we are offering will be approximately $55.0 million. If the
underwriters fully exercise the over-allotment option, the net proceeds of the
shares we sell will be approximately $63.4 million. "Net proceeds" is what we
expect to receive after paying the underwriting discount and commissions and
other expenses of the offering. For the purpose of estimating net proceeds, we
are assuming an initial public offering price of $11.00 per share.
We will use the net proceeds to fund operating results, capital expenditures and
working capital needs. We expect that we will use approximately $27.0 million
over a three-year period to fund operating activities, and in particular, to
expand our sales, marketing and brand building efforts, approximately
$9.0 million to build one or more Web Centers and purchase fixed assets for
internal use, and approximately $19.0 million for working capital needs and
general corporate purposes. From time to time we will consider acquisition
opportunities and new service offerings, and we may use a portion of the
proceeds of this offering to fund all or a portion of the purchase price of
acquisitions or the development of new service offerings.
The amount and timing of these expenditures is subject to our discretion and is
not currently committed to specific programs.
Until we use the net proceeds of the offering, we will invest the funds in
short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
anticipate that we will retain earnings to support operations and to finance the
growth and development of our business. Therefore, we do not expect to pay cash
dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth the following information as of June 30, 2000:
- our actual capitalization;
- our pro forma capitalization after giving effect to the conversion of all
the outstanding shares of preferred stock into 8,486,968 shares of common
stock upon the closing of this offering; and
- our as adjusted capitalization after giving effect to the pro forma
adjustments described above and after giving effect to the sale of the
shares of common stock that we are offering under this prospectus at an
assumed initial public offering price of $11.00 per share, after deducting
the estimated underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock, $0.01 par value;
20,000,000 shares authorized; issuable in series
Series A convertible preferred stock, $0.01 par
value; 15,000,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$19,200,000; no shares issued and outstanding in
pro forma......................................... $ 150,000 $ -- $ --
Series B convertible preferred stock, $0.01 par
value; 3,671,329 shares designated, issued and
outstanding; aggregate liquidation preference of
$72,435,321; no shares issued and outstanding in
pro forma......................................... 36,713 -- --
Common stock, $0.01 par value; 65,000,000 shares
authorized
14,216,465 shares issued and outstanding;......... 142,164 -- --
22,703,433 shares issued and outstanding in pro
forma;.......................................... -- 328,877 --
28,203,433 shares issued and outstanding in pro
forma as adjusted;.............................. -- -- 383,877
Additional paid-in capital.......................... 47,125,751 47,125,751 102,085,751
Deferred stock compensation......................... (3,193,362) (3,193,362) (3,193,362)
Accumulated deficit................................. (29,852,500) (29,852,500) (29,852,500)
------------ ------------ ------------
Total stockholders' equity........................ $ 14,408,766 $ 14,408,766 $ 69,423,766
------------ ------------ ------------
Total capitalization.............................. $ 14,408,766 $ 14,408,766 $ 69,423,766
============ ============ ============
</TABLE>
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<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was approximately
$13.0 million, or $0.57 per share. "Pro forma net tangible book value per share"
represents the amount of our total tangible assets reduced by the amount of the
total liabilities and divided by the number of shares outstanding, after giving
effect to the conversion of all of our outstanding preferred stock into common
stock.
After giving effect to adjustments relating to the offering, our pro forma net
tangible book value as of June 30, 2000 would have been $68.1 million or $2.41
per share. The adjustments made to determine pro forma net tangible book value
per share after the offering are the following:
- an increase in total assets to reflect the net proceeds of the offering as
described under "Use of Proceeds" (assuming that the public offering price
will be $11.00 per share); and
- the addition of the number of shares offered by this prospectus to the
number of shares outstanding.
The following table illustrates, as of June 30, 2000, the increase in pro forma
net tangible book value of $1.84 per share and the dilution (the difference
between the offering price per share and the pro forma net tangible book value
per share) to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $11.00
Pro forma net tangible book value per share as of June 30,
2000...................................................... $0.57
Increase in pro forma net tangible book value per share
attributable to the offering.............................. 1.84
--------
Pro forma net tangible book value per share after the
offering.................................................. 2.41
--------
Dilution per share to new investors......................... $8.59
========
</TABLE>
The following table shows the difference between existing stockholders and new
investors with respect to the number of shares purchased from us, the total
consideration paid and the average price paid per share. The table assumes that
the public offering price will be $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 22,703,433 80.5% $ 42,580,798 41.3% $ 1.88
New investors....................... 5,500,000 19.5% $ 60,500,000 58.7% $11.00
---------- ----- ------------ -----
Total............................. 28,203,433 100.0% $103,080,798 100.0%
========== ===== ============ =====
</TABLE>
The foregoing calculations:
- do not include shares issuable upon exercise of options outstanding as of
the date of this prospectus;
- assume the conversion of all our preferred stock into 8,486,968 shares of
common stock upon the closing of this offering;
- assume no exercise of the underwriters' over-allotment option; and
- assume the 1-for-2.2 reverse stock split to be effected prior to the
closing of the offering.
To the extent outstanding options are exercised, there will be further dilution
to new investors.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our selected historical financial data. You should read
carefully the financial statements included in this prospectus, including the
notes to the financial statements. The selected data in this section are not
intended to replace the financial statements.
We derived the statement of operations data for the period from incorporation on
May 27, 1999 to December 31, 1999 and balance sheet data as of December 31, 1999
from the audited financial statements in this prospectus. Those financial
statements were audited by Ernst & Young LLP, our independent auditors. The
statement of operations data for the six months ended June 30, 2000 and the
balance sheet data as of June 30, 2000 were derived from the unaudited financial
statements included in this prospectus.
The pro forma information included in the statement of operations data gives
effect to the issuance of shares of common stock upon the conversion of all of
our outstanding preferred shares upon the closing of this offering. The pro
forma and as adjusted data have not been audited.
<TABLE>
<CAPTION>
FOR THE PERIOD SIX MONTHS
MAY 27, 1999 TO ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ----------------
<S> <C> <C>
Statement of Operations Data:
Revenue........................................... $ 29,857 $ 1,100,010
Cost of revenue................................... 844,916 5,537,841
----------- ------------
Gross profit (loss)............................... (815,059) (4,437,831)
----------- ------------
Operating expenses:
Sales and marketing............................. 654,124 5,155,701
General and administrative...................... 3,110,672 3,119,714
Product development............................. 180,638 324,921
Depreciation of fixed assets.................... 67,278 403,082
Amortization of intangible assets............... 48,063 105,042
Amortization of deferred stock compensation..... -- 1,919,665
----------- ------------
Total operating expenses.......................... 4,060,775 11,028,125
----------- ------------
Operating loss.................................... (4,875,834) (15,465,956)
Interest income (expense), net.................... (30,153) 519,443
----------- ------------
Net loss and comprehensive loss for the period.... $(4,905,987) $(14,946,513)
=========== ============
Net loss per share--basic and diluted............. $ (0.45) $ (1.28)
=========== ============
Weighted average number of shares outstanding used
to compute basic and diluted net loss per
share........................................... 10,918,257 11,716,465
Pro forma net loss per share--basic and diluted... $ (0.45) $ (0.74)
=========== ============
Weighted average number of shares outstanding used
to compute pro forma basic and diluted net loss
per share....................................... 11,019,277 20,203,433
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $14,501,461 $14,501,461 $69,516,461
Working capital............................... 9,324,498 9,324,498 64,339,498
Total assets.................................. 23,669,841 23,669,841 78,684,841
Total stockholders' equity.................... 14,408,766 14,408,766 69,423,766
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS.
OVERVIEW
We are a provider of live, human-assisted customer, sales and technical support
and search services over the Internet. Our services enable businesses and
individuals to effectively use the Internet to purchase and sell goods and
services and to locate content.
We were incorporated on May 27, 1999 and until November 30, 1999, when we
launched our Webhelp portal, we were primarily engaged in developing and
implementing our business plan. We raised capital, invested in product
development efforts, contracted with outsourced service providers for our Web
Centers, signed agreements with content providers for our Webhelp portal and
initiated marketing activities. During that period, we also entered into
discussions with respect to a proposed business combination with eliance
Corporation. In November 1999, we determined that the proposed business
combination was not in our best interests and we terminated these discussions.
At that time, we agreed to purchase certain assets from eliance and entered into
a services agreement with eliance under which eliance agreed to provide us with
limited Web Center services until May 31, 2000.
Since launching our Webhelp portal on November 30, 1999, we have focused on
recruiting employees, launching and growing our Webhelp Direct service for
corporate clients, further developing our technology and service platform, and
developing brand awareness through online and traditional advertising campaigns.
We have also licensed our technology and intellectual property in the French
language.
The financial statements included in this registration statement, and the
commentary included in this Management's Discussion and Analysis, cover the
period from May 27, 1999 to December 31, 1999, our inception period, and the
six-month period from January 1, 2000 to June 30, 2000. Our fiscal year end is
December 31. For the period from inception to December 31, 1999, we were a
development stage company and had little revenue. Since January 1, 2000, we have
been directing our efforts towards revenue generating activities and are
deploying the majority of our available funds towards operating activities.
Accordingly, we are no longer a development stage company.
Our revenue from inception to June 30, 2000 consisted primarily of advertising
revenue which was predominantly derived through 24/7 Media, Inc., a third-party
advertising manager. We recognize advertising revenue as it is earned based on
actual impressions delivered or based on the amount of time an advertisement is
placed on our Webhelp portal. We record this revenue net of commissions payable
to third-party advertising managers. Our agreements with third-party advertising
managers do not provide for guaranteed numbers of impressions delivered. Until
April 2000, we relied on 24/7 Media as our exclusive advertising manager.
Although we intend to augment our third-party advertising managers' capabilities
with internal sales initiatives, we expect that the majority of our advertising
will continue to be managed by third-party advertising managers.
In March 2000, we began earning revenue from our Webhelp Direct service. Under
our Webhelp Direct service, we provide corporate clients with private or
co-branded online customer, sales and technical support services on their Web
sites. We expect our Webhelp Direct service to represent a significant
proportion of our revenue in the future. We recognize Webhelp Direct service
revenue in accordance with our customer terms, which we expect will typically be
on a per engagement basis if the length of time per engagement is reasonably
determinable, or on an hourly or per user basis.
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<PAGE>
In June 2000, we began earning revenue from our technology, license and service
agreements with Webhelp.fr. Under these agreements, we license our technology,
certain intellectual property and access to our services platform for the
purpose of providing Webhelp services in French. Revenue is earned from upfront
license fees or proceeds from the sale of intellectual property, ongoing
services provided to the international affiliates and from other professional
and consulting fees.
Since the launch of our Webhelp portal, we have offered registered users a free,
live, human-assisted search service. In April 2000, we began offering, on a paid
subscription basis, a premium version of our search service. The premium service
moves a user's request to the front of the search queue for faster response
times. It is our intention to develop additional services as part of this
premium service. To date, we have generated limited revenue from this premium
service.
Cost of revenue consists primarily of fees paid to third-party outsourced
service providers who provide us with Web Centers and Web Wizard professionals
on a variable cost basis, subject to a specified minimum cost. We currently have
contracts with three outsourced service providers in India. All of our
outsourced service provider contracts are denominated in United States dollars.
We expect that we will renegotiate and extend these contracts during fiscal
2000. We also operate our own Web Center in Montreal and record the costs of
this Web Center as a cost of revenue. As of June 30, 2000, we engaged more than
500 Web Wizard professionals at our Web Centers. The number of Web Wizard
professionals required to meet our business needs will vary based on a number of
factors including use of the Webhelp portal search services, and the number and
size of our corporate client contracts. We currently anticipate that the number
of Web Wizard professionals we engage will grow substantially over the next
12 months to more than 2,000.
Cost of revenue also includes payments to content providers on our Webhelp
portal and Web hosting costs. Web hosting costs are primarily expenses
associated with third party management of our Web servers and related technology
licenses.
We also incur costs for sales and marketing, general and administrative,
information technology development, depreciation of fixed assets and other
non-cash related expenses in the form of amortization of intangibles and
amortization of deferred stock compensation.
Since our inception in May 1999, we have experienced operating losses and
negative cash flows. As of June 30, 2000, we had an accumulated deficit of $29.9
million, which includes $10.0 million related to the repurchase of a portion of
our common stock in December 1999. Our business is unproven, and our limited
operating history makes an evaluation of our company and our prospects
difficult. We may not generate revenue sufficient to achieve profitability. If
we achieve profitability, we may not be able to sustain profitability.
In light of our limited operating history and the rapidly evolving nature of our
business we believe that period-to-period comparisons of revenue and operating
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO PERIOD FROM INCEPTION TO
DECEMBER 31, 1999
REVENUE. Revenue during the six-month period ended June 30, 2000 was
approximately $1.1 million compared to $30,000 during the inception period.
Revenue included $827,000 of revenue from advertising on our Webhelp portal,
$144,000 of revenue earned from technology, license and service fees from
Webhelp.fr, and $129,000 of revenue from our Webhelp Direct service. Revenue
during the inception period consisted exclusively of advertising revenue. During
the inception period, we earned revenue only for the one-month period from
November 30, 1999, the day we launched our Webhelp portal, to December 31, 1999.
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COST OF REVENUE. Cost of revenue during the six months ended June 30, 2000 was
approximately $5.5 million compared to $845,000 during the inception period.
During the inception period, we incurred cost of revenue only for the one-month
period from November 30, 1999 to December 31, 1999. Cost of revenue for the six
months ended June 30, 2000 included approximately $5.1 million for Web Center
and Web Wizard professional services, $297,000 for Web hosting costs and
$178,000 for content on our Webhelp portal. This increase was primarily due to
offering services for a six-month period instead of a one-month period, an
increase in the number of Web Wizard professionals, and an increase in content
offered on our Webhelp portal. We intend to increase the percentage of overall
Web Wizard professionals managed in India and other overseas locations and
expect that our average cost for Web Wizard professionals will decrease as a
result.
SALES AND MARKETING. Sales and marketing expenses during the six-months ended
June 30, 2000 were approximately $5.2 million compared to $654,000 during the
inception period. The increase was primarily due to increased advertising and
branding initiatives since the launch of our Webhelp portal and an increase in
our sales and marketing personnel related to our Webhelp Direct service.
Approximately 50% of sales and marketing expenditure represented payments to
third parties to direct Internet traffic to our Webhelp portal. Sales and
marketing expenses are expected to increase significantly in the future as we
grow our business, increase the number of employees in our sales group and spend
money on brand awareness.
GENERAL AND ADMINISTRATIVE. General and administrative expenses during the
six-months ended June 30, 2000 were approximately $3.1 million compared to
$3.1 million during the inception period. Included in the inception period is
$2.6 million paid to eliance and charged to the 1999 expenses as further
outlined below. Apart from the $2.6 million payment to eliance, the average
monthly general and administrative expenditures are increasing on a monthly
basis and are expected to continue to increase as we add personnel to continue
to support the growth of our business. We also expect to begin incurring costs
related to being a public company including directors' and officers' liability
insurance, investor relations and other professional fees.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses during the six
months ended June 30, 2000 were approximately $325,000 compared to $181,000
during the inception period. This increase was related primarily to an increase
in product development and third party consulting fees related to the ongoing
design, development, testing and enhancement of our technology, our Webhelp
portal and our Webhelp Direct service. We expect that these expenses will
increase as we continue to invest in our technology and our Webhelp portal.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses during
the six-months ended June 30, 2000 were approximately $2.4 million compared to
$115,000 during the inception period. Depreciation and amortization expenses
during the six-months ended June 30, 2000 consisted of depreciation of fixed
assets of $403,000, amortization of intangibles of $105,000 and amortization of
deferred stock compensation costs of approximately $1.9 million. The increase
resulted from an increase in the average fixed assets and intangible assets
during the six-months ended June 30, 2000, and the amortization of deferred
compensation which began on January 28, 2000.
DEFERRED STOCK COMPENSATION. On January 28, 2000, our stockholders approved the
1999 Long Term Incentive Plan for directors, officers, employees and other
parties. We account for stock options using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25 and make the pro
forma disclosures required by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation". As at June 30,
2000, we have recorded $3.2 million of deferred compensation in the
stockholders' equity section of our balance sheet net of amortization. This
resulted from stock options granted with exercise prices lower than the deemed
fair market value of our common stock. During the period ended June 30, 2000, we
amortized $1.9 million of deferred stock compensation. Deferred compensation
will be amortized over the three-year period in which
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these options vest. Based on the options currently outstanding, we expect the
amount of this deferred compensation to be recorded in our expenses to be
$3.3 million in fiscal 2000.
INTEREST. Interest income during the six-months ended June 30, 2000 was
$520,000 compared to net interest expense of $30,000 during the seven month
inception period. This increase was the result of interest income generated from
the proceeds of the Series A and Series B preferred stock issued in
December 1999.
INCOME TAXES. There was no provision for federal, state or provincial taxes for
the six months ended June 30, 2000 due to our operating losses.
DURING THE INCEPTION PERIOD FROM MAY 27, 1999 TO DECEMBER 31, 1999
REVENUE. Revenue during the one-month period from the launch of our Webhelp
portal on November 30, 1999 until December 31, 1999 was $30,000, and consisted
of banner advertising revenue derived from 24/7 Media.
COST OF REVENUE. Cost of revenue during the one-month period from the launch of
our Webhelp portal on November 30, 1999 until December 31, 1999 was $845,000.
Cost of revenue consisted primarily of costs of $743,000 for Web Center and Web
Wizard professional services. Web hosting expenses were $76,000 and expenses
related to the provision of content on our Webhelp portal were $26,000.
SALES AND MARKETING. Sales and marketing expenses during the inception period
were $654,000 and consisted primarily of advertising of $614,000 and payroll
expenses of $40,000. Advertising expenses included $410,000 spent on online
advertising and $204,000 spent on offline media.
GENERAL AND ADMINISTRATIVE. General and administrative expenses during the
inception period were $3.1 million. Of this amount, $2.6 million represented a
charge to current period expenses for a reimbursement of expenses incurred by
eliance on our behalf and a release from any prior obligations with eliance.
These expenses represent the approximate costs which were paid by eliance
relating to our business during the period that we were in discussions with
eliance regarding a proposed business combination. These expenses, which would
otherwise have been paid by us, include payroll expenses and general and
administrative expenses during the period from July 19, 1999 to December 31,
1999. Also included in this amount is an indemnity with respect to any further
costs or obligations incurred by eliance on our behalf. Also included in general
and administrative expenses is $272,000 for payroll costs and $239,000 of other
general corporate costs, including travel, accounting and finance, rent and
legal and professional fees.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses during the inception
period were $181,000 and consisted primarily of consulting fees related to the
design, development, testing and enhancement of our technology and our Webhelp
portal.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses during
the inception period were $115,000 and consisted of amortization of fixed assets
and amortization of intangible assets.
INTEREST. Net interest expense during the inception period was $30,000 and
consisted primarily of interest expense on our $2.0 million bridge loan. The
bridge loan was cancelled as part of our December 29, 1999 private placement. We
also earned $10,000 of interest income on cash balances.
INCOME TAXES. There was no provision for federal, state or provincial income
taxes during the inception period due to our operating losses.
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through two
private equity placements and a $2.0 million bridge loan from a significant
shareholder. As of June 30, 2000, we had issued $42.3 million of equity
securities in five transactions in consideration for $35.8 million in cash, the
cancellation of the $2.0 million bridge note and $4.5 million in assets.
Pursuant to a binding letter of intent dated November 18, 1999, on December 29,
1999, we issued 15,000,000 shares of Series A preferred stock for consideration
of $3.4 million in cash, a $2.6 million stock subscription receivable and the
cancellation of the $2.0 million bridge loan. On January 3, 2000, we collected
the stock subscription receivable. On December 31, 1999, we issued 3,671,329
shares of Series B convertible preferred stock to one institutional investor for
consideration of $30.0 million in cash. We used $10.0 million of the proceeds to
repurchase 556,262, or approximately 5%, of our founders' shares of common
stock. In addition, we rely on a $400,000 credit card facility and we have
pledged $400,000 of our cash as collateral for amounts owing under the facility.
On June 30, 2000, we entered into an agreement to issue 244,798 shares of Series
B convertible preferred stock for cash consideration of $2.0 million. The cash
consideration has not been received and the shares have not been issued pending
a review by the purchaser of the terms of the agreement following a change in
control of the purchaser. We have not accounted for the issuance of these shares
as the outcome of this review has not yet been determined.
On November 29, 1999, we entered into a binding letter of intent with eliance
under which we would purchase certain assets of eliance and enter into an
Internet services agreement in return for shares of our common stock and cash.
Pursuant to this binding letter of intent, on December 29, 1999, we entered into
an Internet services agreement and acquired, pursuant to an asset purchase
agreement (jointly the "eliance Agreement"), certain assets of eliance, in
exchange for $4.3 million in cash and 3,863,636 shares of our common stock. At
the time of the eliance Agreement, eliance was controlled by one of our existing
minority stockholders. As of November 29, 1999, the 3,863,636 shares of our
common stock had a fair value of $1.17 per share and an aggregate fair value of
$4.5 million. Total consideration paid under the eliance Agreement was
$8.8 million.
As part of the eliance transaction, we purchased certain fixed assets;
intangibles including licenses, trademarks, names and other intangibles; prepaid
expenses; and one month of an Internet services agreement. We also entered into
an agreement for the provision of Web Center and Web Wizard professional
services for the period from January 1, 2000 to May 31, 2000. We accounted for
this purchase of assets as follows: $2.3 million to fixed assets; $630,000 to
intangible assets; $3.3 million to prepaid expenses; and a $2.6 million charge
to our 1999 profit and loss account. The $2.6 million represented a
reimbursement of expenses incurred by eliance on our behalf and a release from
any prior obligations with eliance. Included in prepaid expenses is
$2.0 million representing a prepayment with respect to the Internet Services
Agreement. As part of the Internet Services Agreement, we obtained the right to
purchase services from eliance at a rate based on eliance's direct costs plus
limited overhead. We recorded in prepaid expenses an estimate of the excess
amount of the fair value of the services over the actual payments to be made.
This $2.0 million prepayment has been amortized, based on usage, over the term
of the agreement ended May 31, 2000. Also included in prepaid expenses acquired
was $684,000 relating to Web Center and Web Wizard professional services from
eliance for the month of December 1999 and $585,000 of prepaid advertising
expenses paid by eliance on our behalf.
Since our inception, we have had negative cash flows from operating activities
of $9.0 million and in the six-month period ended June 30, 2000, we used
$8.1 million to fund operating activities. Cash flows from operating activities
since inception through June 30, 2000 have been used to finance operating losses
of $19.9 million, offset by $3.9 million of non-cash items and a decrease in
working capital of $6.9 million. For the foreseeable future, we expect cash
flows from operations to be negative. Net cash
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used in investing activities since inception has been $4.0 million. This
consists of $3.0 million related to the purchase of assets from eliance in
December 1999, and $1.0 million of other fixed asset additions. During the
six-month period ended June 30, 2000, we incurred expenses of $888,000 relating
to our proposed public offering.
We currently do not have material commitments for capital expenditures. However,
we expect to increase our capital expenditures during the current fiscal year
and in fiscal 2001 as we develop one or more additional Web Centers operated by
us. We do not have any material capital commitments or obligations other than
with respect to operating leases on facilities and equipment. The amount of
these operating lease commitments is $809,000 for fiscal 2000. In the future, we
will attempt to finance capital purchases through capital leases. We expect to
enter into additional operating leases for sales and marketing office space
during fiscal 2000, and additional administrative office space in fiscal 2001 or
fiscal 2002. New lease arrangements will increase our minimum operating lease
commitments at the time that they are entered into.
Our capital requirements depend on numerous factors, including market acceptance
of our search services, future investments in our Webhelp portal content and
development, marketing and selling efforts, brand promotion, hardware and
software investments to increase capacity and other factors. Our current level
of expenditures is expected to increase in future months along with the
anticipated growth of our business. Additionally, we will continue to evaluate
possible investments in complementary businesses and technologies, and plan to
expand our sales and marketing programs and conduct more aggressive brand
promotions.
As of June 30, 2000, our principal source of liquidity was $14.5 million of cash
and cash equivalents. Our ability to generate significant revenue is uncertain.
We have generated losses of $19.9 million since our inception and have a deficit
of $29.9 million as of June 30, 2000. We expect losses from operations and
negative cash flow to continue for the foreseeable future as a result of our
expansion plans and our marketing and branding initiatives. We expect operating
expenses to increase significantly over the next 24 months and along with
increased capital expenditures will constitute a significant use of our cash
resources. Although we currently have no agreements or commitments in place, we
may also use cash to fund acquisitions of complementary businesses and
technologies.
We believe that the net proceeds of this offering, together with our existing
cash and cash equivalents, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 24 months.
During the next 12 months, without taking into account the proceeds of this
offering, we will be dependent on alternative financings to fund our planned
growth and further development of our business plan. If during the next
12 months we are unable to complete this offering or an alternative financing,
we would need to reduce our cash usage and alter our business strategy in order
to continue our business operations. Except for the existing agreement relating
to the $2.0 million Series B preferred share issuance, we do not have any
current plans for further equity offerings in the near term. In order to meet
our long term liquidity needs, we may need to obtain additional funds. We
currently have no credit facility in place to provide long term liquidity. We
may need to raise additional funds earlier through public or private financings
or other arrangements if we consummate acquisitions or otherwise require funds
for operations. Any additional financings may not be available on reasonable
terms or at all. Any inability to raise capital when needed could harm our
business, financial condition and results of operations. If additional funds are
raised through equity financings, additional dilution could occur, and any
additional equity could have rights, preferences or privileges superior to the
common stock.
Should our common stock trade at a price which justifies a follow-on offering,
we would consider such an offering. A follow-on offering would likely increase
the publicly traded proportion of our stock and would help us fund new service
offerings if we determined that funding such new service offerings was
justified.
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Cash and cash equivalents are primarily held in cash and debt securities with
major financial institutions, currently bearing interest at rates of
approximately 5.0% to 7.0% per year. Cash is held primarily in United States
dollars, because revenue and most expenses, with the exception of certain
salaries and rent payable in Canadian dollars, are denominated in United States
dollars. Our obligations under our agreements relating to Web Centers based in
India are based in United States dollars and do not provide a short term market
risk to us. Our exposure to market risk in connection with currency fluctuations
is principally confined to our cash and cash equivalents. We do not consider
this risk to be material.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133, "ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" and SFAS No. 137 "DEFERRAL OF
EFFECTIVE DATE FOR SFAS NO. 133" which are effective for fiscal years beginning
after June 15, 2000. Management has not yet determined the impact of these new
standards on our consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") 101. SAB No. 101 summarizes certain areas of the Staff's views
in applying generally accepted accounting principles to revenue recognition in
financial statements. We believe that our current revenue recognition principles
comply with SAB 101.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. Management
does not expect the application of FIN 44 to have a material impact on the
consolidated financial position or results of operations of the Company.
YEAR 2000
We have not experienced any problems with our computer systems relating to these
systems being unable to recognize appropriate dates related to the year 2000. We
are also not aware of any material problems with our corporate clients or
vendors. Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any Year 2000
issues.
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BUSINESS
OVERVIEW
We provide live, human-assisted customer, sales and technical support over the
Internet. Our support services are provided 24 hours per day, seven days per
week using our Internet-based technology platform. Our platform routes
text-based chat engagements with customers to one of our more than 500 trained
agents, known as ``Web Wizard professionals." We train these Web Wizard
professionals, most of whom are outsourced, in customer service and advanced
Internet search techniques and closely monitor their performance. Our service
platform includes proprietary knowledge base and payment processing components,
allowing us to take care of a wide range of customer functions. We believe that
by using our service platform and Web Wizard professionals, our corporate
clients can offer a human element that is generally unavailable on most Web
sites.
Our service platform enables businesses and individuals to more effectively use
the Internet to purchase and sell goods and services and to locate content.
Through our Webhelp Direct service, which we launched in March 2000, Web Wizard
professionals, using our service platform, help the customers of our corporate
clients by answering their questions on topics such as how to navigate our
corporate clients' Web sites, how to locate products and services and how to
complete online purchases.
We sell our support services, marketed to our corporate clients under the name
Webhelp Direct, through our direct sales force of 32 individuals. We target
organizations that sell to or service a large online customer base. We currently
have 14 clients including Microsoft, Norelco, Money.net, Auctionworks, Community
Connect and LessonLink.
Our service platform includes proprietary and licensed software modules running
on multiple servers. It is designed to be easily expanded and stable. Since the
entire platform is Internet-based, we are not bound by geography and our clients
do not need to purchase hardware or software to connect to the platform.
In addition to our Webhelp Direct service, we operate a consumer portal located
at WWW.WEBHELP.COM. On our Webhelp portal, our Web Wizard professionals provide
individual users with live, human-assisted search services to locate products,
services and content on the Internet. We use our Webhelp portal primarily as a
training tool for new Web Wizard professionals, to test new technology
applications, as a marketing tool for prospective clients and as a source of
advertising revenue.
INDUSTRY BACKGROUND
The Internet has become an important medium through which millions of people and
businesses communicate, share information and conduct commerce. International
Data Corporation, or IDC, estimates that the number of Internet users worldwide
will increase from approximately 240 million in 1999 to approximately
602 million in 2003. In addition, IDC estimates that revenue from global
e-commerce will grow from approximately $131 billion in 1999 to approximately
$1.6 trillion in 2003 and that the number of buyers on the Internet will grow
from 63 million to 230 million over the same period. The volume of content
available to these users is also increasing. IDC expects that the number of Web
pages will grow from 2.2 billion in 1999 to over 17 billion in 2003. We believe
that with the increased growth in Internet usage, online businesses face new
challenges attracting and retaining customers.
ONLINE SALES AND SUPPORT. As a result of the growing acceptance of the Internet
as a commercial medium, businesses are finding that forming and maintaining
strong customer relationships are critical. The Internet has narrowed the
communication gap between businesses and customers, and businesses
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must adapt their customer service models to keep up with the escalating needs
and expectations of their customers. The customer service offerings currently
available for online companies are:
- SELF-SERVICE. Self-service allows customers to solve problems on their own
by providing access to knowledge bases. Customers help themselves by
referring to either frequently asked question or status reporting
databases such as billing and payment status. A more involved self-help
option incorporates a search function on the Web site that provides
responses to commonly asked questions with automated answers from a
central knowledge base. Self-service on the Internet can be an effective
tool when the customer's question is simple and commonly asked and the
answer is easily found. However, when the question is more complex or the
answer cannot be found, the customer is often directed to a secondary
point of contact for support.
- E-MAIL. E-mail response systems answer a customer's question by e-mail.
Two types of e-mail response capability exist: automatic and human.
System-generated e-mail messages are automatically sent in response to
frequently asked questions by retrieving information from an established
knowledge base. Human e-mail response involves the direct knowledge and
participation of customer service representatives to answer customers'
questions. E-mail has some operational advantages. For example, it is easy
to forward messages and it provides companies with an audit trail of
customer inquiries and associated responses. However, e-mail response
systems often fail to provide an immediate response to a customer's
inquiry. According to a recent Forrester Research survey of early adopters
of e-mail response, the average length of time it takes to receive a
response to an e-mail query is 32 hours.
- TELEPHONE. Call center representatives receive and respond to telephone
calls relating to customer service and order processing. Voice response
provided through telephone call centers has historically been the
principle customer service mechanism for offline businesses. However, call
centers are not ideal for online businesses, since customer service
representatives cannot see the customer's computer screen and a customer
may have to disconnect from the Internet in order to contact the call
center. Customer service representatives must also speak the language
clearly, potentially limiting the labor pool from which call centers can
hire. In addition, customer service representatives are only able to serve
one customer at a time.
- VOICE OVER IP. More recently, voice-based customer service has been
offered over the Internet using voice over IP. This technology allows a
customer with only one phone line to call customer support without having
to log off their Internet connection. While this customer support option
is expected to result in lower telecommunications charges to the service
provider than regular telephone support, its limitations are otherwise
substantially the same.
- CHAT. Chat allows customers and customer service representatives to
communicate in real-time over the Internet using text and graphics. Chat
support can be reactive or proactive. Reactive chat is initiated by the
customer. Proactive chat is initiated when a customer service
representative actively engages a customer in accordance with established
business rules such as how long the customer has been on a Web site or
page. Through chat support, customers can get an instant response to their
inquiry, unlike the average response time for e-mail. Like telephone and
voice over IP, chat involves real-time, human interaction. However,
customer service representatives are able to handle multiple chats
simultaneously, giving this online customer option an attractive
operational advantage over the telephone and voice over IP.
THE IMPORTANCE OF HUMAN INTERACTION. PC Computing recently reported the results
of two e-commerce surveys by NFO Interactive, a market research firm, and Net
Effect Systems, a provider of interactive customer service. According to NFO,
35% of Internet shoppers say they would be willing to spend more money online if
they could communicate with a customer service representative before
surrendering their credit card information. According to Net Effect, the reason
94% of visitors to e-commerce sides do not buy online is that the sites lack
interactive customer service features such as
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live chat and instant callback. A study by Forrester Research, Inc. finds that
it is very difficult to convert Web surfers into product purchasers. Forrester
data shows that today's rate of converting Web surfers into product purchasers
is 2.7%. We believe that in order to increase this conversion rate and lower the
customer acquisition cost, human interaction is needed to make e-commerce sites
easier for customers to use.
GROWING DEMAND FOR OUTSOURCED SERVICE. To remain competitive, many companies
are outsourcing in order to reduce costs, increase efficiencies and refocus
critical resources. For example, by 2003, IDC expects spending on call center
outsourcing services to reach $42 billion. We believe the demand for outsourcing
services will continue to show strong growth. According to IDC, becoming more
customer-centric is a high priority for many companies. Competitive pressures,
deregulation and customer behavior are all converging to push companies into
developing strategic plans for their customer care processes.
We believe that a significant need exists for live, person-to-person customer
service over the Internet. We also believe that in order to increase online
revenue, improve customer satisfaction and retention, and reduce customer
acquisition costs, businesses must provide an effective vehicle for online sales
and support.
THE WEBHELP STRATEGY
We provide live, human-assisted customer, sales and technical support over the
Internet using our proprietary service platform and more than 500 trained Web
Wizard professionals. In addition, we help individual Internet users locate
products, services and content on our Web portal. Our service platform routes
text-based chat engagements with consumers to one of our Web Wizard
professionals, based on availability and skills, 24 hours a day, 7 days a week.
Our service platform enables businesses and individuals to use the Internet more
effectively to purchase and sell goods and services and to locate content.
Our goal is to capitalize on our proprietary technology by strengthening our
position as a provider of live, human-assisted customer, sales and technical
support over the Internet. The key elements of our strategy are as follows:
INCREASE THE NUMBER OF BUSINESSES THAT USE OUR SERVICE PLATFORM. In order to
increase online businesses' awareness of the benefits of using our integrated
service platform, we are increasing our direct sales force and our
business-to-business marketing initiatives. In addition to our current corporate
clients, such as Microsoft, Norelco, Money.net, Auctionworks, Community Connect
and LessonLink, we continue to target the most frequently visited commercial and
membership sites on the Internet. In order to increase the knowledge of Webhelp
and our services among Internet users and businesses, we intend to employ a
variety of online and offline brand development initiatives, including
advertising, direct marketing, trade shows, sponsorships and public relations.
In addition, we use our Webhelp portal to demonstrate our services to our
potential corporate clients.
CULTIVATE MULTIPLE REVENUE STREAMS. We intend to cultivate multiple revenue
streams from our service platform and our network of trained Web Wizard
professionals. Currently, we have identified and are pursuing the following
additional revenue opportunities:
- Internet-based educational services;
- license and service fees to third-party non-English language Internet
portals;
- wireless services;
- subscription-based Webhelp Express search services for individuals; and
- additional fee-based tools and services on our Webhelp portal.
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FURTHER ENHANCE AND DEVELOP OUR HUMAN INTERACTIVE SUPPORT SERVICES. We intend
to continue to upgrade our technology and our service platform to allow us to
provide new functions and features for our corporate clients and on our Webhelp
portal. For example, we have developed technology known as "white-boarding" that
includes a graphical interface, allowing consumers and Web Wizard professionals
to communicate through our service platform using graphics as well as text. In
addition, we intend to further develop relationships with leading technology
companies in the areas of wireless applications, voice recognition and technical
support. This will enable us to provide expanded support services to our
corporate and consumer customers.
COLLECT AND ANALYZE DATA TO ASSIST OUR CORPORATE CLIENTS. We collect, store and
analyze data from users of our Webhelp Direct service, such as questions asked,
chat-transcripts and limited personal information. We report this data to the
applicable Webhelp Direct client. We believe that this data provides our Webhelp
Direct clients with an enhanced understanding of their customers and enables
them to target their sales, marketing and product development activities. In
addition, our data enables our Webhelp Direct clients to continuously compile
and update their FAQ databases.
PURSUE ACQUISITIONS AND JOINT VENTURES. We plan to pursue acquisitions and
joint ventures to strengthen our technology, enhance our service offerings,
capture new distribution channels, broaden our audience reach and open new
revenue streams. For example, on June 6, 2000, we entered into an agreement with
a group of investors led by Europ@Web in France to provide Webhelp-type services
in the French language. We intend to pursue similar opportunities to expand into
additional languages such as German, Spanish and Italian.
WEBHELP DIRECT SERVICE
Our Webhelp Direct service is a fee-based service that offers our corporate
clients a variety of ways to enhance their online customer service through our
proprietary service platform. Webhelp Direct can be tailored to meet the
specific needs of each of our corporate clients and provide them with a
customized service. We currently provide our corporate clients with text-based
chat live customer support, e-mail response and the collection and analysis of
customer data in a variety of contexts. Our service platform is also able to
compile FAQ lists and process customer payments.
Customers contact our Web Wizard professionals live through our service platform
using a link or custom designed button on our clients' Web sites. Our Web Wizard
professionals engage in live text-based chat and utilize advanced search
techniques to help to customers in real-time, guiding them through our corporate
clients' Web sites, answering questions, providing customer service, sales
assistance and follow-up e-mails. In addition, since our knowledge base provides
insight into customer behavior, we identify opportunities to streamline and
improve our clients' Web sites.
We believe that our service platform and trained Web Wizard professionals
provide our clients with a number of benefits, including:
- INCREASED E-COMMERCE REVENUE. Our clients can increase their e-commerce
revenue by using our service platform and Web Wizard professionals to
provide live, interactive support and information to facilitate the buying
process and increase the likelihood of a completed purchase transaction.
Our clients can derive additional revenue from a Web Wizard professional
recommending related or upgraded products and services.
- AFFORDABLE OUTSOURCED SERVICE AND REDUCED CUSTOMER SUPPORT COSTS. By
addressing the needs of the customer interactively, live and in context
through the Internet, our services are generally more cost-effective than
currently employed alternatives such as e-mail, voice over IP and
traditional telephone-based customer services. By using our comprehensive
and integrated outsourced service, our clients avoid having to purchase,
maintain and upgrade new systems and hire and train new personnel. By
spreading such costs over our Web portal and multiple clients,
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we are able to pass on the benefits of economies of scale to our clients
in the form of lower prices.
- IMPROVED CONSUMER SATISFACTION AND RETENTION. By providing live,
interactive customer support, 24 hours per day, 7 days per week, we can
improve online consumer satisfaction, which enhances customer retention
and builds brand loyalty for our corporate clients. We believe that the
proactive sales assistance and service provided by our Web Wizard
professionals is more useful and accessible to consumers than automated
help and FAQ features used by most commercial Web sites. For example, a
Web Wizard professional helping a customer who is having difficulty
completing an order because he or she is entering information in the wrong
format can see the customer's screen, quickly identify the problem and
guide the customer through the proper format.
- CUSTOMER-FRIENDLY SERVICE. In contrast to self-help services that use
automated search engines, our service platform and Web Wizard
professionals allow customers to ask questions using plain English, that
can even contain misspellings and typographical errors. Our Web Wizard
professionals, who are trained in the client's Web site, products and
services, interpret those questions using common sense and follow-up
questions. This ease of use makes our services less frustrating for the
user than traditional FAQ databases and search-based help services.
- INCREASED UNDERSTANDING OF CUSTOMER INTERESTS. By aggregating and
analyzing information about customers' online experiences in our knowledge
base and providing reports on their interests and needs, our service
platform can provide our corporate clients with information that can be
used to focus and adjust the direction and development of their Web sites
and FAQ databases as well as their overall business. We also plan to use
the data collected from our search service to assist our Web Wizard
professionals to answer customer questions more efficiently.
CLIENTS
We currently have 14 Webhelp Direct clients. We provide a variety of services to
these clients, including human-assisted Web site navigation assistance, customer
inquiry response, technical support, sales assistance, e-mail response and on
line educational assistance. We also provide detailed customer reporting and
service level reporting. The following are examples of the services we provide
to our corporate clients:
MICROSOFT. MSN is the network of Internet services through which Microsoft
Corporation offers e-mail, personal communications services, an online
community, customizable access to news, Internet access and other services. On
March 14, 2000, we launched with Microsoft the "MSN Support Professional"
services whereby Web Wizard professionals engage in live chat with MSN members
to help them navigate MSN and search for Microsoft-related information. In
addition, we provide detailed reports to Microsoft.
NORELCO. Norelco, a division of Philips Electronics, sells shaving and other
grooming products through their Web site as well as through retail stores and
other means. On August 18, 2000, Norelco entered into an agreement with us under
which we will provide live, online customer support and site navigation
assistance. This customer support service is expected to be launched in the
fourth quarter of 2000.
MONEY.NET. Money.net is an online financial news and information community
which offers free live stock portfolio tracking on the Internet. We are working
with Money.net to provide cost-effective, live customer support to assist online
users in effectively utilizing certain products and services offered by
Money.net. This customer support was launched on July 24, 2000.
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AUCTIONWORKS.COM. Auctionworks.com is an operator of an online auction site. We
entered into an agreement with Auctionworks on May 6, 2000 to provide our live,
chat-based customer support services in order to help customers register and
complete bids.
COMMUNITY CONNECT INC. Community Connect Inc. creates and builds interactive
online communities targeted at different ethnic groups. Under an agreement we
entered into in May 2000, we provide our live, chat-based customer support
services in order to help customers register and navigate the Web sites of these
communities.
LESSONLINK. LessonLink Inc., a subsidiary of Viviance, provides educational
products and services through its Web sites. On August 18, 2000, we entered into
an agreement with LessonLink to provide live online tutoring to be sold through
their Web sites. We are being paid based on the number of hours of tutoring sold
by LessonLink. We expect to launch this service in September 2000.
We typically provide our Webhelp Direct services under agreements that generally
have one-year terms following a 60 to 90-day trial period for implementation. We
generally charge on a per engagement basis or on a per engagement plus a
percentage of revenue basis. Our agreements generally have payment terms of 30
days following invoice date.
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WEBHELP SERVICES IN THE FRENCH LANGUAGE
On June 6, 2000, we entered into an agreement with a group of investors with
respect to the provision of Webhelp-related services in the French language.
Under the terms of the agreement, we acquired a 19.88% interest in a new
company--Webhelp.fr, S.A., established to provide these services. We have
received a $1.0 million upfront payment and will receive an additional $4.0
million of payments during the year 2000. In addition, we will receive certain
ongoing fees with respect to services provided to Webhelp.fr. In return, we
granted to Webhelp.fr a license to certain intellectual property and the
exclusive right to provide Webhelp-type services in the French language for a
term of four years. We also entered into a services agreement with Webhelp.fr
with respect to upfront and ongoing services provided by us. We intend to pursue
additional opportunities to expand into other languages such as German, Spanish
and Italian.
WEBHELP PORTAL
In addition to our Webhelp Direct service, we operate a consumer portal located
at WWW.WEBHELP.COM. On our Webhelp portal, our Web Wizard professionals provide
individual users with live, human-assisted search services to locate products,
services and content on the Internet. We use our Webhelp portal primarily as a
training tool for new Web Wizard professionals, as a way to test new technology
applications, as a marketing tool for prospective clients, and as a source of
advertising revenue.
The Webhelp portal provides us with the following benefits:
- It is a source of advertising revenues.
- It serves as a marketing tool for our Webhelp Direct services.
- It allows us to balance and optimize the use of our Web Wizard
professionals.
- It enables our Web Wizard professionals to gain experience with our
service platform.
- It enables us to test and evaluate new technology applications.
- It helps us evaluate the capabilities and training needs of our Web Wizard
professionals.
We collect, store and analyze data from visitors to our Webhelp portal such as
name, age, e-mail address, questions asked and chat-transcripts. We use this
data to improve our internal knowledge base, which enables our Web Wizard
professionals to answer client questions more efficiently. This data is
collected in accordance with our privacy policy posted on our Website. In
addition, we sell e-mail information to third parties to generate additional
revenue from our Webhelp portal.
OPERATIONS
We provide live, human-assisted Internet services from four Web Centers located
in India and Canada. We have exclusive contracts with outsourcing companies that
provide us with the majority of our Web Wizard professionals and Web Centers
with advanced workstations and access to back-up power sources. Using
outsourcing companies gives us the flexibility to rapidly expand our operations
in response to increased demand and new corporate clients. Presently we use more
than 500 outsourced Web Wizard professionals that are located in India. We
intend to grow through expansion of our operations in India, and we are in
discussions with additional outsourcing companies to facilitate this growth. We
believe that this strategy will enable us to realize cost savings from the large
workforce of well-educated, technically literate, English-speaking individuals
located in India. We are looking into expanding our operations into other
countries where we would be able to enter into cost-effective outsourcing
contracts similar to the contracts we have entered into in India. The outsourced
service providers are contractually obligated to fulfill our need for Web Wizard
professionals and Web Center seats. Our agreements allow for us to train the Web
Wizard professionals to meet our customer service
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and quality standards. On June 15, 2000, we launched a Web Center in Montreal,
Canada that we own and operate. There are currently more than 50 Web Wizards
employed at our Montreal Web Center. This Web Center is predominantly focused on
providing services for our corporate customers, but will also provide services
to the Webhelp portal. Our Montreal Web Center also provides us with a place to
develop and test new services and methods close to our corporate headquarters.
We provide our Web Wizard professionals with the training and tools to engage in
multiple live chats and to use multiple search engines simultaneously. Our 40
hour Web Wizard professional training program includes application training,
communication and selling skills, lessons in North American culture, quality
assurance and a significant amount of hands-on training. While all Web Wizard
professionals receive this basic level of training, we then select Web Wizard
professionals for certification after an advanced training program focused on
providing sales and customer service support for our Webhelp Direct corporate
clients. These corporate Web Wizard professionals receive instruction on
site-specific suggestive selling and customer support techniques, and are
trained to be familiar with the details of a specific Webhelp Direct corporate
client's Web site along with the use of the appropriate tools to assist the
corporate client's customers. The training program for the corporate Web Wizard
professionals includes instruction on opening the lines of communication with
the customer, presenting solutions, suggestive selling techniques, handling
objections, and completing e-commerce transactions.
Our quality assurance processes are designed to ensure that all of our Web
Wizard professionals maintain a high level of competency and provide uniform
service. At each Web Center, potential Web Wizard professionals and on-site
trainers must meet specific requirements and guidelines prior to joining our
team. In order to ensure consistency, as each new Web Center opens, a team of
senior trainers from our Toronto head office travels to the Web Center to
certify the on-site trainers. Once the training programs are successfully
completed, on-site Webhelp supervisors, as well as second level quality
assurance specialists located in Toronto, continue monitoring service quality.
Ongoing feedback and coaching help maintain the work quality and job
satisfaction of our Web Wizard professionals.
SALES AND MARKETING
SALES
WEBHELP DIRECT. The goal of our sales team is to generate revenue by
establishing and developing long-term relationships with leading businesses and
providing them with customized Webhelp Direct services. Our sales team targets
large companies as well as organizations that sell to, or service a large online
customer base. Our direct sales force currently totals 32 individuals
supplemented by a sales support team consisting of seven individuals. Our sales
team works closely with our Webhelp Direct client services team in order to
ensure that both existing and potential customers receive optimal levels of
service. This division of labor allows the sales team to focus on developing
relationships and exploring new business opportunities while the client services
team focuses on managing the existing accounts to ensure corporate client
satisfaction and achieve revenue growth. We believe that this structure results
in optimal client service and a more effective sales force. We also intend to
sell our Webhelp services using a number of indirect sales channels including
reseller agreements and complementary service providers.
We sell our services to our clients primarily on a per engagement basis if the
length of time per engagement is reasonably determinable. In addition, we may
also sell our services to our clients on an hourly basis, on a per user basis,
or on a per transaction basis whereby we would earn a portion of revenue that
they have earned through online transactions. We generally charge an
implementation fee if the set-up costs are material. We expect that payment
terms will be net 30 days from the date of invoice.
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ADVERTISING. Our advertising sales for the Webhelp portal are handled
predominantly by third-party advertising managers. We will supplement our use of
third-party advertising managers with limited internal sales initiatives. We
expect that we will be able to deliver high value advertising opportunities
through selling space on specific, high-visibility locations on our Webhelp
portal. In the future, we will deliver targeted messages using insight into
users' interests gained from key word review and from our chat database.
ADVERTISING AGREEMENTS
On May 15, 2000, we entered into a Website publisher agreement with Engage,
Inc., whereby Engage sells and solicits advertising on our Webhelp portal.
Engage retains 35% of the net advertising sales revenue and pays the remaining
65% to us. The term of this agreement is for an initial period of 120 days. We
are currently renegotiating with Engage regarding a possible extension of this
agreement. Pursuant to an exclusivity provision in the contract, in order to
renew this agreement we would have to make Engage our exclusive third-party
advertising manager. Either party may terminate this agreement on 30 days'
written notice.
Until April 2000, we relied on 24/7 Media as our exclusive advertising manager.
Under the terms of our agreement with 24/7 Media, 24/7 Media sells and solicits
advertising on our Webhelp portal. 24/7 Media retains 30% of the net advertising
sales revenue and pays the remaining 70% to us. Our agreement with 24/7 Media
does not provide for a guaranteed number of impressions to be delivered. We
currently use advertising placement agents other than 24/7 Media for most of our
advertising placement. The contract terminates on November 9, 2000.
We also entered into an e-mail management agreement with 24/7 Media on
April 26, 2000 whereby we provide 24/7 Media with our opt-out e-mail databases
for the purpose of soliciting advertisers to place advertising banners and other
advertising devices for display in e-mail messages distributed to users of our
services. The information we provide 24/7 Media through our opt-out e-mail
databases includes names, e-mail addresses, zip codes, interests, and certain
other preference information garnered from key words within the chat transcripts
provided to users that register for our services. The term of this agreement is
for one year, and will automatically renew for successive one year terms unless
either party gives notice of its desire not to renew 60 days prior to the end of
the term. Either party may terminate this agreement on 90 days' written notice
for any reason. 24/7 Media will pay us 70% of net revenue earned from the sale
of advertising for each month of the term of the contract.
On May 10, 2000, we entered into an online database management agreement with
24/7 Media pursuant to which 24/7 Media, through its 24/7 Mail division,
collects and manages information about our opt-out users, and markets the
information to third-party advertisers. 24/7 Media sells the information to
third-party advertisers according to the preferences of our users and their
demographic information and without reference to us. 24/7 Media then pays us a
monthly royalty payment in the amount of 60% of net revenue. The term of this
agreement is for one year, and will be automatically renewed for successive
one-year terms unless either party notifies the other party of its desire not to
renew 60 days prior to the end of the term. Either party may terminate this
agreement upon 90 days' written notice.
WEB SITE AFFILIATES. We entered into an agreement with Linkshare on July 19,
2000 whereby Linkshare facilitates our affiliate marketing program by managing
marketing links between Webhelp and the members of the Linkshare Affiliate
Network. Under our affiliate marketing program we compensate affiliated Web
sites sending traffic to our Webhelp portal. In return, we are compensated for
sending traffic to our affiliates' sites that results in visits, product sales
or lead generation.
We have agreements establishing affiliate sites with CNET, AllAdvantage,
GoTo.com, Webpersonals.com, Homestead.com, Snapfish.com, Backwire.com,
Winfreestuff.com, and Frictionless.
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The majority of these agreements are for a period of one year and are terminable
by either party on 30 days' written notice. The agreement with Snapfish.com is
for a term of seven months.
SPONSORS AND CONTENT PROVIDERS. Most of the content on the Webhelp portal is
provided pursuant to agreements with the owners of other Web sites whereby they
create co-branded Web pages for the Webhelp portal. We typically receive 30% to
50% of the revenue generated from advertising displayed on these co-branded Web
pages. Most of our agreements with these content providers are for a period of
one year and are generally renewable for additional one-year terms unless either
party gives prior notice of its intention not to renew. We plan to add
additional content providers to the portal to expand both premium and basic
service offerings.
MARKETING
Our marketing team consists of two key functional areas; a Webhelp Direct
marketing team that is focused on supporting the sales team and creating
awareness for Webhelp Direct and a consumer marketing team that manages the
Webhelp portal and associated revenues.
WEBHELP DIRECT. Our key marketing objective is to build Webhelp Direct brand
awareness and creditability in order to grow our Webhelp Direct corporate
customer base.
Our target market is senior level decision makers within the organizations that
are the most frequently visited commercial and membership sites on the Internet.
We have developed an integrated marketing communications strategy that involves
advertising both online (email, banners, sponsorships) and offline (print,
direct mail) as well as at events such as industry conventions. Other major
marketing initiatives include exhibiting at key industry trade shows, speaking
at industry conferences and sponsorships. The marketing team also assists the
Webhelp Direct sales team by providing it with marketing material, sales
presentations and lead generation. We are conducting our marketing activities in
conjunction with an aggressive public relations strategy in order to optimize
the effectiveness of these efforts.
WEBHELP PORTAL. Our key objective is to build and manage the Webhelp consumer
portal and to drive all associated revenues. This includes content partner
development and management, affiliate management, as well as developing new
revenue stream opportunities. Our business to consumer marketing strategy
includes a variety of online advertising initiatives and affiliate marketing to
drive traffic to our portal as well as some offline marketing including outdoor
and print media.
COMPETITION
Competitors in the market for online customer support can generally be
categorized as either software developers or service providers. Software
developers provide online customer support technology only. Companies in this
category include those whose principal business is e-mail management software,
such as Kana and eGain, those who focus on self-service knowledge base software,
such as AskJeeves, Primus and Support.com, and those who specialize in chat
software, such as Liveperson, Facetime and Webline. Competitors in the service
provider category provide outsourced online customer support. These companies
either develop their own support software or license technology from a software
developer. PeopleSupport, Brigade Solutions and eAssist.com fall into this
category, as do some traditional call centers that now offer online support
services, such as Convergys, Sykes and Teletech.
We may also face competition from larger enterprise software companies such as
Oracle and Siebel Systems. In addition, established technology companies,
including IBM and Microsoft, may also use their existing relationships and
capabilities to offer live sales and customer service applications.
We believe that competition will increase as our current competitors increase
the sophistication of their offerings and as new participants enter the market.
Many of our current and potential competitors have:
- longer operating histories;
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- larger client bases;
- greater brand recognition;
- more diversified lines of products and services; and
- significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial agreements with larger,
more established and better-financed companies. They may be able to undertake
more extensive marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to businesses to induce them to use their products
or services. Any delay in the general market acceptance of online live sales and
customer service would likely harm our competitive position. Delays would allow
our existing competitors additional time to improve their service or product
offerings, and would also provide time for new competitors to develop live sales
and customer service applications and solicit prospective corporate clients
within our target markets. Increased competition could result in pricing
pressures, reduced operating margins and loss of market share.
The market for online, live sales and customer support is new and there are no
substantial barriers to entry. Established or new entities, including companies
that provide, or distribute technology for providing, live human interaction
online, may enter this market in the near future. Furthermore, our existing and
potential corporate clients that choose to provide live sales and customer
support services in-house may not use, or continue, to use our services.
We also face direct competition from companies that provide Internet-wide
search, expert search and Web directory services. Some of our competitors
provide human assistance including About.com, AskJeeves and Keen.com. Lycos and
Yahoo! are competitors that do not provide human-assisted search, but provide
alternative ways for Internet users to obtain the desired content online.
PLAN OF OPERATION
We believe that the net proceeds from this offering, together with our current
cash resources, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 24 months. At this time
we do not anticipate needing any debt financing with the exception of capital
leases which we intend to use to finance capital expenditures where possible.
Where appropriate, we will consider issuing equity to strategic investors.
At our current level of operation, we estimate that our net cash expenditures
are approximately $6.5 million per quarter. However, following the offering, we
expect to increase expenditures as we expand our business and we expand our
technology to allow us to generate revenues from additional sources. During
2000, our increased expenditures will result from increasing our personnel
resulting from the anticipated growth of our business, from developing expanded
technology and from increasing our Webhelp Direct sales force from 32 to 50. We
also plan to increase our marketing and branding initiatives by way of
third-party marketing predominantly in the areas of online marketing,
advertising, and trade shows. We expect that our cost of revenue expenditures
will increase as we increase the number of outsourced Web Wizard professionals
who support our business from more than 500 to more than 1,500, and as we invest
in one or more new Company managed Web Centers. We also expect to increase the
number of sales offices predominantly in the United States.
We intend to continue to review more opportunities to use our underlying
infrastructure to generate additional revenue. Currently, we are reviewing
opportunities to provide online training services, and to provide services in
cooperation with wireless services companies. We are not earning any revenue
from these or any other new business opportunities, however, we are incurring
costs to review these business opportunities.
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REGULATION
We are subject to federal, state and local regulation, including laws and
regulations applicable to businesses generally, including with respect to access
to or commerce over the Internet. Due to the increasing popularity and use of
the Internet and various other online services, it is likely that a number of
laws and regulations will be adopted with respect to the Internet or other
online services covering issues such as user privacy, freedom of expression,
pricing, content and quality of products and services, taxation, advertising,
intellectual property rights and information security.
The nature of this legislation and the manner in which it may be interpreted and
enforced cannot be fully determined and, therefore, this legislation could
expose us and/or our corporate clients or their customers to potential
liability, which in turn could have an adverse effect on our business, results
of operations and financial condition. The adoption of any such laws or
regulations might also impair the growth of Internet use, which in turn could
decrease the demand for our service or increase the cost of doing business or in
some other manner have a material adverse effect on our business, results of
operations and financial condition. In addition, applicability to the Internet
of existing laws governing issues such as intellectual property, taxation and
personal privacy is uncertain. The vast majority of such laws were adopted prior
to the advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
As a result of collecting data from live online chat engagements, our
advertisers and corporate clients may be able to analyze the commercial habits
of their customers. Privacy concerns may cause customers to avoid Web sites that
collect such behavioral information and even the perception of security and
privacy concerns, whether or not valid, may indirectly inhibit market acceptance
of our services. In addition, our corporate clients may be harmed by any laws or
regulations that restrict their ability to collect or use this data. Several
states have proposed legislation that would govern the collection and use of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has initiated actions
against online services regarding the manner in which information is collected
from Internet users, used by online services and/or provided to third parties,
and has begun investigations into the privacy practices of companies that
collect information about individuals on the Internet. The European Union has
enacted its own privacy regulations that may result in limits on the collection
and use of some user information. Changes to existing domestic or international
laws or the passage of new laws intended to address these or other issues,
including some recently proposed changes, could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner have a material adverse effect on our
business, results of operations and financial condition.
It may take years to determine how existing laws apply to the Internet. Any new
legislation or regulation regarding the Internet, or the application of existing
laws and regulations to the Internet, could harm us. Additionally, as we expand
outside the U.S., the international regulatory environment relating to the
Internet could have a material adverse effect on our business, results of
operations and financial condition.
EMPLOYEES
As of July 31, 2000, we had 159 full-time employees, of whom 65 were management,
finance, client service and administrative personnel, 37 were engaged primarily
in technology development and information systems and 57 were engaged primarily
in sales, marketing and business development activities. As of July 31, 2000,
our four outsourced Web Center service providers had more than 500 Web Wizard
professionals and we contracted with another 50 at our Montreal Web Center. None
of our employees is covered by collective bargaining agreements. We believe that
our employee relations are good.
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PROPERTIES
Our headquarters are located in Toronto, Ontario, where we lease approximately
19,800 square feet of space for a term of five years commencing on July 1, 2000.
This facility is used for executive office space, including sales and marketing,
finance and administration, operations and technology. We also lease
approximately 5,200 square feet of additional office space in Toronto, Ontario
under a lease that expires on November 14, 2000, subject to our right to renew
it for an additional one-year term. We lease approximately 6,000 square feet of
office space in Minneapolis, Minnesota, under a lease that is month to month. We
have entered into a five-year lease of approximately 12,500 square feet of
office space in Minneapolis, Minnesota, which we expect to occupy by October
2000. We have also entered into an offer to lease approximately 8,800 square
feet of space in Montreal, Quebec for a term that expires on July 14, 2004. We
will use this space as a Web Center. We believe that suitable additional or
alternative space is available and will be available in the future on
commercially reasonable terms.
LEGAL PROCEEDINGS
On January 22, 2000, three common stockholders of eliance Corporation commenced
a lawsuit on behalf of themselves and, purportedly, on behalf of eliance against
us, Kerry Adler, our Chief Executive Officer and President, Laura Hantho, our
Chief Operating Officer, and various other persons and entities. The lawsuit was
commenced in the District Court for the Fourth Judicial District of the County
of Hennepin, State of Minnesota. In the lawsuit, the plaintiffs challenge on a
number of grounds the sale and transfer of certain assets of eliance to us in
1999, alleging, among other things, that the transaction was accomplished by the
defendants through breaches of fiduciary duty they then owed as officers or
directors of eliance. On May 11, 2000, the plaintiffs amended their complaint to
assert claims against us for breach of contract, unjust enrichment and
fraudulent transfer in connection with the eliance transaction. On August 8,
2000, the Court heard our motion to dismiss the lawsuit. A decision on our
motion to dismiss is pending.
Many of the parties to the January 22, 2000 lawsuit other than us are also
parties to litigation previously filed on or about September 27, 1999 in the
United States District Court, District of Minnesota. In that lawsuit, it was
alleged that the board of directors of eliance was improperly constituted and
that various actions of that board were not within their authority. While the
federal District Court entered a preliminary injunction, that precludes the
plaintiffs in the federal lawsuit from interfering with eliance's business, the
lawsuit remains pending and the defendants are seeking to have the lawsuit
dismissed for lack of federal jurisdiction.
On February 22, 2000, three current eliance preferred stockholders commenced a
lawsuit against David Erickson, Robert Griggs and Dianhai Du (the three eliance
common stockholders who are plaintiffs in the lawsuit filed on January 22, 2000)
for breach of contract, fraud and securities fraud. This lawsuit was also
commenced in the District Court for the Fourth Judicial District of the County
of Hennepin, State of Minnesota. On or after April 6, 2000, Erickson, Griggs and
Du filed an answer, counterclaim and third-party complaint. The third-party
complaint asserts claims against us and others that are identical to, and
duplicative of, the claims in the January 22, 2000 complaint. On June 20, 2000,
the Chief Judge of the Minnesota District Court for Hennepin County, severed the
third-party complaint from this lawsuit and consolidated it with the
January 22, 2000 lawsuit.
We believe that the claims against us, Mr. Adler and Ms. Hantho in these
lawsuits are without merit and intend to defend these suits vigorously. Although
we can give no assurances, based on the available facts, we believe that the
outcome of these matters will not have a material adverse effect upon our
financial condition.
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TECHNOLOGY
We have developed a technology platform to provide live, human-assisted
customer, sales and technical support over the Internet. Requests for
assistance, whether they be from customers on our clients' Web sites or an
Internet user of our Webhelp portal, are routed via the Internet to one of our
more than 500 Web Wizard professionals based on the source of the request. We
are also able to route requests to Web Wizard professionals who have special
knowledge of a particular subject or client. We store and analyze customer data
in our proprietary knowledge base. Our payment processing module allows us to
complete transactions as part of our online customer services.
Our proprietary service platform includes proprietary and licensed software
modules running on multiple servers. It is designed to be easily expanded and
highly stable. Since the entire platform is Internet-based, we are not bound by
geography and our clients do not need to purchase hardware or software to
connect to our platform.
Since our service platform can run different workflows simultaneously, we are
able to integrate with different client Web sites and customize our services
without having to re-engineer the platform. Different components can be added
and combined according to specific client requirements. Our technology is
designed to enable us to increase the capacity of components of the system
individually without expanding the entire system. The following diagram
illustrates how each separate component of our service platform is integrated to
create a unified system:
(This graphic is a flow chart which illustrates the architecture of our system.
The top left hand corner illustrates the User Components, comprised of the
Browser, together with the (1) Plug-in, (5) Chat and (6) Collaboration tools.
The top right corner illustrates the Web Wizard components, comprised of the (5)
Chat, (6) Collaboration, (3,4) Search and (2) DropZone tools. Below this is the
underlying Infrastructure, composed of (8) an Authentication Layer,
(9) Customer Management, (10) Member Management, Chat, Collaboration,
(11) Queue & Routing, and (12) E-Mail Management, above (13) XML Business Rules
and (14) the Transaction and Messaging Layer. This feeds into (19) the Security
Layer which in turn feeds into (15) iSpoke-TM- Payment Processing and (16) the
Knowledge Base and (17) FAQ Database in (18) the Profile Database.)
USER COMPONENTS. Customers enter our system over the Internet either through
our corporate clients' Web sites, through the Webhelp portal or through a
downloadable plug-in. The Internet users interact with our Web Wizard
professionals using their existing Web browser.
(1) The plug-in may be installed as a button on a browser's menu bar and enables
users to access a Web Wizard professional from any place on the Internet. Our
corporate clients' customers can also use this plug-in to access a Web Wizard
professional directly without having to go to the clients' Web sites.
WEB WIZARD PROFESSIONAL COMPONENTS. Regardless of whether a Web Wizard
professional is assisting a customer of one of our corporate clients or
responding to a search query on the Webhelp portal, each Web Wizard professional
uses the same basic tools.
(2) Web Wizard professionals can send results back to the Internet user's
browser as Web pages, called page pushing, or links to Web pages using our
proprietary DropZone interface.
(3) For a search query, a Web Wizard professional uses his or her browser in
combination with advanced search tools to search the Internet using multiple
search engines simultaneously.
(4) For a corporate client, Web Wizard professionals trained in responding to
the questions of that client's customers can also search that client's knowledge
base. Web Wizard professionals can also search our proprietary knowledge base
for relevant past results.
(5) Web Wizard professionals and users communicate using text-based chat. Users
communicate with Web Wizard professionals through an HTML-based instant
messenger that doesn't require the user to
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download or install any additional programs. While we currently license eGain
chat software for most of our text-based chat, we have developed our own
proprietary chat software, which our newest corporate clients are using. Our
text-based chat can be initiated either by the user through clicking on a link
or button or by the Web Wizard professional based on client-defined business
rules such as how long the user has been on a Web site or page.
(6) More recently, we have added a white-boarding tool for collaborative
graphical interaction to our service platform's capabilities. With
white-boarding, users and Web Wizard professionals can collaboratively annotate
multiple images and documents as separate pages. We are also developing a
collaborative form-sharing tool that enables Web Wizard professionals to assist
users in the filling out of forms online. This tool is expected to be complete
in the third quarter of this year.
COMMON COMPONENTS.
(7) Proxy servers and other similar servers mediate communications among the
customer, the Web Wizard professional and our service platform.
(8) An SSL authentication layer allows for secure communication among the
customer, the Web Wizard professional and our service platform.
INFRASTRUCTURE.
(9) The customer management component data model allows for the addition of new
data fields to meet specific client requirements for data collection.
(10) The membership management component allows for the creation of membership
accounts and the management of these accounts by users, Web Wizard professionals
and our clients.
(11) The queuing and routing component connects a user of our services to an
available Web Wizard professional using routing and load balancing algorithms.
(12) After a chat has been completed, the e-mail management component
facilitates our sending a transcript of the session to the customer by follow-up
e-mail. We can also provide e-mail-based customer support using our e-mail
management component. We currently license our e-mail technology from eGain.
(13) Our business rules define workflows based on client needs.
(14) The transaction and messaging layer allows messaging among the customer,
Web Wizard professional, member management, queuing and routing and e-mail
management components.
(15) The iSpoke payment processing component consists of our proprietary payment
processing technology. iSpoke connects to VisaNet for credit card processing.
(16) Our knowledge base stores chat and collaboration transcripts and performs
full text indexing.
(17) Top questions and answers from our knowledge base are stored and ranked as
frequently asked questions.
(18) FAQs and knowledge base results are catalogued and stored along with user
information in the profile database. We have an active database of users, which
provides the information required to target advertising and to deliver relevant
information to the user.
(19) Customer data is encrypted.
We also have an application service that monitors each server and balances load
across our servers. By effectively managing the process of distribution and
queuing of sessions, we expect to handle any increased need for our services
without any downtime or system changes.
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In addition, our entire Webhelp service platform has been designed for stateless
operation. This allows each successive request, even if it originates from the
same Internet user, to be handled by a different server if necessary. Because
the data requests are initiated abstractly by our Web servers, we do not have to
maintain a connection to the server that started the visit for a user. In
addition, each component of the service platform does not have to physically
reside on the same system, nor is the architecture limited to a single instance
of a component. This gives us the ability to handle increased loads by adding
new hardware without having to change the underlying application server or
integration layer.
We use a redundant enterprise storage solution from EMC to run our back-end
database services. All interactions with the database are channeled through the
application server, which reduces possibility of corruption and allows different
Web Wizard professionals to access the same data simultaneously.
HARDWARE. Substantially all of our hardware operations are located at our
computer facility in the Chicago, Illinois site of Exodus Communications. We
back up our data in real-time at the Minneapolis, Minnesota site of Visi, Inc.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF WEBHELP
The following table sets forth certain information regarding our executive
officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ---------------------------------------
<S> <C> <C>
Kerry E. Adler................................... 35 Chief Executive Officer, President and
Toronto, Ontario a Director
Laura Hantho..................................... 39 Chief Operating Officer and a Director
Toronto, Ontario
Hugh Cumming..................................... 30 Chief Technology Officer
Toronto, Ontario
Tom Cronin....................................... 36 Chief Financial Officer
Toronto, Ontario
Dan Walter....................................... 43 Chief Business Development Officer
Omaha, Nebraska
Ramanan Raghavendran............................. 31 Director
New York, New York
Jeff Horing...................................... 36 Director
New York, New York
Wes Nichols...................................... 35 Director
Pacific Palisades, California
</TABLE>
The following is a brief summary of the business experience of each of our
executive officers and directors:
KERRY ADLER has served as our Chief Executive Officer and President and a
director since our inception. From July 1999 to November 1999, Mr. Adler was
President of eliance Corporation, a provider of electronic commerce services.
From August 1998 to July 1999, Mr. Adler was Chairman of SITEL Corporation
(Canada) and Senior Vice President and immediate past member of the Office of
the President, SITEL Corporation, a customer relationship management company.
From February 1996 to August 1998, Mr. Adler was President and was one of the
original founders of SITEL Teleservices Canada, a provider of outsourced
telephone and Internet based customer service and sales programs for large
corporations. His previous experience includes the roles of Executive Vice
President of (CTC) Canadian Telephone Corporation, a telemarketing service
agency, Management Consultant for AT&T Canada Corp. (Unitel Corporation),
Managing Partner for RPW Systems & Services, Inc., a computer software company,
and Chief Executive Officer and founder of CORPFON Cellular Inc., a cellular
telephone resale company.
LAURA HANTHO has served as our Chief Operating Officer and a director since our
inception. From July 1999 to November 1999, Ms. Hantho was Chief Operating
Officer of eliance Corporation, a provider of commerce services. Ms. Hantho was
previously employed for 20 years with IBM. From January 1999 to July 1999.
Ms. Hantho served in the role of Global Services Executive. From January 1998 to
January 1999, Ms. Hantho served as Professional Services Executive. From
February 1996 to January 1998, Ms. Hantho was the National Brand Manager, AS/400
Division. From January 1995 to February 1996, she was the Canadian Large New
Business Marketing Manager for the
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AS/400 Division. Previously during her career, Ms. Hantho served in diverse
roles with IBM including in marketing, sales and systems engineering.
HUGH CUMMING has served as our Chief Technology Officer since November 1999.
From July 1999 to November 1999, Mr. Cumming was Chief Technology Officer of
eliance Corporation. From March to August 1999, he was the Chief Information
Officer for SITEL Europe PLC. Previously, from December 1997 to March 1999, he
was the Vice President of Technology for SITEL Global Business in the
Netherlands. From August 1995 to December 1997, he was the Vice President of
Technology for SITEL Canada, Inc. His career has also included the roles of Vice
President for MIS for Canadian Telephone Corporation, President and founder of
Computer Engineering Co., a systems engineering company, Software Engineer for
IBM Canada Ltd. and Software Developer for Ecolab Inc., a provider of products
and services for the hospital, institutional and industrial markets, and
SoftQuad Inc., a software company.
TOM CRONIN has served as our Chief Financial Officer since February 2000. From
March 1994 until January 2000, Mr. Cronin acted in various finance executive
roles with SHL Systemhouse Inc., an information technology services company, and
its successor and subsidiary companies within MCI Communications Corp. and
Electronic Data Systems Corp. His roles included Vice-President Corporate
Finance and Treasurer while SHL Systemhouse was a public company, Finance
Director and board of directors member of SHL Systemhouse Europe, interim Senior
Operating Manager of SHL Systemhouse Europe and most recently as Chief Financial
Officer of EDS Innovations Inc. Prior to joining SHL Systemhouse, Mr. Cronin
spent eight years with Ernst & Young LLP in their Toronto and London, England
offices in both audit and corporate finance. Mr. Cronin is a Chartered
Accountant in Canada.
DAN WALTER has served as our Chief Business Development Officer since November
1999. From August to November 1999, Mr. Walter was Executive Vice President at
eliance Corporation. Previously, from January 1990 to August 1999, he worked
with SITEL Corporation, where he served as member of the Office of the President
from January 1999 to August 1999. He was Corporate Senior Vice President, Global
Business Development from January 1997 to January 1999 and Chairman of the
Telecommunications/Energy Sector Group from January 1997 to August 1999. From
1995 to 1997, he served as Group Executive Vice President of the
Telecommunication Industry Division. Mr. Walter was the chief architect of
SITEL's large-scale business development for such Fortune 500 customers as
General Motors Corp. and GTE Corp.
RAMANAN RAGHAVENDRAN has been a director since January 2000. Mr. Raghavendran
has been Chairman and Chief Executive Officer of ConnectCapital, a pan-Asian
investment company, and Special Partner, Asia, for Insight Capital Partners, a
private equity investment firm, since February 2000. From December 1996 to
January 2000, Mr. Raghavendran was a General Partner of Insight Capital Partners
and several related entities. From August 1992 to December 1996, Mr.
Raghavendran was a senior member of the investment team at General Atlantic
Partners, a private equity investment firm. He is a member of the boards of
directors of Exchange Applications, C-Bridge Internet Solutions and several
private companies.
JEFFREY HORING has been a director since December 1999. Mr. Horing co-founded
Insight Capital Partners in 1995 and has been a General Partner of Insight since
then. Mr. Horing was previously a member of the technology group at Warburg,
Pincus and an investment banker at Goldman Sachs & Co. in the capital markets
group. He is a director of Exchange Applications, Inc. and several privately
held companies.
WES NICHOLS has served as a director since March 2000. He is a co-founder and
Managing Partner of Direct Partners, one of the largest strategic marketing
agencies in North America where he is responsible for strategic planning and
overall growth. Prior to founding Direct Partners in 1994,
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Mr. Nichols was, from February 1992 to March 1994, a member of the executive
management team of National Direct Marketing Corp., a provider of investment
marketing services, where he was responsible for analyzing investment
opportunities and structuring marketing programs for a number of blue chip
clients. Prior to that, he was with various direct marketing agencies in
Chicago, Richmond and Baltimore, with a focus on strategic planning and account
services for a variety of Fortune 500 companies.
The current directors were elected to the board pursuant to the terms of a
stockholders' voting agreement. Effective upon the completion of the offering,
that agreement will terminate.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has a compensation committee and an audit committee. The
members of the compensation committee are Messrs. Horing, Nichols and
Raghavendran. The compensation committee makes recommendations to the full board
as to the compensation of senior management, administers our 1999 Long Term
Incentive Plan and determines the persons who are to receive options and the
number of shares subject to each option.
The members of the audit committee are Messrs. Horing, Nichols and Raghavendran.
The audit committee acts as a liaison between the board and the independent
accountants and annually recommends to the board the appointment of the
independent accountants. The audit committee reviews with the independent
accountants the planning and scope of the audits of the financial statements,
the results of those audits and the adequacy of internal accounting controls and
monitors other corporate and financial policies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions have been made by the compensation
committee of the board of directors. The compensation committee reviews and
makes recommendations regarding the compensation for our management and key
employees, including salaries and bonuses. No member of the compensation
committee is an executive of Webhelp.com.
AGREEMENTS WITH PRINCIPAL STOCKHOLDERS
Pursuant to an Amended and Restated Stockholder's Voting Agreement dated as of
December 31, 1999, the Series A Preferred Stockholders, consisting of the
Insight Capital Partnerships, W-W-H Investors LLC and Imprimis SB LP, are
entitled to designate two members of the board of directors and the Series B
Preferred Stockholders, consisting of CIBC WMC Inc., are entitled to designate
one member of the board of directors. The agreement sets the number of directors
to serve on the board at seven, and further provides that Kerry Adler,
Laura Hantho, Hugh Cumming and Dan Walter may designate two executive officers
to serve on the board. Currently, there are five directors on the board. Jeff
Horing and Ramanan Raghavendran serve as directors designated by the Series A
Preferred Stockholders. Kerry Adler and Laura Hantho serve as directors on the
board designated by Kerry Adler, Laura Hantho, Hugh Cumming and Dan Walter. The
agreement will terminate upon the completion of the offering, at which time the
parties will have no contractual right to designate our directors.
KEY MANAGEMENT
The following is a brief summary of other key management team members.
ROBERT FORAN has served as our Vice President Finance, Operations since
January 2000. From November 1999 to January 2000, he served as our Chief
Financial Officer. Mr. Foran was Vice President of Finance and Administration
for SITEL Corporation (Canada) from November 1996 to
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November 1999, where he played a critical role in leading the financial bidding
process for some of the largest customer relationship management bids in Canada.
He served previously as Director of Finance for SITEL Corporation (Canada) in
1996, and Controller for (CTC) Canadian Telephone Corporation in 1995. He is an
active member of The Canadian Institute of Chartered Accountants.
CHRIS BARRROW has been our Vice President, Business Development/West Coast since
December 1999. From December 1998 to November 1999, Mr. Barrow worked as Senior
Director of Business Development for 3Com Corp. where he was responsible for
worldwide new business development, strategic programs, planning and strategic
relationships. From July 1997 to December 1998, he worked for SITEL Corporation,
first as Vice President of Business Development and then as Vice President
Worldwide Marketing. From 1989 to 1997, Mr. Barrow worked at Compaq Computer
Corp. where, from 1993 to 1997, he held the position of Director of Western
Region. Mr. Barrow has worked in the high-tech industry since 1984 with a number
of companies including Nintendo Co. Ltd. and several start-up companies.
JACK JESSEN has served as our Vice President, Business Development/East since
December 1999. He came to us from SITEL Corporation where he served as North
America Regional Manager, Global Account from June to December 1999. From
December 1997 to May 1999, he was President of Entelechy Systems Inc., a IVR/CRM
venture. Prior to that, from May 1995 to December 1997, he served in various
positions with SITEL Corporation, most recently, from April to December 1997, as
Vice President and General Manager Global Business Development. From
August 1996 to March 1997, he worked as Vice President and General Manager, New
Business Development and from August 1995 to August 1996, Mr. Jessen held the
position of Vice President and General Manager, Client Services Group.
Previously he held general management positions with Time Warner Cable, and was
a Senior Accountant with KPMG Peat Marwick LLP.
JOHN BURTON has served as our General Counsel since February 2000. From
August 1992 to February 2000, he was an associate at Torys in New York. Prior to
that, he was an associate at Cravath, Swaine & Moore. Mr. Burton has broad
experience in the areas of public and private finance and mergers and
acquisitions, representing large and middle-market corporations in transactions
valued at several billion dollars, in the aggregate.
CHRISTOPHER HARRS has been our Vice President of Strategic Marketing, Canada
since March 2000. Previously, since July 1992, he served as Vice President,
Business and Legal Affairs for the film, music and home video divisions of
Universal Studios Canada Ltd. From July 1993 to March 1998, Mr. Harrs also
served as Director, Strategic Marketing at Universal Studios Canada where he
created and implemented revenue-generating products and marketing programs
including some of Canada's best-selling music compilation series. Mr. Harrs is a
Member of the Ontario Bar.
RAHUL SHARMA has served as our Director, Brand Management since March 2000. From
August 1999 to March 2000, Mr. Sharma was a Group Brand Manager for the
Campbell's Soup Co. From July 1996 until July 1999, he worked at The Procter &
Gamble Company (Canada). From November 1995 to May 1996, Mr. Sharma worked as a
Marketing Analyst in the Research & Development Division of PT Telekomunikasi
Indonesia, Indonesia's national telecommunications company. From May 1995 to
November 1995, Mr. Sharma worked with several small businesses consulting,
writing business plans, and working in economic development.
GREGORY OGOREK has served as our Manager of International Partnerships since
March 2000. Previously, he held various positions in Paris, France at Europ
Assistance, the world leader in the field of assistance (roadside, travel and
home teleservice assistance). From March 1999 to September 1999, Mr. Ogorek
served as General Manager of Europ Assistance's home teleservice assistance
subsidiary, Europ Telesecurite. From November 1997 to March 1999, he launched
and served Europ Telesecurite as Marketing and Sales Director. Prior to that,
from December 1996 to November 1997, Mr. Ogorek
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served Europ Assistance as Project Leader for a major European strategic new
home assistance business development. From May 1995 to December 1996, he served
as their Market Development Manager.
CORY BASIL has been our Senior Director, Product Marketing since November 1999.
Previously, Mr. Basil was at SITEL Corporation from April 1996 to
November 1999, where he was employed in a variety of roles. From January 1999 to
November 1999, he was Manager, Business Development and Integration for SITEL
Corporation WebServicing where he was responsible for SITEL's eCRM Product
Development and Sales. From November 1997 to January 1999, he worked as a
Manager, Business Development for SITEL Corporation's Global Business
Development Unit. From October 1996 to November 1997, Mr. Basil worked as Senior
Account Executive at SITEL Canada. From April 1996 to October 1996, Mr. Basil
worked as Client Support Manager at SITEL Canada. Prior to his employment at
SITEL Mr. Basil had a number of roles within the Direct Marketing Industry
including Telstra Corporation Limited and Goldfarb Consultants.
EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1999, we paid our President and Chief
Executive Officer, Kerry Adler, salary in the amount of $43,560 with no bonus.
We did not pay any of our executive officers more than $100,000 in 1999. Each of
our executive officers has entered into an employment agreement pursuant to
which he or she is to receive salaries and bonuses in excess of $100,000 in
2000.
EMPLOYMENT AGREEMENTS
We have employment agreements with each of Kerry Adler, Laura Hantho, Hugh
Cumming, Tom Cronin and Dan Walter. The employment agreements provide for the
annual base salaries and guaranteed bonuses set forth in the table below:
<TABLE>
<CAPTION>
ANNUAL
EXECUTIVE OFFICER BASE SALARY GUARANTEED BONUS
----------------- ----------- ----------------
<S> <C> <C>
Kerry Adler................................................. $300,000 $300,000
Laura Hantho................................................ 170,000 30,000
Hugh Cumming................................................ 170,000 30,000
Dan Walter.................................................. 200,000 --
Tom Cronin.................................................. 170,000 30,000
</TABLE>
All our executive officers are eligible to receive an annual incentive
performance bonus for each calendar year of employment in an amount to be
determined by the compensation committee. Under the employment agreements these
executives may participate in all fringe benefit programs available to our other
salaried employees.
We may terminate their employment with or without cause, as defined in the
employment agreements. If we terminate Mr. Adler's employment without cause, we
will be required to pay him $300,000 over three months. If we terminate the
employment of any of Ms. Hantho or Messrs. Cumming, Walter or Cronin without
cause, we will be required to pay them their salary continuously for the lesser
of 12 months or until they are gainfully employed. Each executive officer may
terminate his or her employment with or without good reason, as defined in the
employment agreements. If Mr. Adler is either terminated other than for cause or
resigns for good reason, for 12 months after his termination we will be required
to pay him his annual base salary together with life and health insurance
benefits, subject to his compliance with the provisions protecting our
confidential information and barring his competition with us under certain
circumstances. If Ms. Hantho or Messrs. Cumming, Walter or Cronin are either
terminated other than for cause or resign for good reason, for the lesser of 12
months after their termination or until they are gainfully employed, the Company
will be required to pay them their
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annual base salary together with life and health insurance benefits, subject to
their compliance with the provisions protecting our confidential information and
barring their competition with us under certain circumstances. If any of these
executive officers are terminated for cause or resign without good reason, no
further salary, bonuses or other compensation will be due except for any amount
which has accrued but not been paid prior to the termination date.
Under the employment agreements, each executive has agreed not to use or
disclose our confidential information. Each executive has also agreed to assign
to us all innovations, discoveries and inventions he or she develops during the
course of his or her employment. Each executive also has agreed to assist us in
obtaining patents, copyrights or trademarks on any protectable ideas and
inventions during the course of his or her employment. Such provisions are
effective during and after the termination of the agreements for a period of 12
months for Mr. Cumming or 18 months for Messrs. Adler, Walter and Cronin and
Ms. Hantho.
Each executive has also agreed that he or she will not join or assist any of our
customers, served by him or her or by any other of our principals or employees
during the term of the executive's employment with us, or any enterprise in the
United States or Canada engaged in a business that is directly competitive with
us for a period of one year after termination of his or her employment without
our consent, which consent cannot be unreasonably withheld.
LONG TERM INCENTIVE PLAN
We sponsor the Webhelp.com Inc. 1999 Long Term Incentive Plan. Under the plan,
up to an aggregate of 3,500,000 shares of our common stock will be available for
issuance of awards to our employees, directors and consultants. As of June 30,
2000, 1,048,795 stock options at a weighted average exercise price of $13.66
were outstanding under the plan.
The following discussion of the material features of the plan is qualified by
reference to the text of the plan filed as an exhibit to the Registration
Statement of which this prospectus forms a part.
The plan is administered by the compensation committee of our board of directors
which determines the persons who are to receive awards and the number of shares
to be subject to each award. In selecting individuals for awards and determining
the type of award and the terms thereof, the compensation committee may take
into consideration any factors it deems relevant including present and potential
contributions to our success. Awards may be in the form of stock options, grants
of restricted stock, stock appreciation rights, other stock-based awards and
performance awards payable upon achievement of specified goals. Options granted
under the plan must be exercised within a period fixed by the compensation
committee, which may not exceed ten years from the date of the grant of the
option. Awards may be made exercisable in whole or in installments, as
determined by the compensation committee.
Options may not be transferred other than by will or the laws of descent and
distribution and during the lifetime of an optionee may be exercised only by the
optionee. The exercise price may not be less than the par value of our common
stock or, in the case of incentive stock options, not less than the fair market
value of our common stock on the date of grant of the option. Unless designated
as "incentive stock options" intended to qualify under Section 422 of the
Internal Revenue Code of 1986, options which are granted under the plan are
intended to be "non-qualified stock options". The exercise price may be paid in
cash, shares of our common stock owned by the optionee, or in a combination of
cash and shares.
The plan provides that, in the event of changes in our corporate structure or
certain events affecting our common stock, our board of directors may, in its
discretion, make adjustments with respect to the number of shares which may be
issued under the plan or which are covered by outstanding options or other
awards, in the exercise price per share, or both. In connection with certain
changes of our control
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or any sale or transfer by us of all or substantially all our assets, all
outstanding options under the plan will become exercisable in full on or prior
to the effective date of the merger, consolidation, sale, transfer or other
change of control transaction.
401(K) RETIREMENT SAVINGS PLAN
We are implementing a 401(k) retirement savings plan. The purpose of the
retirement plan will be to provide our employees with an opportunity to save for
retirement on a tax-advantaged basis.
The retirement plan will permit employees to defer receipt of a portion of their
compensation in accordance with Section 401(k) of the Code and have it
contributed, by way of payroll deductions, to the retirement plan. An employee's
interest in his or her 401(k) contributions will be fully vested at all times.
We expect that the retirement plan will also provide for discretionary matching
contributions by us after a period of 12 months. For plan participants who were
employed as of the effective date of the retirement plan, matching contributions
will be fully vested and for plan participants who became employees subsequent
to that date, matching contributions will vest over a year period.
An employee generally will be entitled to payment of his or her account balance
under the retirement plan upon retirement (usually at age 65), death, permanent
disability or other termination of employment. Payment under the retirement plan
will be made in the form of a lump sum.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides that our directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for any of the following:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- the unlawful payment of dividends or unlawful stock purchases under
Section 174 of the Delaware General Corporation Law; or
- any transaction from which the director derived any improper personal
benefit.
If the Delaware General Corporation Law is amended to eliminate or further limit
the personal liability of directors, then the liability of our directors shall
be eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of such provision of
our certificate of incorporation by our stockholders shall be prospective only
and shall not adversely affect any right or protection of our directors existing
at the time of such repeal or modification. While our certificate of
incorporation provides directors with protection from awards for monetary
damages for breaches of their duty of care, it does not eliminate this duty, nor
does it have any effect on the availability of equitable remedies such as an
injunction or rescission based on a director's breach of his or her duty of
care. The provisions of our certificate of incorporation described above apply
to our officers only if he or she is a director and is acting in his or her
capacity as a director, and do not apply to our officers who are not directors.
Our certificate of incorporation provides to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, or any comparable successor
law, as the same may be amended and supplemented from time to time, that:
- we may indemnify all persons whom we have power to indemnify under the
Delaware General Corporation Law from and against any and all of the
expenses, liabilities or other matters referred to in or covered thereby;
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- we shall indemnify each such person if he or she is or is threatened to be
made a party to an action, suit or proceeding by reason of the fact that
he or she is or was our director, officer, employee or agent or because he
or she was serving us or any other legal entity in any capacity at our
request while our director, officer, employee or agent; and
- we shall pay the expenses of such a current or former director, officer,
employee or agent incurred in connection with any such action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding.
Our certificate of incorporation further provides that the indemnification and
advancement of expenses provided for therein shall not be deemed exclusive of
any other rights to which those entitled to indemnification or advancement of
expenses may be entitled under any by-law, agreement, contract or vote of
stockholders or disinterested directors or pursuant to the direction (however
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 31, 2000 and after giving effect to the
offering, of:
- each person who we know beneficially owns more than five percent of our
common stock;
- each of our directors;
- our Chief Executive Officer;
- each of the executive officers named in the annual base salary and
guaranteed bonus table on page 54; and
- all of our executive officers and directors as a group.
Except as otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP(1)
NAME AND ADDRESS OF NUMBER OF ----------------------------------
BENEFICIAL OWNER SHARES(1) PRIOR TO OFFERING AFTER OFFERING
------------------------------------------------------ ---------- ----------------- --------------
<S> <C> <C> <C>
Kerry Adler........................................... 6,211,698(2) 27.36% 22.02%
c/o Webhelp.com Inc.
175 Bloor Street East
North Tower, Suite 400
Toronto, Ontario, MRW 3R8
Laura Hantho.......................................... 1,656,453(3) 7.30% 5.87%
c/o Webhelp.com Inc.
175 Bloor Street East
North Tower, Suite 400
Toronto, Ontario, MRW 3R8
Hugh Cumming.......................................... 1,242,340(4) 5.47% 4.40%
c/o Webhelp.com Inc.
175 Bloor Street East
North Tower, Suite 400
Toronto, Ontario, MRW 3R8
Insight Capital Partners.............................. 3,750,000(5) 16.52% 13.30%
527 Madison Avenue
10th Floor
New York, NY 10022
eliance Corporation................................... 3,534,255(6) 15.57% 12.53%
7800 Equitable Drive
Suite 250
Minneapolis, MN 55344
W-W-H Investors LLC................................... 3,068,182(7) 13.51% 10.88%
411 West Putnam
Greenwich, CT 06830
CIBC WMC Inc.......................................... 1,668,786(8) 7.35% 5.92%
425 Lexington Avenue
New York, NY 10017
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP(1)
NAME AND ADDRESS OF NUMBER OF ----------------------------------
BENEFICIAL OWNER SHARES(1) PRIOR TO OFFERING AFTER OFFERING
------------------------------------------------------ ---------- ----------------- --------------
<S> <C> <C> <C>
Dan Walter............................................ 1,035,283(9) 4.56% 3.67%
c/o Webhelp.com Inc.
175 Bloor Street East
North Tower, Suite 400
Toronto, Ontario, MRW 3R8
Tom Cronin............................................ 30,303(10) * *
c/o Webhelp.com Inc.
175 Bloor Street East
North Tower, Suite 400
Toronto, Ontario, MRW 3R8
Ramanan Raghavendran.................................. 15,152(11) * *
c/o Insight Capital Partners
527 Madison Avenue
10th Floor
New York, NY 10022
Jeffrey Horing........................................ 15,152(12) * *
c/o Insight Capital Partners
527 Madison Avenue
10th Floor
New York, NY 10022
Wes Nichols........................................... 15,152(13) * *
c/o Webhelp.com Inc.
175 Bloor Street East
North Tower, Suite 400
Toronto, Ontario, MRW 3R8
All executive officers and directors as a group (8 12,266,988(14) 53.85% 43.38%
persons)(2)(3)(4)(9)(10)(11)(12)(13)(14)............
</TABLE>
------------------------
* Indicates ownership percentage of less than one percent.
(1) Amounts and percentages include outstanding options which are exercisable
within 60 days of July 31, 2000.
(2) These shares are held by a limited liability company, one of the members of
which is indirectly controlled by a trust, of which Mr. Adler and his family
are beneficiaries. Does not include up to 2,045,455 shares owned by eliance
Corporation held in escrow subject to a collective option held by
Mr. Adler, Ms. Hantho, Mr. Cumming, Mr. Walter and Shukie Halfon to purchase
these shares.
(3) These shares are held by a limited liability company, one of the members of
which is indirectly controlled by a trust, of which Ms. Hantho and her
family are beneficiaries. Does not include up to 2,045,455 shares owned by
eliance Corporation held in escrow subject to a collective option held by
Ms. Hantho, Mr. Adler, Mr. Cumming, Mr. Walter and Shukie Halfon to purchase
these shares.
(4) These shares are held by a limited liability company, one of the members of
which is indirectly controlled by a trust, of which Mr. Cumming is the
beneficiary. Does not include up to 2,045,455 shares owned by eliance
Corporation held in escrow subject to a collective option held by
Mr. Cumming, Mr. Adler, Ms. Hantho, Mr. Walter and Shukie Halfon to purchase
these shares.
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<PAGE>
(5) Represents 8,250,000 shares of Series A preferred stock that will
automatically convert into 3,750,000 shares of common stock upon the
completion of the offering. These shares are held by five funds managed by
Insight Capital Partners: Insight Capital Partners II, L.P. will hold
654,545 common shares; Insight Capital Partners (Cayman) II, L.P. will hold
72,727 common shares; Insight Capital Partners III, L.P. will hold 2,124,187
common shares; Insight Capital Partners (Co-Invest) III, L.P. will hold
372,342 common shares; and Insight Capital Partners (Cayman) III, L.P. will
hold 526,199 common shares.
(6) Includes 2,500,000 shares held in escrow as security for the indemnification
provisions of the Asset Purchase Agreement dated December 29, 1999 by and
between us, our wholly owned subsidiary and eliance Corporation. 2,046,454
of the shares held in escrow are subject to a collective option to purchase
held by Mr. Adler, Ms. Hantho, Mr. Cumming, Mr. Walter and Shukie Halfon.
(7) Represents 6,750,000 shares of Series A preferred stock that will
automatically convert into 3,068,182 shares of common stock upon the
completion of the offering.
(8) Represents 3,671,329 shares of Series B preferred stock that will
automatically convert into 1,668,786 shares of common stock upon the
completion of the offering.
(9) Does not include up to 2,045,455 shares owned by eliance Corporation held in
escrow subject to a collective option held by Mr. Walter, Mr. Adler,
Ms. Hantho, Mr. Cumming and Shukie Halfon to purchase these shares.
(10) Represents currently exercisable options to purchase 30,303 shares of
common stock.
(11) Represents currently exercisable options to purchase 15,152 shares of
common stock. Does not include 3,750,000 common shares that will be held by
the five funds managed by Insight Capital Partners. Mr. Raghavendran, one of
our directors, is a special partner of Insight Capital Partners.
Mr. Raghavendran disclaims beneficial ownership of the shares held by the
entities affiliated with Insight Capital Partners, except to the extent of
his pecuniary interest therein.
(12) Represents currently exercisable options to purchase 15,152 shares of
common stock. Does not include 3,750,000 common shares that will be held by
the five funds managed by Insight Capital Partners. Mr. Horing, one of our
directors, is a general partner of Insight Capital Partners. Mr. Horing
disclaims beneficial ownership of the shares held by the entities affiliated
with Insight Capital Partners, except to the extent of his pecuniary
interest therein.
(13) Represents options to purchase 15,152 shares of common stock that will
become exercisable within 60 days.
(14) Includes an aggregate of 2,045,455 shares owned by eliance Corporation held
in escrow subject to an option to purchase up to that number of shares
collectively held by Mr. Adler, Ms. Hantho, Mr. Cumming and Mr. Walter.
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CERTAIN TRANSACTIONS
LOAN FROM INSIGHT
On November 10, 1999, we borrowed $2,000,000 from Insight Capital Partners at an
interest rate of 8% per annum. Our obligations to repay this loan were canceled
as partial payment for the 15,000,000 shares of Series A preferred stock issued
to various Insight funds on December 29, 1999.
ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK
Based on a valuation established in July 1999 and in accordance with a binding
letter of intent dated November 18, 1999 and a stock purchase agreement dated
December 29, 1999, we issued an aggregate of 15,000,000 shares of Series A
preferred stock for a purchase price of $0.53 per share, or an aggregate of
$8,000,000 before expenses. Each share of Series A preferred stock will
automatically be converted into 6,818,182 shares of common stock based on a
conversion ratio of .4545 of a share of common stock for each share of Series A
preferred stock, upon consummation of the offering. Assuming an offering price
of $11.00 per share, these shares would have a value of $75,000,000. Of those
shares, 5,797,592 shares were issued to InSight Capital Partners III, L.P.;
1,436,168 shares were issued to InSight Capital Partners (Cayman) III, L.P.;
1,016,240 shares were issued to InSight Capital Partners (Co-Invest) III, L.P.;
4,781,250 shares were issued to W-W-H Investors LLC and 1,968,750 shares were
issued to Imprimis SB LP. The current holders of the Series A preferred stock
are controlling stockholders of eliance Corporation. The liquidation value of
the Series A preferred stock is $1.28 per share plus accrued but unpaid
dividends. Upon liquidation, the Series A and Series B stockholders will be paid
the amounts to which they are entitled on an equivalent basis.
TRANSACTION WITH ELIANCE CORPORATION
Pursuant to a binding letter of intent dated November 29, 1999 and an asset
purchase agreement dated as of December 29, 1999 between us, our wholly owned
subsidiary and eliance, we purchased certain assets from eliance, including all
rights under certain agreements, contracts and licenses, the name and URL
"Webhelp.com" and the trademarks "Webhelp.com," "Webhelpme," "Webhelpmebuy," and
"Webhelpmesell". The purchase price was $4,256,400 cash and 3,863,036 shares of
our common stock, of which 2,500,000 are subject to the share escrow agreement
described below. Mr. Adler, Ms. Hantho, Mr. Cumming and Mr. Walter were
previously employed by eliance. The asset purchase agreement also provides for
mutual releases between eliance and us and the indemnification of us, Mr. Adler
and Ms. Hantho.
SHARE ESCROW AGREEMENT. In connection with the eliance transaction, we entered
into a share escrow agreement dated as of December 29, 1999 whereby eliance
delivered 2,500,000 of the shares received as consideration for the asset
purchase to our attorneys, Torys, as the escrow agent. The shares are being held
in escrow as security for the indemnification provisions of the asset purchase
agreement. eliance retains voting rights over the shares during the period of
the escrow agreement. The escrow agreement provides that Mr. Adler, Ms. Hantho,
Mr. Cumming, Mr. Walter and Shukie Halfon may purchase up to 2,045,454 of the
shares held in escrow at any time and from time to time until the fifth
anniversary of the escrow agreement. All or any part of the first 681,818 of the
shares subject to this option have a purchase price of $1.32 per share. The
second 681,818 shares have a purchase price of $2.64 per share, and the last
681,818 shares have a purchase price of $1.80 per share. The purchase price for
the shares will be zero, however, if the proceeds from this offering are
$25,000,000 or more and eliance obtains a firm commitment from a purchaser of
its Web800 business or completes a sale of fifty percent (50%) or more of the
assets of its Web800 business. Torys is not entitled to compensation for
services rendered as escrow agent pursuant to the escrow agreement.
SOFTWARE LICENSE AGREEMENT. Pursuant to a software license agreement dated
December 29, 1999, eliance has granted us a perpetual, nonexclusive,
royalty-free license to use and modify machine readable versions of the eBus
transaction engine. The eBus transaction engine consists of easily expanded
component architecture providing a suite of generic services to facilitate
e-commerce and related functions of our Webhelp portal. The license provides us
with copies of the source code to the software to enable us to maintain and
update the software ourselves.
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<PAGE>
INTERNET SERVICES AGREEMENT. Pursuant to an Internet services agreement dated
December 29, 1999, eliance provided us, until May 31, 2000, with Web Center
services on an exclusive basis within the field of customer-initiated Internet
search inquiries. The services included the employment and training of Web
Wizard professionals at up to 150 Web Center work stations.
ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to a Series B convertible preferred stock purchase agreement dated as
of December 31, 1999 among Webhelp, Mr. Adler, Ms. Hantho, Mr. Cumming,
Mr. Walter, CIBC WMC Inc., an affiliate of CIBC World Markets Corp. (a
representative of the underwriters of this offering) and another common
stockholder, we issued 3,671,329 shares of Series B preferred stock to CIBC WMC
Inc. for a purchase price of approximately $8.17 per share, or an aggregate
purchase price of $30,000,000 before expenses. Each share of Series B preferred
stock will automatically be converted into 1,668,786 shares of common stock
based on a conversion ratio of .4545 of a share of common stock for each share
of Series B preferred stock, upon consummation of the offering. Assuming an
offering price of $11.00 per share these shares would have a value of
$18,356,646. The liquidation value of the Series B preferred stock is $19.73 per
share plus accrued but unpaid dividends thereon. Upon liquidation, the Series A
and Series B stockholders will be paid the amounts to which they are entitled on
an equivalent basis. With $10,000,000 of the proceeds, we repurchased 333,757
shares of our common stock from Mr. Adler for $6.0 million, 89,002 shares from
Ms. Hantho for $1.6 million, 66,751 shares from Mr. Cumming for $1.2 million,
55,626 shares from Mr. Walter for $1.0 million and 11,125 shares from other
common stockholders for $200,000. These shares represented approximately 5% of
the shares held by the founders.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
We are a party to an amended and restated investor rights agreement dated as of
December 31, 1999 that provides eliance, InSight Capital Partners III, L.P.,
InSight Capital Partners (Cayman) III, L.P., InSight Capital Partners
(Co-Invest) III, L.P., Insight Capital Partners II, L.P., Insight Capital
Partners (Cayman) II, L.P., W-W-H Investors LLC, Imprimis SB LP, CIBC WMC Inc.,
Kerry Adler, Laura Hantho, Hugh Cumming, Dan Walter, and Shukie Halfon with the
ability to demand registration under the Securities Act of all or a portion of
the shares of our common stock owned by them from time to time at any time after
we become eligible to file a registration statement on Form S-3, which will not
be earlier than one year after the date of this offering. Of these shares,
including shares issued upon the conversion of the Series A preferred stock and
Series B preferred stock to our common stock upon consummation of the offering,
3,534,255 are held by eliance, 654,545 are held by Insight Capital Partners II,
L.P., 72,727 are held by Insight Capital Partners (Cayman) II, L.P., 2,124,187
are held by Insight Capital Partners III, L.P., 372,342 are held by Insight
Capital Partners (Co-Invest) III, L.P., 526,199 are held by Insight Capital
Partners (Cayman) III, L.P., 2,173,296 are held by W-W-H Investors LLC, 894,886
are held by Imprimis SB LP, 1,668,786 are held by CIBC WMC, Inc., 6,211,698 are
beneficially held by Kerry Adler, 1,656,453 are beneficially held by Laura
Hantho, 1,242,340 are beneficially held by Hugh Cumming and 1,035,283 are held
by Dan Walter. In general, eliance or a stockholder or stockholders holding in
the aggregate at least 75% of the Series B preferred stock may request that we
register the sale of their shares of common stock on one occasion, and a
stockholder or stockholders, other than eliance or holders of Series B preferred
stock, holding in the aggregate at least 20% of the shares subject to the
agreement may request that we register the sale of their shares of common stock
on up to two occasions. These stockholders also have the right under certain
circumstances to include all or a portion of their shares on registration
statements we file. We are obligated to bear all of the expenses in connection
with the registration of these shares except for registrations initiated by
eliance or, under certain circumstances, upon withdrawal of a registration
request by an initiating stockholder. Our obligation to register the shares
subject to the agreement terminates five years after consummation of this
offering. On April 19, 2000, we entered into a registration rights agreement
with WH Holdings, Ltd., a Cayman Islands company that acquired 329,381 shares of
common stock from eliance Corporation. The registration rights agreement granted
WH Holdings the right to have its 329,381 shares registered by us if we are
registering shares on a registration statement on Form S-3.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock does not purport to be complete
and is subject in all respects to applicable Delaware law and to the provisions
of our certificate of incorporation and our by-laws, copies of which have been
filed as exhibits to the Registration Statement of which this prospectus is a
part.
As of July 31, 2000, our authorized capital stock consisted of 65,000,000 shares
of common stock, $0.01 par value per share, of which 14,216,465 shares were
issued and outstanding (excluding treasury shares) and held of record by
stockholders, 1,211,977 shares are issuable upon the exercise of outstanding
stock options to participants pursuant to our 1999 Long Term Incentive Plan, and
20,000,000 shares of preferred stock, $0.01 par value per share, of which
15,000,000 shares have been designated as Series A preferred stock and 3,671,329
shares have been designated as Series B preferred stock and were issued and
outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all matters
which, pursuant to the Delaware General Corporation Law, require the approval of
our stockholders, other than matters relating solely to another class of stock.
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to participate ratably in all distributions to the
holders of our common stock after payment of liabilities and satisfaction of any
preferential rights of holders of preferred stock. Holders of our common stock
are not entitled to any preemptive rights. Holders of common stock do not have
cumulative voting rights. All holders of common stock are entitled to vote for
the election of directors. We have one class of directors. Subject to any
preferences that may be applicable to any outstanding shares of preferred stock,
holders of our common stock are entitled to receive cash dividends ratably on a
per share basis if and when such dividends are declared by the board of
directors from funds legally available for payment. Holders of our common stock
are not subject to any assessments with respect to their stock.
The rights, preferences and privileges of holders of shares of our common stock
are subject to, and may be adversely affected by, the rights of holders of
shares of any series of preferred stock which we may designate and issue in the
future.
PREFERRED STOCK
Our board of directors is authorized to provide for the issuance by us of
preferred stock in one or more series and to fix the rights, preferences,
privileges, qualifications, limitations and restrictions thereof, including,
without limitation, dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption or repurchase, redemption or repurchase prices,
limitations or restrictions thereon, liquidation preferences and the number of
shares constituting any series or the designation of such series, without any
further vote or action by the stockholders. The issuance of any series of
preferred stock may have an adverse effect on the rights of holders of our
common stock, and could decrease the amount of earnings and assets available for
distribution to holders of our common stock. In addition, any issuance of
preferred stock could have the effect of delaying, deferring or preventing a
change in our control.
Since our formation, we have issued an aggregate of 18,671,329 shares of
preferred stock, in two series. Each share of preferred stock will automatically
convert into 8,486,968 shares of common stock based on a conversion rate of
.4545 of a share of common stock for each share of preferred stock, upon the
completion of this offering.
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<PAGE>
Except for the possible issuance of 244,798 shares of Series B convertible
preferred stock in connection with our June 30, 2000 agreement to issue such
shares, we have no present plans to issue any additional shares of preferred
stock.
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND OUR BY-LAWS
The description set forth below of certain provisions of our certificate of
incorporation and our by-laws is intended as a summary only and is qualified in
its entirety by reference to our certificate of incorporation and our by-laws,
the forms of which are included as exhibits to the Registration Statement of
which this prospectus is a part.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES; SPECIAL MEETINGS; QUORUM. Our by-laws
provide that the number of our directors may be fixed from time to time by vote
of the stockholders or of our board of directors, but that the number of
directors which constitutes the whole board shall be between one and eight.
Except where a vacancy on the board is created pursuant to the removal of a
director as described below or where vacancies occur contemporaneously in the
offices of all of the directors, which vacancies will be filled by the
stockholders, vacancies or newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office or by a sole remaining director. Our by-laws
provide that directors may be removed from the board, with or without cause, by
the affirmative vote of our stockholders holding a majority of the shares of our
capital stock.
Our by-laws further provide that special meetings of our board of directors may
be called by our President or any two directors on notice to all the directors.
The presence of one-third or more of the directors constituting our board of
directors shall constitute a quorum for the transaction of business at any
regularly held or special meeting of the board. Except as may otherwise be
provided under the Delaware General Corporation Law, if a quorum is present then
a vote of the majority of the directors present shall be the act of the board.
SPECIAL MEETINGS; ADVANCE NOTICE PROVISIONS. Our by-laws provide that except as
otherwise provided by the Delaware General Corporation Law, special meetings of
our stockholders may only be called by resolution of our board of directors, by
our President or by the holders of a majority of the outstanding shares of our
capital stock entitled to vote on matters to be voted on at such meeting. Our
by-laws also require advance notice of any special meeting of our stockholders
to be delivered to each stockholder entitled to vote at such a meeting.
AMENDMENT OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND OUR
BY-LAWS. Under the Delaware General Corporation Law, stockholders have the
right to adopt, amend or repeal their corporation's by-laws and, with the
approval of the board of directors, the certificate of incorporation of a
corporation. In addition, subject to the terms of one or more series of
preferred stock as designated from time to time by our board of directors, our
certificate of incorporation provides that our by-laws may be adopted, altered
or repealed by our board of directors.
ANTI-TAKEOVER LEGISLATION
Section 203 of the Delaware General Corporation Law provides that, subject to
exceptions specified therein, a corporation shall not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that such stockholder becomes an interested stockholder unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
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- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding certain shares); or
- on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Except as specified in Section 203 of the Delaware General Corporation Law, an
interested stockholder is defined to include:
- any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation, at any time within three years immediately prior
to the relevant date; and
- the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the Delaware General Corporation Law
makes it more difficult for a person who would be an "interested stockholder" to
effect various business combinations. Our certificate of incorporation does not
exclude us from the restrictions imposed under Section 203 of the Delaware
General Corporation Law. It is anticipated that the provisions of Section 203 of
the Delaware General Corporation Law may encourage companies interested in
acquiring us to negotiate in advance with our board of directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve, prior to the time the stockholder becomes an interested
stockholder, either the business combination or the transaction which results in
the stockholder becoming an interested stockholder.
STOCK TRANSFER AGENTS
The transfer agents for our common stock will be American Stock Transfer & Trust
Company, New York, New York and CIBC Mellon Trust Company, Toronto, Ontario.
STOCK EXCHANGE LISTINGS
We have applied for the listing of our common stock on the Nasdaq National
Market under the symbol "WHLP" and we intend to apply for the listing of our
common stock on The Toronto Stock Exchange under the symbol "WHP". These
listings are subject to our fulfilling the requirements of the Nasdaq Stock
Market and The Toronto Stock Exchange, including distribution of the securities
to a minimum number of public stockholders.
SHARES ELIGIBLE FOR FUTURE SALE
U.S. RESALE RESTRICTIONS
When the offering is completed, we will have a total of 28,203,433 shares of
common stock outstanding. The 5,500,000 shares offered by this prospectus will
be freely tradeable unless they are purchased by our "affiliates", as defined in
Rule 144 under the Securities Act of 1933. The remaining shares are
"restricted", which means they were originally sold in offerings that were not
subject to a registration statement filed with the Securities and Exchange
Commission. These restricted shares may be resold only through registration
under the Securities Act of 1933 or under an available exemption from
registration, such as provided through Rule 144. Rule 144, as currently in
effect and subject to its provisions and other applicable federal and state
securities laws, permits a person (or persons whose shares are aggregated) who
has beneficially owned his or her shares for at least one year to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the total number
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<PAGE>
of outstanding shares of common stock or the average weekly trading volume
during the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information concerning us. Rule 144 also permits,
under certain circumstances, such sale of shares without any quantity limitation
or current public information requirement by a person who is not an affiliate of
us and who has satisfied a two-year holding period.
Substantially all of our current stockholders have agreed to a 180-day "lock-up"
with respect to their common stock that they own or may acquire by exercising
stock options. This generally means that they cannot sell these shares during
the 180 days following the date of this prospectus. This "lock-up" may be waived
by the representatives of the underwriters although the underwriters have given
no indication to us that they intend to waive these restrictions. After the
180-day lock-up period, at least 22,703,433 shares may be sold in accordance
with Rule 144 subject to compliance with Rule 144 volume limitations.
We are a party to an amended and restated investor rights agreement dated as of
December 31, 1999 that provides eliance, InSight Capital Partners III, L.P.,
InSight Capital Partners (Cayman) III, L.P., InSight Capital Partners
(Co-Invest) III, L.P., Insight Capital Partners II, L.P., Insight Capital
Partners (Cayman) II, L.P., W-W-H Investors LLC, Imprimis SB LP, CIBC WMC Inc.,
Kerry Adler, Laura Hantho, Hugh Cumming, Dan Walter, and Shukie Halfon with the
ability to demand registration under the Securities Act of all or a portion of
the shares of our common stock owned by them from time to time at any time after
we become eligible to file a registration statement on Form S-3, which will not
be earlier than one year after the date of this offering. Of these shares,
including shares issued upon the conversion of the Series A preferred stock and
Series B preferred stock to our common stock upon consummation of the offering,
3,534,255 are held by eliance, 654,545 are held by Insight Capital Partners II,
L.P., 72,727 are held by Insight Capital Partners (Cayman) II, L.P., 2,124,187
are held by Insight Capital Partners III, L.P., 526,199 are held by Insight
Capital Partners (Cayman) III, L.P., 372,342 are held by Insight Capital
Partners (Co-Invest) III, L.P., 2,173,296 are held by W-W-H Investors LLC,
894,886 are held by Imprimis SB LP, 1,688,786 are held by CIBC WMC, Inc.,
6,211,698 are beneficially held by Kerry Adler, 1,656,453 are beneficially held
by Laura Hantho, 1,242,340 are beneficially held by Hugh Cumming and 1,035,283
are held by Dan Walter. In general, eliance or a stockholder or stockholders
holding in the aggregate at least 75% of the Series B preferred stock may
request that we register the sale of their shares of common stock on one
occasion, and a stockholder or stockholders, other than eliance or holders of
Series B preferred stock, holding in the aggregate at least 20% of the shares
subject to the agreement may request that we register the sale of their shares
of common stock on up to two occasions. These stockholders also have the right
under certain circumstances to include all or a portion of their shares on
registration statements we file. We are obligated to bear all of the expenses in
connection with the registration of these shares except for registrations
initiated by eliance or, under certain circumstances, upon withdrawal of a
registration request by an initiating stockholder. Our obligation to register
the shares subject to the agreement terminates five years after consummation of
this offering. On April 19, 2000, we entered into a registration rights
agreement with WH Holdings, Ltd., a Cayman Islands company that acquired 329,381
shares of common stock from eliance Corporation. The registration rights
agreement granted WH Holdings the right to have its 329,381 shares registered by
us if we are registering shares on a registration statement on Form S-3.
We intend to file a registration statement on Form S-8 under the Securities Act
to register the shares of our common stock authorized and reserved for issuance
pursuant to our 1999 Long Term Incentive Plan. Upon the filing of the Form S-8,
outstanding shares of our common stock so registered may be freely sold without
restriction, except for shares held by our officers, directors and other
affiliates.
66
<PAGE>
CANADIAN RESALE RESTRICTIONS
As of July 31, 2000, Canadian residents held 365,454 options or warrants to
purchase shares of common stock. Under applicable Canadian securities laws, all
shares issuable upon exercise of these options may not be sold or otherwise
disposed of for value, except pursuant to a prospectus, a discretionary
exemption or a statutory exemption available only in specific limited
circumstances, until we have been a reporting issuer for at least 12 months, or
18 months in the case of a control person under applicable Canadian securities
laws, in the province in which the shareholder or optionee resides. We will
become a reporting issuer when we file this prospectus with the securities
regulatory authorities of those provinces and when those authorities issue
receipts for the prospectus. We expect that the receipts will be issued on or
about the date of this prospectus. We intend to apply to these regulatory
authorities for a discretionary exemption that would permit sales of our common
stock by residents of these provinces who are our employees, consultants or
other service providers and acquire such shares upon the exercise of stock
options after we have been a reporting issuer for 180 days, provided that the
particular employee, consultant or service provider has held the shares or stock
options for a combined period of at least one year, and that the sale is made
through the facilities of The Nasdaq National Market.
If the discretionary exemption is granted or other steps taken to allow the sale
of such common stock are successful, up to 121,212 shares of common stock issued
or issuable upon the exercise of outstanding and vested options, which would
otherwise be subject to the resale restrictions described above, will be
eligible for resale 180 days after the completion of this offering.
ESCROWED SECURITIES
We intend to seek discretionary relief from securities regulators in each of the
provinces of Canada to be exempt from applicable escrow rules, in accordance
with the policies of The Toronto Stock Exchange and the proposed policies of the
Canadian Securities Administrators concerning the disposition of shares held by
certain persons related to a company engaging in an initial public offering. In
the event such relief is not obtained, several holders of common shares may have
to enter into an escrow agreement with us and a trustee, pursuant to which
shares held by those persons will be placed in escrow with the trustee to be
released over a prescribed time period.
67
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., U.S. Bancorp Piper Jaffray Inc. and RBC
Dominion Securities Corporation are acting as representatives of the
underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp.....................................
U.S. Bancorp Piper Jaffray Inc..............................
RBC Dominion Securities Corporation.........................
---------
Total.......................................................
=========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-
defaulting underwriters may be increased. The obligations of the underwriters
under the underwriting agreement may be terminated upon the occurrence of
certain stated events, including the occurrence of a material adverse change in
the state of the financial markets.
This offering is being made concurrently in the United States and all of the
provinces of Canada. The shares of common stock will be offered in the United
States through the underwriters either directly or through their respective U.S.
broker-dealer affiliates or agents. The shares of common stock will be offered
in all of the provinces of Canada by CIBC World Markets Inc., and RBC Dominion
Securities Inc., the Canadian affiliates of CIBC World Markets Corp. and RBC
Dominion Securities Corporation, respectively, and other registered dealers that
may be designated by the underwriters. Subject to applicable law, the
underwriters may offer the shares of common stock outside of Canada and the
United States.
The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The representatives have advised us that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at such price less a concession of $ per share. The underwriters
may also allow, and such dealers may reallow, a concession not in excess of
$ per share to other dealers. After the shares are released for
68
<PAGE>
sale to the public, the representatives may change the offering price and other
selling terms at various times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 825,000 additional shares from us to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount and commissions. If this option is exercised in full, the total price
to public will be $ and the total proceeds to us will be $ . The
underwriters have severally agreed that, to the extent the over-allotment option
is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the foregoing
table.
The following table provides information regarding the amount of the discount
and commissions that we will pay to the underwriters. These discounts and
commissions, which equal 7% of the price to the public, were determined by
negotiation between us and the underwriters.
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH FULL
EXERCISE OF EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
---------- --------------------- ---------------------
<S> <C> <C> <C>
Webhelp.com Inc. .... $ $ $
---------- ---------- ----------
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discounts and commissions, will be approximately $1,250,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933 and applicable Canadian
provincial securities legislation.
We and our officers and directors and substantially all other current
stockholders, have agreed to a 180-day "lock up" with respect to the shares of
common stock that they beneficially own, including securities that are
convertible into shares of common stock and securities that are exchangeable or
exercisable for shares of common stock. This means that for a period of 180 days
following the date of this prospectus, neither we nor these persons may offer,
sell, pledge or otherwise dispose of these securities without the prior written
consent of CIBC World Markets Corp.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed five percent of the shares offered by this
prospectus.
At our request, the underwriters have reserved for sale up to 5% of the shares
to be sold in the offering for employees, directors and other persons associated
with us such as customers, suppliers, advisors and friends and relatives of
employees and directors. These reserved shares will be sold at the initial
public offering price that appears on the cover page of this prospectus. The
number of shares available for sale to the general public in the offering will
be reduced to the extent reserved shares are purchased by these persons. The
underwriters will offer to the general public, on the same terms as other shares
offered by this prospectus, any reserved shares that are not purchased by these
persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the underwriters, based on the
following factors:
- the history of, and prospects for, us and the industry in which we
compete;
- our past and present financial performance;
- assessment of our management and the present state of our development;
- our prospects for future earnings;
69
<PAGE>
- the prevailing market condition of the applicable U.S. and Canadian
securities markets at the time of this offering;
- market valuations of publicly traded companies that we and the
representatives believe to be comparable to us; and
- other factors that we deemed relevant.
Pursuant to policy statements of the Ontario Securities Commission and the
Commission des valeurs mobilieres du Quebec, the underwriters may not,
throughout the period of distribution, bid for or purchase our common shares.
This restriction is subject to certain exceptions, on the condition that the bid
or purchase not be engaged in for the purpose of creating actual or apparent
active trading in, or raising the price of, the common shares. These exceptions
include a bid or purchase permitted under the by-laws and rules of The Toronto
Stock Exchange relating to market stabilization and passive market making
activities and a bid or purchase made for and on behalf of a customer where the
order was not solicited during the period of distribution.
Subject to the foregoing, the rules of the Securities and Exchange Commission
may limit the ability of the underwriters to bid for or purchase shares before
the distribution of the shares is completed. However, the underwriters may
engage in the following activities in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
- Penalty bids--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market, The Toronto
Stock Exchange or otherwise. If such transactions are commenced, they may be
discontinued without notice at any time.
In addition to the underwriting discounts and commissions described above, an
affiliate of CIBC World Markets Corp., a representative of the underwriters,
acquired an aggregate of 3,671,329 shares of our Series B preferred stock in
December 1999, at a purchase price of $8.17 per share, for an aggregate purchase
price of approximately $30,000,000. These shares will convert into approximately
1,668,786 shares of common stock upon the completion of this offering.
Under the rules of the National Association of Securities Dealers, Inc., the
shares of common stock that will be held by this affiliate of CIBC World Markets
Corp. upon the completion of this offering may not be sold, transferred,
assigned or hypothecated for a period of one year from the date of this
prospectus, except to officers, partners (not directors) of the underwriters and
members of the selling group and/or their officers or partners.
70
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be passed
upon for us by Torys, 237 Park Avenue, New York, New York 10017 and Suite 3000,
Maritime Life Tower, 79 Wellington Street West, Toronto, Ontario M5K 1N2.
Certain legal matters in connection with the sale of the shares of our common
stock offered hereby will be passed upon for the underwriters by Bingham Dana
LLP, 150 Federal Street, Boston, Massachusetts 02110 and by Blake, Cassels &
Graydon LLP, Suite 2300, Commerce Court West, Toronto, Ontario, M5L 1A9.
EXPERTS
The consolidated balance sheet as of December 31, 1999 and the consolidated
statements of operations and comprehensive loss and stockholders' equity and
cash flows for the period from May 27, 1999 (inception) to December 31, 1999,
included in this prospectus, have been audited by Ernst & Young LLP, independent
chartered accountants, as indicated in their report appearing elsewhere herein,
and are included in reliance upon such report given the authority of said firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy the registration statement and any
other documents we file at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the Public Reference Room. Our Securities and Exchange Commission filings are
also available to the public at the Securities and Exchange Commission's
Internet site at "http://www.sec.gov."
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of ours, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
71
<PAGE>
WEBHELP.COM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations and Comprehensive
Loss...................................................... F-4
Consolidated Statement of Cash Flows........................ F-5
Consolidated Statement of Stockholders' Equity.............. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
When the transaction referred to in Note 9(a) of the Notes to the Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ ERNST & YOUNG LLP
Chartered Accountants
To the Board of Directors and Stockholders of Webhelp.com Inc.
We have audited the accompanying consolidated balance sheet of Webhelp.com Inc.
(a development stage company) as of December 31, 1999 and the related
consolidated statement of operations and comprehensive loss, stockholders'
equity and cash flows for the period from May 27, 1999 to December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Webhelp.com Inc. as of December 31, 1999, and the consolidated results of its
operations and its cash flows for the period from May 27, 1999 to December 31,
1999 in conformity with accounting principles generally accepted in the United
States.
Toronto, Canada,
January 12, 2000 (except as to notes 12(b)
and 9(a) which are dated as of January 22
and , 2000, respectively).
F-2
<PAGE>
WEBHELP.COM INC.
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 3)........................ $ 21,178,857 $ 14,501,461
Accounts receivable....................................... 32,795 331,399
Prepaid expenses.......................................... 2,475,294 1,251,983
Due from shareholder (Note 10)............................ 2,563,280 972,628
------------ ------------
Total current assets........................................ 26,250,226 17,057,471
------------ ------------
Fixed assets, net (Note 6).................................. 2,354,797 2,832,283
Deferred offering costs (Note 4)............................ -- 887,702
Intangible assets, net (Note 7)............................. 582,207 477,165
Investment in Webhelp.fr (Note 8)........................... -- 2,415,220
------------ ------------
Total assets................................................ $ 29,187,230 $ 23,669,841
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,340,444 $ 3,601,261
Professional fees payable................................. 222,843 1,846,065
Accrued compensation and related expenses................. 134,928 324,066
Other accrued liabilities................................. 53,401 184,856
Deferred revenue (Note 8)................................. -- 1,776,725
------------ ------------
Total current liabilities................................... 1,751,616 7,732,973
Deferred revenue (Note 8)................................... -- 1,528,102
------------ ------------
Total liabilities........................................... 1,751,616 9,261,075
------------ ------------
Commitments and contingency (Note 12)
Stockholders' equity:
Capital stock (Note 9)
Convertible preferred stock, $0.01 par value; 20,000,000
shares authorized; issuable in series...................
Series A convertible preferred stock, $0.01 par value;
15,000,000 shares designated, issued and outstanding;
aggregate liquidation preference of $19,200,000......... 150,000 150,000
Series B convertible preferred stock, $0.01 par value;
3,671,329 shares designated, issued and outstanding;
aggregate liquidation preference of $72,435,321......... 36,713 36,713
Common stock, $0.01 par value; 65,000,000 shares
authorized; 14,216,465 shares as at December 31, 1999
and as at June 30, 2000 issued and outstanding.......... 142,164 142,164
Additional paid-in capital.................................. 42,012,724 47,125,751
Deferred stock compensation................................. -- (3,193,362)
Accumulated deficit......................................... (14,905,987) (29,852,500)
------------ ------------
Total stockholders' equity.................................. 27,435,614 14,408,766
------------ ------------
Total liabilities and stockholders' equity.................. $ 29,187,230 $ 23,669,841
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
WEBHELP.COM INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
MAY 27, 1999 TO ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $ 29,857 $ 1,100,010
Cost of revenue............................................. 844,916 5,537,841
----------- ------------
Gross profit (loss)......................................... (815,059) (4,437,831)
----------- ------------
Operating expenses:
Sales and marketing....................................... 654,124 5,155,701
General and administrative (Note 5)....................... 3,110,672 3,119,714
Product development....................................... 180,638 324,921
Depreciation of fixed assets.............................. 67,278 403,082
Amortization of intangible assets......................... 48,063 105,042
Amortization of deferred stock compensation (Note 9(b))... -- 1,919,665
----------- ------------
Total operating expenses.................................... 4,060,775 11,028,125
----------- ------------
Operating loss.............................................. (4,875,834) (15,465,956)
Interest income (expense), net.............................. (30,153) 519,443
----------- ------------
Net loss and comprehensive loss for the period.............. $(4,905,987) $(14,946,513)
=========== ============
Net loss per share--basic and diluted....................... $ (0.45) $ (1.28)
=========== ============
Weighted average number of shares outstanding used to
compute basic and diluted net loss per share (Note 2)..... 10,918,257 11,716,465
=========== ============
Pro forma net loss per share--basic and diluted............. $ (0.45) $ (0.74)
=========== ============
Weighted average number of shares outstanding used to
compute pro forma basic and diluted net loss per share
(Note 2).................................................. 11,019,277 20,203,433
=========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
WEBHELP.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
MAY 27, 1999 TO ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period..................................... $ (4,905,987) $(14,946,513)
Add items not involving cash:
Expenses paid for in common stock (Note 5)................ 1,340,958 --
Depreciation of fixed assets.............................. 67,278 403,082
Amortization of intangible assets......................... 48,063 105,042
Amortization of deferred stock compensation............... -- 1,919,665
Changes in operating assets and liabilities:
Accounts receivable....................................... (32,795) (298,604)
Prepaid expenses.......................................... 793,748 1,223,311
Due from shareholder...................................... -- (972,628)
Accounts payable.......................................... 1,340,444 2,260,817
Professional fees payable................................. 222,843 987,258
Accrued compensation and related expenses................. 134,928 189,138
Other accrued liabilities................................. 53,401 131,455
Deferred revenue.......................................... -- 900,960
------------ ------------
CASH USED IN OPERATING ACTIVITIES........................... (937,119) (8,097,017)
------------ ------------
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (131,654) (880,568)
Purchase of assets (Note 5)................................. (2,997,358) --
Investment in Webhelp.fr.................................... -- (11,353)
------------ ------------
CASH USED IN INVESTING ACTIVITIES........................... (3,129,012) (891,921)
------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of bridge loan (Note 9(a)(i))........ 2,000,000 --
Receipt of common stock subscription receivable............. -- 2,563,280
Deferred offering costs..................................... -- (251,738)
Issuance of common stock, net of issuance costs (Note
9(a)(ii))................................................. 16,412 --
Issuance of convertible preferred stock Series A, net of
issuance costs............................................ 3,377,250 --
Issuance of convertible preferred stock Series B, net of
issuance costs............................................ 29,851,326 --
Repurchase of common stock.................................. (10,000,000) --
------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 25,244,988 2,311,542
------------ ------------
Increase (decrease) in cash and cash equivalents during the
period.................................................... 21,178,857 (6,677,396)
Cash and cash equivalents, beginning of period.............. -- 21,178,857
------------ ------------
Cash and cash equivalents, end of period.................... $ 21,178,857 $ 14,501,461
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
WEBHELP.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
STOCK STOCK COMMON
SERIES A -- PAR VALUE SERIES B -- PAR VALUE STOCK -- PAR VALUE ADDITIONAL
--------------------- ---------------------- ---------------------- PAID-IN CAPITAL
NUMBER $ NUMBER $ NUMBER $ $
---------- -------- ---------- --------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 27, 1999 (Inception)
(Note 9(a)(ii))................ -- -- -- -- 10,800,000 108,000 129,600
Issuance of common stock
(Note 9(a)(ii))................ -- -- -- -- 109,091 1,091 48,654
Issuance of preferred stock
(Note 9(a)(i))................. 15,000,000 150,000 -- -- -- -- 7,748,798
Issuance of common stock
(Notes 5 and 9(a)(ii))......... -- -- -- -- 3,863,636 38,636 4,437,445
Issuance of preferred stock
(Note 9(a)(i))................. -- -- 3,671,329 36,713 -- -- 29,654,902
Repurchase of common stock
(Note 9(a)(ii))................ -- -- -- -- (556,262) (5,563) (6,675)
Net loss for the period.......... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ----------
Balance, December 31, 1999....... 15,000,000 150,000 3,671,329 36,713 14,216,465 142,164 42,012,724
Deferred stock compensation (Note
9(b)).......................... -- -- -- -- -- -- 5,113,027
Amortization of deferred stock
compensation (Note 9(b))....... -- -- -- -- -- -- --
Net loss for the period.......... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ----------
Balance, June 30, 2000........... 15,000,000 150,000 3,671,329 36,713 14,216,465 142,164 47,125,751
========== ======= ========= ====== =========== ======= ==========
<CAPTION>
TOTAL
ACCUMULATED DEFERRED STOCK STOCKHOLDERS'
DEFICIT COMPENSATION EQUITY
$ $ $
----------- -------------- -------------
<S> <C> <C> <C>
Balance, May 27, 1999 (Inception)
(Note 9(a)(ii))................ -- -- 237,600
Issuance of common stock
(Note 9(a)(ii))................ -- -- 49,745
Issuance of preferred stock
(Note 9(a)(i))................. -- -- 7,898,798
Issuance of common stock
(Notes 5 and 9(a)(ii))......... -- -- 4,476,081
Issuance of preferred stock
(Note 9(a)(i))................. -- -- 29,691,615
Repurchase of common stock
(Note 9(a)(ii))................ (10,000,000) -- (10,012,238)
Net loss for the period.......... (4,905,987) -- (4,905,987)
----------- ----------- -----------
Balance, December 31, 1999....... (14,905,987) 27,435,614
Deferred stock compensation (Note
9(b)).......................... -- (5,113,027) --
Amortization of deferred stock
compensation (Note 9(b))....... -- 1,919,665 1,919,665
Net loss for the period.......... (14,946,513) -- (14,946,513)
----------- ----------- -----------
Balance, June 30, 2000........... (29,852,500) (3,193,362) 14,408,766
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
1. NATURE OF BUSINESS
Webhelp.com Inc. ("Webhelp" or the "Company") provides live, human assisted,
customer, sales and technical support over the Internet using a single
technology platform. The Company's principal markets are in North America.
The Company was incorporated in the State of Delaware on May 27, 1999 as BlueSky
Ventures Inc. On November 20, 1999, the name of the Company was changed to
Webhelp.com Inc. On November 30, 1999, the Company launched its web site.
For the period until December 31, 1999, the Company met the definition of a
Development Stage Company under Statement of Financial Accounting Standards
("SFAS") No. 7. Since January 1, 2000, the Company has directed its efforts
towards generating revenue and it is deploying the majority of its available
funding towards operating activities. Accordingly, the Company no longer meets
the criterion of a development stage company.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and are stated in
United States dollars. All figures relating to the Company's operations during
1999 are for the period from inception May 27, 1999 until December 31, 1999, the
Company's fiscal year end.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements as at June 30, 2000 are
unaudited but include all adjustments, which in the opinion of management, are
necessary for a fair statement of the financial position and the operating
results and cash flows for the interim period since the Company's fiscal period
ended December 31, 1999. Results for the interim period ended June 30, 2000 are
not necessarily indicative of results for the entire fiscal year or future
periods.
The following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements:
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
materially from those estimates.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company and
its 100% owned subsidiaries, Ispoke.com Inc., a U.S. company, and Webhelp Canada
Inc., a Canadian company. All intercompany accounts and transactions have been
eliminated on consolidation.
F-7
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
LONG-TERM INVESTMENTS
Investments of less than 20% of the voting interest of other companies are
accounted for using the cost method unless management determines that it
exercises significant influence over operating and financial policies of the
investee company in which case, the Company uses the equity method of
accounting. In the event that management identifies an impairment in the
estimated fair value of an investment to an amount below cost, such investment
will be written down to fair market value.
FIXED ASSETS
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over the following periods:
<TABLE>
<S> <C>
Computer software................................. 2-3 years
Computer hardware................................. 3-5 years
Furniture and fixtures............................ 3-5 years
</TABLE>
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets" establishes
accounting standards for the impairment of long-lived assets. For fixed assets
and certain intangibles, the Company assesses the recoverability by determining
whether the carrying value of such assets can be recovered through projected
undiscounted cash flows. If the sum of expected future cash flows, undiscounted
and without interest charges, is less than net book value, the excess of the net
book value over the estimated fair value is charged to operations in the period
in which such impairment is determined by management.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs including website
development costs, in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed" under which certain
software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products, which is generally expected to be two years.
Technological feasibility is established upon the completion of a working model.
The amount of software development costs capitalized for the six months ended
June 30, 2000 was $370,000. For the period ended December 31, 1999, software
development costs incurred subsequent to the establishment of technological
feasibility were not significant, and accordingly, were charged to product
development expense.
In March 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-2 "Accounting for Website Development Costs", under which a consensus was
reached that all costs relating to software used to operate a website should be
accounted for under SFAS No. 86, when a plan exists to market the software
externally. Since the Company intends to license the technology relating to its
website, these costs have been accounted for in accordance with SFAS No. 86.
INTANGIBLE ASSETS
Intangible assets represent licenses, trademarks, names and other intangibles.
Intangible assets are amortized on a straight-line basis over three years.
Management reviews on an ongoing basis the valuation and amortization of the
intangible assets. The determination as to whether there has been an
F-8
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
impairment is made by comparing the carrying value of the intangible to the
projected undiscounted cash flows to be generated by the related activity.
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in debt securities and considers all highly
liquid instruments purchased with an original maturity of three months or less
to be cash equivalents. As at June 30, 2000 and December 31, 1999, all of the
Company's cash equivalents were classified as held-to-maturity and are recorded
at amortized cost.
CONCENTRATION OF CREDIT RISK AND CREDIT RISK EVALUATIONS
Financial instruments which subject the Company to concentration of credit risk
consist primarily of cash and cash equivalents. Cash and cash equivalents
consist principally of debt securities held with North American financial
institutions with high credit standing. As at June 30, 2000 and December 31,
1999, 100% and 94%, respectively, of the Company's cash and cash equivalents
were held at one institution. The Company has not experienced any significant
losses on its cash and cash equivalents.
The Company conducts business with companies in various industries primarily in
the United States and Canada. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. Allowances are
maintained for potential credit issues.
During all periods presented, the Company derived a significant portion of its
revenue from a website affiliation agreement with one company. Accounts
receivable from this company comprised 48% and 91% of gross accounts receivable
as at June 30, 2000 and December 31, 1999, respectively. The Company believes
that there is no unusual exposure associated with the collection of these
receivables.
REVENUE RECOGNITION
Revenue since inception has consisted primarily of advertising revenue derived
from short-term advertising contracts. Under these contracts, the Company
delivers impressions (for example banner ads on our website or within e-mail,
page sponsorships and buttons) to users of the Company's consumer portal over a
specific period of time for a fixed fee. Advertising rates, typically measured
on a cost per thousand impressions ("CPMs") basis, are dependent on whether the
impressions are for general rotation throughout the Company's website or for
targeted audiences and properties within specific areas of Webhelp's Internet
page. The Company recognizes revenue based upon actual impressions delivered,
net of any selling commissions payable to third parties.
Beginning in the month of March 2000, the Company began to earn revenue from the
provision of online Internet customer sales and support services to corporate
customers. Revenue from on-line support to corporate customers have three
components as follows: upfront implementation and staff training costs charged
to the customer; per engagement or per time period charges; and e-commerce
commissions payable to the Company. The Company records revenue from upfront
implementation and staff training ratably over the term of the contract. The
Company recognizes revenue from per engagement or per time period services based
on the actual number of engagements performed, or based on the time incurred in
providing services at contracted rates. Commissions from e-commerce transactions
earned by the Company will be recorded when the ultimate consumer has
consummated
F-9
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
his or her transaction online with the Company's third party client, and the
value of the Company's commission can be ascertained.
Beginning in the month of June 2000, the Company began to earn revenue from
technology, license and service agreements related to the provision of Webhelp
services in languages other than English. These arrangements are expected to
have different components as follows: upfront license fees or proceeds from the
sale of intellectual property; ongoing services revenue related to the provision
of services from the Company to the partner; and professional and consulting
fees provided by the Company to the partner. Upfront license fees or proceeds
from the license of intellectual property are recognized ratably over the term
of the related license agreement. Ongoing services revenue will be recognized as
the services are delivered based on the terms of any related agreement.
Professional or consulting fees will be recognized when the services are
delivered and at fair market rates for equivalent services.
During the remainder of 2000, the Company expects to earn additional revenue
from corporate and consumer services which may include:
- Subscriptions charged on a monthly or a per engagement basis;
- E-commerce transaction fees; and
- Internet-based educational services.
Subscription revenue will be recognized ratably based on the passage of time or
on a per engagement basis based on the terms of the subscription. Commission
based e-commerce services will be recorded when the ultimate consumer has
consummated his or her transaction online with the Company's third party client,
and the value of the Company's commission can be ascertained. Revenues from
Internet-based educational services will be recognized as services are provided.
No barter transactions were entered into for the period ended June 30, 2000 or
for the period ended December 31, 1999.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities recorded in foreign currencies are translated at the
exchange rate prevailing at the consolidated balance sheet date. Revenue and
expenses are translated at average rates of exchange prevailing during the
period. Gains and losses on foreign currency transactions are included in
general and administrative expenses. Foreign exchange losses recorded for the
period ended June 30, 2000 were $14,000 and for the period ended December 31,
1999 were $24,000.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and makes the pro forma disclosures required by SFAS
No. 123, "Accounting for Stock-Based Compensation".
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising expense
for the period ended June 30, 2000 was $2,865,000 and for the period ended
December 31, 1999 was $614,000. Advertising
F-10
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
expenses consisted primarily of online Internet advertising, paper based media
advertising and related professional services.
INCOME TAXES
The Company uses the liability method to account for income taxes as required by
SFAS No. 109, "Accounting for Income Taxes". Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss for the period by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities by adding other
common stock equivalents in the weighted average number of common shares
outstanding for a period, if dilutive. Potentially dilutive securities have been
excluded from the computation if their effect is anti-dilutive.
The Company has excluded from the calculation of diluted net loss per share
convertible preferred stock, contingently returnable common stock and
outstanding stock options because all of these securities are anti-dilutive for
the periods presented. The Company has excluded from pro forma diluted net loss
per share contingently returnable common stock and outstanding stock options
because these securities are anti-dilutive for the periods presented. If the
Company is successful in completing a public offering of stock for gross
proceeds (net of underwriting discounts and commissions) of at least
$25,000,000, then all of the convertible preferred stock outstanding will
automatically be converted into common stock. The total number of shares
excluded from the calculation of diluted net loss per share is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ----------
<S> <C> <C>
Convertible preferred stock (adjusted to reflect conversion
rate)..................................................... 8,486,968 8,486,968
Stock options............................................... -- 1,048,795
Contingently returnable common stock (Note 5)............... 2,500,000 2,500,000
---------- ----------
10,986,968 12,035,763
---------- ----------
</TABLE>
F-11
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
PRO FORMA NET LOSS PER SHARE AND PRO FORMA STATEMENT OF STOCKHOLDERS' EQUITY
Pro forma net loss per share has been computed as described above and also gives
effect to the conversion of preferred shares not included above that will
automatically convert upon completion of the Company's initial public offering,
using the if converted method. The calculation of historical and pro forma basic
and diluted net loss per share and pro forma statement of stockholders' equity
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
-------------- --------------
<S> <C> <C>
HISTORICAL NET LOSS......................................... $ (4,905,987) $(14,946,513)
Weighted average shares outstanding used to compute basic
and diluted net loss per share............................ 10,918,257 11,716,465
Basic and diluted net loss per share........................ $ (0.45) $ (1.28)
============ ============
Pro forma net loss.......................................... (4,905,987) (14,946,513)
Weighted average number of shares of common stock used in
computing basic and diluted net loss per share (from
above).................................................... 10,918,257 11,716,465
Adjustment to reflect the effect of the assumed conversion
of preferred stock from the date of issuance.............. 101,020 8,486,968
Weighted average shares outstanding used in computing pro
forma basic and diluted net loss per share................ 11,019,277 20,203,433
Pro forma basic and diluted net loss per share.............. $ (0.45) $ (0.74)
============ ============
PRO FORMA STATEMENT OF STOCKHOLDERS' EQUITY
Capital stock
Convertible preferred stock, $0.01 par value; 20,000,000
shares authorized; issuable in series
Series A convertible preferred stock, $0.01 par value... -- --
Series B convertible preferred stock, $0.01 par value... -- --
Common stock, $0.01 par value; 65,000,000 shares
authorized; 22,703,433 shares issued and outstanding
(pro forma)............................................. 328,877 328,877
Additional paid-in capital.................................. 42,012,724 47,125,751
Deferred stock compensation................................. -- (3,193,362)
Accumulated deficit......................................... (14,905,987) (29,852,500)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.................................. $ 27,435,614 $ 14,408,766
============ ============
</TABLE>
F-12
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
BUSINESS SEGMENTS
As at June 30, 2000 and December 31, 1999, for management purposes, the Company
is managed as one business segment and as such, the Company has determined that
it does not have separately reportable operating segments.
The Company maintains offices in both the U.S. and Canada. For the periods ended
June 30, 2000 and December 31, 1999, all of the Company's revenue was earned in
the U.S. As at June 30, 2000 and December 31, 1999, $700,000 and $250,000 of the
Company's capital assets were held in Canada, with the balance held in the U.S.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 137, "Deferral of
Effective Date for SFAS No. 133" which are effective for fiscal years beginning
after June 15, 2000. Management has not yet determined the impact on the
consolidated financial position or results of operations of the Company of this
new standard.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101. SAB No. 101 summarizes certain areas of the Staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. Management believes that the Company's
current revenue recognition policies comply with SAB No. 101.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. Management
does not expect the application of FIN 44 to have a material impact on the
consolidated financial position or results of operations of the Company.
3. CASH AND CASH EQUIVALENTS
Under the terms of a credit card facility with the Company's bankers, the
Company has pledged $400,000 of its cash as collateral for amounts owing under
the facility.
4. DEFERRED OFFERING COSTS
Deferred offering costs represent specific incremental costs incurred to date
relating to the proposed initial public offering of the Company. These costs,
and any additional costs related to the offering will be accounted for as a
charge against additional paid-in capital. If the Company does not complete the
offering, these costs will be charged to income at the time the decision is made
to not complete the offering.
F-13
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
5. ASSET PURCHASE
On November 29, 1999, the Company entered into a binding letter of intent
whereby the Company would purchase certain assets of eliance Corporation
("eliance") and enter into an Internet services agreement in return for shares
of common stock of the Company and cash consideration. On December 29, 1999,
pursuant to this binding letter of intent, the Company entered into an Internet
services agreement and acquired, pursuant to an asset purchase agreement
(jointly the "eliance Agreement"), certain assets of eliance, in exchange for
$4,256,400 in cash and 3,863,636 common shares of the Company. At the time of
the eliance Agreement, eliance was controlled by an existing minority
stockholder of the Company. As at November 29, 1999, the effective date of this
agreement, the 3,863,636 common shares of the Company had a fair value of $1.17
per share and an aggregate fair value of $4,533,333 (Note 9(a)(ii)). Total
consideration paid under the eliance Agreement was $8,789,733.
As part of the eliance Agreement, the Company purchased (i) certain fixed
assets; (ii) certain intangible assets such as licenses, trademarks and names;
(iii) other intangibles; (iv) prepaid expenses; and (v) entered an Internet
services agreement. A portion of the consideration paid represented a
reimbursement of expenses incurred by eliance on behalf of the Company and a
release from prior obligations with eliance. Accordingly, these expenses have
been charged to general and administrative expenses in 1999.
The table below represents the allocation of the consideration paid under the
eliance Agreement.
<TABLE>
<CAPTION>
<S> <C>
Fixed assets................................................ $2,290,421
Intangibles (Note 7)........................................ 630,270
Prepaid expenses............................................ 3,269,042
----------
Net assets acquired......................................... 6,189,733
Reimbursement of expenses and release....................... 2,600,000
----------
TOTAL CONSIDERATION......................................... $8,789,733
==========
</TABLE>
Reimbursement of expenses and release of $2,600,000 represents the approximate
costs which were paid by eliance relating to the Company's business during the
period that eliance and the Company were negotiating towards a proposed business
combination. These expenses, which would otherwise have been paid by the
Company, included salaries and other employee costs and general and
administrative costs during the period from July to December 1999. Also included
in this amount is a release from eliance with respect to any further costs or
obligations incurred by or related to eliance.
Included in prepaid expenses as at December 31, 1999, is $2,000,000 representing
a prepayment with respect to the Internet services agreement for the period from
January 1, 2000 until May 31, 2000. Also included in prepaid expenses acquired
was $684,000 relating to web center services from eliance for the month of
December 1999 and $585,000 of prepaid advertising expenses paid by eliance on
behalf of the Company.
For purposes of the Company's 1999 Consolidated Statement of Cash Flows,
management has apportioned the cash component of the consideration paid to
eliance on a pro-rata basis with $1,109,129 being allocated to fixed assets,
$305,206 to intangibles, $1,583,023 to prepaid expenses and
F-14
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
$1,259,042 to operating expenses. Accordingly, $1,181,292 of fixed assets,
$325,064 of intangible assets, $1,686,019 of prepaid expenses and $1,340,958 of
operating expenses have been deemed to have been paid for in common shares of
the Company and do not result in a use of cash.
Concurrent with the execution of the eliance Agreement, the Company and eliance
entered into a share escrow agreement under which 2,500,000 of the common shares
issued to eliance were deposited in escrow for a period of five years. Should
eliance not meet certain of its obligations under the eliance Agreement within
the first year of the escrow agreement, the Company shall have the right to
recover a portion of these shares from the escrow agent as indemnification.
eliance's obligations relate primarily to indemnification provisions under the
asset purchase agreement and with respect to performance obligations under the
Internet services agreement. Accordingly, the Company considers these shares of
common stock to be contingently returnable and as such have excluded these
shares from the calculation of our basic earnings per share as these are
potentially anti-dilutive.
6. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- --------------
<S> <C> <C>
COST
Computer software.............................. $ 764,673 $1,141,519
Computer hardware.............................. 1,432,037 1,608,548
Furniture and fixtures......................... 225,365 552,576
---------- ----------
2,422,075 3,302,643
---------- ----------
LESS ACCUMULATED AMORTIZATION
Computer software.............................. 21,240 152,637
Computer hardware.............................. 39,778 247,719
Furniture and fixtures......................... 6,260 70,004
---------- ----------
67,278 470,360
---------- ----------
NET BOOK VALUE................................. $2,354,797 $2,832,283
========== ==========
</TABLE>
During the period ended June 30, 2000, the Company and eliance agreed to an
adjustment to the eliance Agreement (Note 5) relating to certain fixed assets
not transferred pursuant to the agreement. Accordingly, fixed assets and due
from shareholder have been reduced by $282,845.
7. INTANGIBLE ASSETS
Intangible assets consist of licenses, trademarks, names and other intangibles
(Note 5).
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- --------------
<S> <C> <C>
Cost............................................ $630,270 $630,270
Less accumulated amortization................... 48,063 153,105
-------- --------
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION.................................. $582,207 $477,165
======== ========
</TABLE>
F-15
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
8. INVESTMENT IN WEBHELP.FR
On June 6, 2000, the Company entered into an agreement with a group of investors
with respect to the provision of Webhelp related services in the French
language. Under the terms of the agreement, the Company acquired a 19.88%
interest in a new company ("Webhelp.fr") established to provide these services,
will receive a $5,000,000 upfront payment paid in three installments during the
year 2000, and will receive certain ongoing fees with respect to services
provided to Webhelp.fr. In return, the Company granted to Webhelp.fr a license
to certain intellectual property and the exclusive right to provide Webhelp-type
services in the French language for a term of four years. The Company has
entered into a services agreement with Webhelp.fr with respect to upfront and
ongoing services provided by the Company.
As at June 30, 2000, $1,000,000 of the upfront payment has been received, and
has been recorded as deferred revenue. The remaining $4,000,000 owing to the
Company will be recorded as deferred revenue when the cash is received.
9. CAPITAL STOCK
(A) SHARE CAPITAL ISSUED AND OUTSTANDING
On December 29, 1999, the Company approved a 16,000 to 1 stock split for its
common stock. On , 2000 the Company approved a 1 to 2.2 reverse stock
split for its common stock. All references to common stock and per share amounts
have been restated to reflect the stock splits on a retroactive basis.
(I) CONVERTIBLE PREFERRED STOCK
Subject to certain anti-dilutive provisions, each share of Series A and B
convertible preferred stock, par value of $0.01 per share, is convertible at the
option of the holder into 0.4545 shares of common stock. The Series A and B
convertible preferred stock will be automatically converted into common stock in
the event of a public offering, with gross proceeds (net of underwriting
discounts and commissions) of at least $25,000,000.
The holders of the Series A and B convertible preferred stock are entitled to
receive non-cumulative dividends when and if declared by the Board of Directors.
These dividends are in preference to any declaration or payment of any dividend
on the common stock of the Company. Subject to certain anti-dilutive provisions,
the dividends per share of the Series A and B convertible preferred stock have
to be at least equal to the dividend per share declared or paid on the common
stock of the Company. As at June 30, 2000, no dividends have been declared on
the Series A and B convertible preferred stock.
In the event of any liquidation, the holders of the Series A and B convertible
preferred stock have a liquidation preference over holders of common stock equal
to $1.28 and $19.73 per preferred share, respectively, plus any declared and
unpaid dividends. The remaining assets will be distributed to the common
stockholders.
Each holder of the outstanding shares of the Series A and B convertible
preferred stock is entitled to the number of votes equal to the number of whole
shares of common stock into which the shares of the convertible preferred stock
held by such holder are then convertible.
F-16
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
On November 10, 1999, the Company received $2,000,000 in the form of a bridge
loan (the "Advance") from InSight Investors, bearing interest at 8%. On
November 18, 1999, the Company and the InSight Investors signed a binding letter
of intent under which the InSight Investors agreed to invest in the Company as
described below. On December 29, 1999, in accordance with the binding letter of
intent, a stock purchase agreement was entered into pursuant to which the
Company issued an aggregate of 15,000,000 shares of Series A preferred stock for
a purchase price of $0.53 per share and total consideration of $8,000,000 which
was comprised of $6,000,000 in cash and conversion of the Advance into
convertible preferred stock of the 15,000,000 shares issued, 5,797,592 shares
were issued to InSight Capital Partners (co-Invest) III, L.P.; 1,436,168 shares
were issued to Insight Capital Partners (Cayman) III, L.P.; 1,016,240 shares
were issued to Insight Capital Partners (co-invest) III, L.P.; 4,781,250 shares
were issued to W-W-H Investors LLC and 1,968,750 shares were issued to Imprimis
SB LP. At December 31, 1999, $2,563,280 of the cash consideration was
outstanding from the Insight Investors. This amount was paid on January 3, 2000.
As at December 31, 1999, the Company has accrued $40,000 of interest in respect
of loans and advances from the Insight Investors. This amount, which has not yet
been paid, will be paid in cash.
On December 31, 1999, an agreement (the "CIBC Agreement") was entered into
between the Company and CIBC WMC Inc. ("CIBC"), pursuant to which CIBC purchased
3,671,329 shares of Series B convertible preferred stock at a price of $8.17 per
share for a total cash consideration of $30,000,000.
(II) COMMON STOCK
Holders of the common stock with par value of $0.01 per share are entitled to
one vote per share, and dividends may be declared and paid on the common stock
from funds lawfully available therefor. Upon the dissolution or liquidation of
the Company, holders of the common stock will be entitled to receive all assets
of the Company available for distribution to its stockholders, subject to any
preferential rights of any then outstanding preferred stock.
On May 27, 1999, the Company issued a total of 10,800,000 shares of common stock
to the founding shareholders of the Company in exchange for all of their
interests in the Company's system architecture and the business plan. The shares
of common stock were issued for total consideration of $15, which approximated
their fair value.
On June 10, 1999, the Company issued 109,091 shares of common stock to a third
party at a price of $0.46 per share for total cash consideration of $50,000.
On December 29, 1999, pursuant to a binding letter of intent dated November 29,
1999, the Company issued 3,863,636 shares of common stock of the Company at a
price of $1.17 per share for total consideration of $4,533,333 (Note 5).
$10,000,000 of the gross proceeds of $30,000,000 from the issuance of Series B
convertible preferred stock to CIBC pursuant to the CIBC Agreement was used to
repurchase 556,262 shares of common stock from certain of the stockholders of
the Company. Of these shares, 550,699 were originally issued on May 27, 1999 and
5,563 were issued on June 10, 1999. As at June 30, 2000, these shares have not
been cancelled.
F-17
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
(B) STOCK OPTIONS
On January 28, 2000, the stockholders approved the 1999 Long-Term Incentive Plan
(the "1999 Plan") for directors, officers, employees and other parties, as may
be approved from time to time (collectively, the "Optionees") for which up to
3,500,000 common shares are reserved for issuance pursuant to the 1999 Plan.
Under the terms of the 1999 Plan, the Optionees are eligible to receive awards
in the form of options, stock appreciation rights, grants of restricted
securities, performance awards, or other stock-based awards. As at December 31,
1999, there were no stock options outstanding. Stock option activity under the
1999 Plan during the period ended June 30, 2000 is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Balance as at December 31, 1999.......................... -- $ --
Granted at $10.89........................................ 658,409 $10.89
Granted at $17.97........................................ 409,477 $17.97
Cancelled................................................ (19,091) $10.89
--------- ------
OUTSTANDING AS AT JUNE 30, 2000.......................... 1,048,795 $13.66
--------- ------
Options exercisable at December 31, 1999................. -- $ --
Options exercisable at June 30, 2000..................... 73,504 $12.84
========= ======
</TABLE>
As at June 30, 2000, there were 2,451,205 shares available for future grant
under the 1999 Plan. The weighted average exercise price of options outstanding
as at June 30, 2000 is $13.65. 220,512 of the options granted become exercisable
during the current fiscal year.
All of the stock option awards vest quarterly and on an even basis over a
three-year period except for 166,750 of the issued stock option awards which
vest on an annual basis over a three-year period. Stock options expire ten years
from the date of grant.
In connection with the grant of certain stock options to employees and certain
independent contractors during the period ended June 30, 2000, the Company
recorded deferred compensation of $5,113,027. The Company has elected to follow
APB No. 25 and related interpretations in accounting for stock options issued to
employees and directors of the Company. Under APB No. 25, the amount of deferred
compensation represents the difference between the option exercise price and the
estimated fair value of the common stock multiplied by the number of options
awarded. When the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. Deferred compensation relating to options issued to
independent contractors is calculated in accordance with SFAS No. 123 whereby
the fair value of each option granted is estimated on the date of grant using
the Black Scholes valuation model. The fair value of each option is then
multiplied by the number of options awarded. In determining the fair value of
the options, the Company made the following assumptions: a risk-free interest
rate of 6.4%, an expected life of 3 years, a dividend yield of zero percent and
a near zero volatility factor. The aggregate amount of deferred compensation is
recorded as deferred compensation in the stockholders' equity section of the
Company's consolidated balance sheet and is amortized on a graded vesting method
over the vesting periods of the individual stock options. The Company recorded
amortization expense of $1,919,665 during the six-month period ended June 30,
2000 related to these options.
F-18
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
(C) PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION
Pro forma information regarding the results of operations and net loss per share
is required by SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options using
the fair value method of SFAS No. 123. Under SFAS No. 123, the fair value of
each option granted is estimated on the date of grant using the Black Scholes
valuation model. In determining the fair value of the options, the Company made
the following assumptions. The risk-free interest rate of 6.4%, an expected life
of 3 years, a dividend yield of zero percent and a near zero volatility factor
were used.
Had compensation costs for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of SFAS No. 123, the Company's net
loss and basic and diluted net loss per share would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 2000
--------------
<S> <C>
Pro forma net loss.......................................... $(15,659,498)
Pro forma basic and diluted net loss per share.............. $ (0.78)
============
</TABLE>
The weighted average grant date fair value of options granted which is the value
assigned to the options under SFAS No. 123, was $6.69 for grants made during the
period ended June 30, 2000.
The pro forma impact of options on the net loss for the period ended June 30,
2000 is not representative of the effects on net income (loss) for future
periods, as future years may include the effects of additional years of stock
option grants.
10. RELATED PARTY TRANSACTIONS
As part of the eliance Agreement (Note 5), the Company entered into an Internet
services agreement with eliance under which eliance provides the Company with
web center support services. Under the terms of the agreement, the Company
reimbursed eliance for the salaries and benefits of eliance's direct personnel
along with a percentage of the leasing cost, utilities and other overheads
directly related to the provision of web center services. The term of the
agreement covered the period from January 1, 2000 to May 31, 2000. During the
six-month period ended June 30, 2000, $3,479,000 was expensed in respect of
amounts owing to eliance under the terms of the Internet services agreement.
Amounts due from eliance as at June 30, 2000 were as follows:
<TABLE>
<S> <C>
Due from eliance--reimbursable legal fees relating to
litigation................................................ $955,427
Other amounts due from eliance - net........................ 17,201
--------
$972,628
========
</TABLE>
The Company has incurred legal fees totaling $775,615 relating to the eliance
litigation (Note 12(b)). Such amounts are recoverable from eliance under the
eliance Agreement.
F-19
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
Other amounts due from eliance represent $1,085,715 due from eliance relating
primarily to fixed assets not delivered (Note 6) and operating costs incurred by
the Company recoverable from eliance, and $888,702 owing to eliance relating to
services performed by eliance under the Internet Services Agreement. The Company
has shown this amount on a net basis as the amounts are determinable, it is the
intention of management to offset such amounts and management believes there is
a legal right of offset.
All amounts are non-interest bearing. All amounts due from eliance are
collateralized by shares of Webhelp held in escrow (Note 5).
As at December 31, 1999, the Company had a subscription receivable from the
Insight Investors (Note 9(a)(i)). This amount of $2,563,280 was collected on
January 3, 2000.
11. INCOME TAXES
There has been no provision for income taxes during the period ended
December 31, 1999 and June 30, 2000 as the Company has incurred operating
losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as at June 30, 2000 and December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ -----------
<S> <C> <C>
Net operating loss carryforwards.................... $ 785,000 $ 5,731,000
Depreciation and amortization....................... -- (52,000)
--------- -----------
Total deferred tax assets........................... 785,000 5,679,000
Less valuation allowance............................ (785,000) (5,679,000)
--------- -----------
NET DEFERRED TAX ASSETS............................. $ -- $ --
========= ===========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $785,000 for the period ended December 31, 1999 and by $4,894,000
for the six-month period ended June 30, 2000.
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $2,308,000, all of which expire in
the year 2019.
F-20
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
12. COMMITMENTS AND CONTINGENCY
(A) LEASE COMMITMENTS
Future minimum lease payments for premises and equipment by year and in the
aggregate, under non-cancellable operating leases, consist of the following for
the year ending December 31:
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ 8$09,000....
2001........................................................ 716,000
2002........................................................ 717,000
2003........................................................ 728,000
2004........................................................ 688,000
Thereafter.................................................. 358,000
----------
$4,016,000
==========
</TABLE>
Rental expense for the period ended June 30, 2000 was $202,000 and $22,000 for
the period ended December 31, 1999.
(B) CONTINGENCY
On January 22, 2000, three common stockholders of eliance Corporation commenced
a lawsuit on behalf of themselves and, purportedly, on behalf of eliance against
the Company, Kerry Adler, the Company's Chief Executive Officer and President,
Laura Hantho, the Company's Chief Operating Officer, and various other persons
and entities. The lawsuit was commenced in the District Court for the Fourth
Judicial District of the County of Hennepin, State of Minnesota. In the lawsuit,
the plaintiffs challenge on a number of grounds the sale and transfer of certain
assets of eliance to the Company in 1999, alleging, among other things, that the
transaction was accomplished by the defendants through breaches of fiduciary
duty they then owed as officers or directors of eliance. On May 11, 2000, the
plaintiffs amended their complaint to assert claims against the Company for
breach of contract, unjust enrichment and fraudulent transfer in connection with
the eliance transaction. On August 8, 2000 the courts heard the Company's motion
to dismiss the lawsuit. A decision on the motion to dismiss is pending.
Many of the parties to the January 22, 2000 lawsuit other than the Company are
also parties to litigation previously filed on or about September 27, 1999 in
the United States District Court, District of Minnesota. In that lawsuit, it was
alleged that the board of directors of eliance was improperly constituted and
that various actions of that board were not within their authority. While the
federal District Court entered a preliminary injunction that precludes the
plaintiffs in the federal lawsuit from interfering with eliance's business, the
lawsuit remains pending and the Company is seeking to have the lawsuit dismissed
for lack of federal jurisdiction.
On February 22, 2000, three current eliance preferred stockholders commenced a
lawsuit against David Erickson, Robert Griggs and Dianhai Du (the three eliance
common stockholders who are plaintiffs in the lawsuit filed on January 22, 2000)
for breach of contract, fraud and securities fraud. This lawsuit was also
commenced in the District Court for the Fourth Judicial District of the County
of Hennepin, State of Minnesota. On or after April 6, 2000, Erickson, Griggs and
Du filed an answer, counterclaim and third-party complaint. The third-party
complaint asserts claims against the Company and others that are identical to,
and duplicative of, the claims in the January 22, 2000 complaint. On June 20,
F-21
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
2000, the Chief Judge of the Minnesota District Court for Hennepin County
severed the third-party complaint from this lawsuit and consolidated it with the
January 22, 2000 lawsuit.
The Company believes that the claims against it, Mr. Adler and Ms. Hantho in
these lawsuits are without merit and intends to defend these suits vigorously.
Although the Company can give no assurances, based on the available facts, it
believes that the outcome of these matters will not have a material adverse
effect upon the Company's financial condition.
13. CONSOLIDATED STATEMENT OF CASH FLOWS
There was no cash paid for interest or income taxes for the periods ended
June 30, 2000 and December 31, 1999.
Excluded from June 30, 2000 Consolidated Statement of Cash Flows is the
following:
- the investment in Webhelp.fr of $2,403,867 (Note 8); and
- the accrual of deferred offering costs of $635,964.
Excluded from the 1999 Consolidated Statement of Cash Flows is the following:
- the issuance of 10,800,000 shares of common stock of the Company in
exchange for system architecture and business plan (Note 9(a)(ii));
- the conversion of the $2,000,000 Advance in conjunction with the issuance
of the Series A convertible preferred stock (Note 9(a)(i)); and
- the issuance of 3,863,636 common shares as part of the consideration for
the eliance Agreement (Note 5).
14. RECONCILIATION TO CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and are stated in
United States dollars. Generally accepted accounting policies in the United
States differ from those in Canada. The application of accounting principles
generally accepted in Canada would not result in a material difference in the
measurement of the Company's consolidated balance sheet, consolidated statements
of stockholders' equity, operations and comprehensive loss and cash flows as at
June 30, 2000 or December 31, 1999 and for the six months ended June 30, 2000
and for the period from inception, May 27, 1999 to December 31, 1999, except as
follows:
(a) Under accounting principles generally accepted in Canada, the issuance of
stock options does not create stock based compensation as an increase to
capital stock and the related amortization as a direct charge to expenses of
the Company.
(b) The repurchase of common stock in 1999 (Note 9(a)(i)) would be treated as a
deduction of $10,000,000 from capital stock and not as a direct charge of
$10,000,000 to accumulated deficit.
If accounting principles generally accepted in Canada were followed, the effect
on the consolidated statement of operations and comprehensive loss for the
six-month period ended June 30, 2000 would have been a reduction in the loss by
the amortization of deferred stock compensation in the amount of
F-22
<PAGE>
WEBHELP.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN UNITED STATES DOLLARS)
(INFORMATION AS AT JUNE 30, 2000 AND FOR THE SIX-MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
$1,919,665 to a loss of $13,026,848. There was no effect on the net loss and
comprehensive loss for the period from inception May 27, 1999 to December 31,
1999. Consolidated balance sheet items which would vary under accounting
principles generally accepted in Canada are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
<S> <C> <C>
Additional paid-in capital.................................. $ 47,125,751 $ 47,125,751
Deferred stock compensation................................. -- --
Accumulated deficit......................................... $ (4,905,987) $(17,932,835)
</TABLE>
F-23
<PAGE>
(INSIDE BACK COVER IS A LIST OF THE FOLLOWING QUESTIONS, WITH THE TEXT "REAL
PEOPLE REAL ANSWERS REAL TIME" RUNNING DOWN THE RIGHT HAND SIDE.
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www.webhelp.com)
<PAGE>
--------------------------------------------------------------------------------
[WEBHELP LOGO]
SHARES
COMMON STOCK
----------------
PROSPECTUS
-------------------
, 2000
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
RBC DOMINION SECURITIES
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
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 DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the distribution of
the securities being registered hereunder.
<TABLE>
<S> <C>
S.E.C. registration fee..................................... $ 20,038*
NASD filing fee............................................. 8,090
NASDAQ-NMS application fee.................................. 17,750*
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 500,000
Printing and engraving expenses............................. 150,000
Blue sky fees and expenses.................................. 25,000
Transfer agent and registrar fees........................... 3,000
Miscellaneous expenses...................................... 276,122
----------
Total....................................................... $1,250,000
==========
</TABLE>
------------------------
* Actual fee
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SIXTH of the Amended and Restated Certificate of Incorporation of the
registrant (the "Certificate") provides that, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law ( the "Delaware Law"), or
any comparable successor law, as the same may be amended and supplemented from
time to time, the registrant (i) may indemnify all persons whom it shall have
power to indemnify under the Delaware Law from and against any and all of the
expenses, liabilities or other matters referred to in or covered thereby, (ii)
shall indemnify each such person if he is or is threatened to be made a party to
an action, suit or proceeding by reason of the fact that he is or was a
director, officer, employee or agent of the registrant or because he was serving
the registrant or any other legal entity in any capacity at the request of the
registrant while a director, officer, employee or agent of the registrant and
(iii) shall pay the expenses of such a current or former director, officer,
employee or agent incurred in connection with any such action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding. The Certificate further provides that the indemnification and
advancement of expenses provided for therein shall not be deemed exclusive of
any other rights to which those entitled to indemnification or advancement of
expenses may be entitled under any by-law, agreement, contract or vote of
stockholders or disinterested directors or pursuant to the direction (however
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
The registrant has entered into indemnification agreements with all of its
directors and executive officers prior to the consummation of the offering.
These agreements provide that the directors and executive officers will be
indemnified to the fullest possible extent permitted by the Delaware Law against
all expenses (including attorneys' fees), judgments, fines, penalties, taxes and
settlement amounts paid or incurred by them in any action or proceeding,
including any action by or in the right of the registrant or any of its
subsidiaries or affiliates, on account of their service as directors, officers,
II-1
<PAGE>
employees, fiduciaries or agents of the registrant or any of its subsidiaries or
affiliates, and their service at the request of the registrant or any of its
subsidiaries or affiliates as directors, officers, employees, fiduciaries or
agents of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise.
The registrant maintains liability insurance for its officers and directors,
insuring them against certain losses arising from claims or charges made against
them while acting in their capacities as officers or directors of the
registrant.
Article EIGHTH of the Certificate provides that a director of the registrant
shall not be personally liable to the registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for the
unlawful payment of dividends or unlawful stock purchases under Section 174 of
the Delaware Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware Law is amended to eliminate
further or limit the personal liability of directors, then the liability of a
director of the registrant shall be eliminated or limited to the fullest extent
permitted by the Delaware Law, as so amended. Any repeal or modification of such
provision of the Certificate by the stockholders of the registrant shall be
prospective only and shall not adversely affect any right or protection of a
director of the registrant existing at the time of such repeal or modification.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Certificate will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions of the Certificate described
above apply to an officer of the registrant only if he or she is a director of
the registrant and is acting in his or her capacity as a director, and do not
apply to officers of the registrant who are not directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
As of May 27, 1999, the registrant issued (giving retroactive effect to the
16,000 to one stock split on December 29, 1999 and the 1-for-2.2 reverse stock
split which will be effected prior to the completion of this offering) 6,654,546
shares of Common Stock to Kerry Adler, 1,745,455 shares of Common Stock to Laura
Hantho, 1,309,091 shares of Common Stock to Hugh Cumming and 1,090,909 shares of
Common Stock to Dan Walter in exchange for all of their interests in the
Webhelp.com system architecture and the Webhelp.com business plan. All such
issuances were nominally valued.
As of June 10, 1999, the registrant issued (giving retroactive effect to the
16,000 to one stock split on December 29, 1999 and the 1-for-2.2 reverse stock
split which will be effected prior to the completion of this offering) 109,091
shares of Common Stock to Shukie Halfon for $50,000 for a per share price of
$0.46.
As of December 29, 1999, for an aggregate purchase price of $8,000,000, the
registrant issued 5,797,592 shares of Series A Convertible Preferred Stock
("Series A Stock") to InSight Capital Partners III, L.P., 1,436,168 shares of
Series A Stock to InSight Capital Partners (Cayman) III, L.P. and 1,016,240
shares of Series A Stock to InSight Capital Partners (Co-Invest) III, L.P. and
as of January 3, 2000, the registrant issued 4,781,250 shares of Series A Stock
to W-W-H Investors LLC and 1,968,750 shares of Series A Stock to Imprimis SB LP.
Each of these issuances was at a per share purchase price of $0.5333.
As of December 31, 1999, the registrant issued 3,671,329 shares of Series B
Preferred Stock to CIBC WMC Inc. for an aggregate purchase price of $30,000,000
or approximately $8.17 per share.
II-2
<PAGE>
All of such issuances were made in reliance on the exemption from registration
set forth in Section 4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
-------------- --------------------
<C> <S>
1.1 * Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 By-Laws
4.1 ** Amended and Restated Investor Rights Agreement dated as of
December 31, 1999 among Webhelp.com Inc. and certain of its
stockholders
4.2 Registration Rights Agreement dated as of April 14, 2000
among Webhelp.com Inc., WH Holdings, Ltd. and Management,
Ltd.
5 * Opinion of Torys
10.1 ** Web site Affiliation Agreement dated November 9, 1999
between 24/7 Media, Inc. and the registrant
10.2 * Internet Services Agreement dated December 2, 1999
10.3 * Internet Services Agreement dated October 18, 1999
10.4 * Internet Services Agreement dated October 19, 1999
10.5 Internet Services Agreement dated December 29, 1999 between
eliance Corporation and the registrant
10.6 ** Hosting Agreement between eGain Communications Corporation
and iSpoke.com Inc., by assignment
10.7 ** Master Services Agreement dated November 9, 1999 between
Exodus Communications, Inc. and iSpoke.com Inc., by
assignment
10.8 ** Lease Agreement dated November 1, 1999 between Interactive
Executive Offices Corp. and Webhelp Canada Inc., by
assignment
10.9 Lease dated May 16, 2000 between Clic Properties Inc. and
Webhelp Canada Inc.
10.10** Employment Agreement dated December 29, 1999 between Kerry
Adler and the registrant
10.11** Employment Agreement dated December 29, 1999 between Laura
Hantho and the registrant
10.12** Employment Agreement dated December 29, 1999 between Hugh
Cumming and the registrant
10.13** Employment Agreement dated as of December 29, 1999 between
Dan Walter and the registrant
10.14** Employment Agreement dated February 7, 2000 between Tom
Cronin and Webhelp Canada Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
-------------- --------------------
<C> <S>
10.15** 1999 Long Term Incentive Plan
10.16** Asset Purchase Agreement dated as of December 29, 1999 among
eliance corporation, the registrant and iSpoke.com Inc.
10.17** Share Escrow Agreement dated as of December 29, 1999 among
eliance Corporation, the registrant, iSpoke.com Inc., Kerry
Adler, Laura Hantho, Hugh Cumming, Shukie Halfon and Torys
(formerly Tory Haythe)
10.18 Technology and Trademark Agreement dated June 6, 2000
between Webhelp.fr, SA and the registrant
10.19 Services Agreement dated June 6, 2000 between Webhelp.fr, SA
and the registrant
10.20 Shareholders Agreement dated June 6, 2000 among Oliver Duha,
Frederic Jousset, Europe@Web B.V., the registrant and
certain other individual shareholders of Webhelp.fr, SA.
21 ** Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP
23.2 * Consent of Torys (contained in Exhibit 5)
24 ** Power of Attorney (See signature page)
27.1 Financial Data Schedule
27.2 ** Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are inapplicable or the information
is provided in the Financial Statements, including the Notes thereto, included
in the prospectus.
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 of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions of its Certificate or By-Laws or
the laws of the State of Delaware, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes that:
For purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective.
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 has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in New York, New York
on the 30th day of August, 2000.
<TABLE>
<S> <C> <C>
WEBHELP.COM INC.
By: /s/ KERRY ADLER
-----------------------------------------
Kerry Adler
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ KERRY ADLER Officer and
------------------------------------------- a Director (principal August 30, 2000
Kerry Adler executive officer)
/s/ TOM CRONIN Chief Financial Officer
------------------------------------------- (principal financial and August 30, 2000
Tom Cronin accounting officer)
/s/ LAURA HANTHO
------------------------------------------- Chief Operating Officer and August 30, 2000
Laura Hantho a Director
/s/ JEFFREY HORING*
------------------------------------------- Director August 30, 2000
Jeffrey Horing
/s/ RAMANAN RAGHAVENDRAN*
------------------------------------------- Director August 30, 2000
Ramanan Raghavendran
/s/ WES NICHOLS*
------------------------------------------- Director August 30, 2000
Wes Nichols
*By: /s/ KERRY ADLER
--------------------------------------
Kerry Adler
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBER DOCUMENT DESCRIPTION PAGE NO.
-------------- -------------------- ----------
<C> <S> <C>
1.1 * Form of Underwriting Agreement..............................
3.1 Amended and Restated Certificate of Incorporation...........
3.2 By-Laws.....................................................
4.1 ** Amended and Restated Investor Rights Agreement dated as of
December 31, 1999 among Webhelp.com Inc. and certain of its
stockholders................................................
4.2 Registration Rights Agreement dated as of April 19, 2000
among Webhelp.com, Inc., WH Holdings, Ltd. and eManagement,
Ltd.
5 * Opinion of Torys............................................
10.1 ** Web site Affiliation Agreement dated November 9, 1999
between 24/7 Media, Inc. and the registrant.................
10.2 * Internet Services Agreement dated December 2, 1999..........
10.3 * Internet Services Agreement dated October 19, 1999..........
10.4 * Internet Services Agreement dated October 18, 1999..........
10.5 Internet Services Agreement dated December 29, 1999 between
eliance Corporation and the registrant......................
10.6 ** Hosting Agreement between eGain Communications Corporation
and iSpoke.com Inc., by assignment..........................
10.7 ** Master Services Agreement dated November 9, 1999 between
Exodus Communications, Inc. and iSpoke.com Inc., by
assignment..................................................
10.8 ** Lease Agreement dated November 1, 1999 between Interactive
Executive Offices Corp. and Webhelp Canada Inc., by
assignment..................................................
10.9 Lease dated May 16, 2000 between Clic Properties Inc. and
Webhelp Canada Inc..........................................
10.10** Employment Agreement dated December 29, 1999 between Kerry
Adler and the registrant....................................
10.11** Employment Agreement dated December 29, 1999 between Laura
Hantho and the registrant...................................
10.12** Employment Agreement dated December 29, 1999 between Hugh
Cumming and the registrant..................................
10.13** Employment Agreement dated as of December 29, 1999 between
Dan Walter and the registrant...............................
10.14** Employment Agreement dated February 7, 2000 between Tom
Cronin and Webhelp Canada Inc...............................
10.15** 1999 Long Term Incentive Plan...............................
10.16** Asset Purchase Agreement dated as of December 29, 1999 among
eliance corporation, the registrant and iSpoke.com Inc......
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NUMBER DOCUMENT DESCRIPTION PAGE NO.
-------------- -------------------- ----------
<C> <S> <C>
10.17** Share Escrow Agreement dated as of December 29, 1999 among
eliance Corporation, the registrant, iSpoke.com Inc., Kerry
Adler, Laura Hantho, Hugh Cumming, Shukie Halfon and Torys
(formerly Tory Haythe)......................................
10.18 Technology and Trademark Agreement dated June 6, 2000
between Webhelp.fr SA and the registrant
10.19 Services Agreement dated June 6, 2000 between Webhelp.fr SA
and the registrant
10.20 Shareholders Agreement dated June 6, 2000 among Olivier
Duha, Frederic Jousset, Europe@Web B.V., the registrant and
certain individual shareholders of Webhelp.fr SA
21 ** Subsidiaries of the registrant..............................
23.1 Consent of Ernst & Young LLP................................
23.2 ** Consent of Torys (contained in Exhibit 5)...................
24 ** Power of Attorney (See signature page)......................
27.1 Financial Data Schedule
27.2 ** Financial Data Schedule.....................................
</TABLE>
------------------------
* To be filed by amendment.
** Previously filed.
